Niu - Earnings Call - Q4 2020

Transcript

Speaker 0

Good day, ladies and gentlemen. Thank you for standing by, and welcome to New Technologies Fourth 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'll turn the call over to Mr. Jason Yang, Investor Relations Manager of Technologies. Mr. Yang, please go ahead.

Speaker 1

Thank you, operator. Hello, everyone. Welcome to today's conference call discuss Niu Technologies results for the fourth quarter twenty twenty. The earnings press release, corporate presentation and the financial spreadsheet have been posted on Niu'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 a reconciliation of GAAP to non GAAP financial results. On the call with me today are our CEO, Doctor. Yang Li and our CFO, Mr. Hardy Zhang.

Speaker 2

Now, let me turn the call over to Yan.

Speaker 3

Thanks, Jason, and thanks everyone for joining us on the call today. So in Q4, we saw a strong growth of domestic China market and a strong signal for the overseas market recovery from COVID-nineteen. We have had a substantial growth in Q4 with total sales volume reaching 150,000 units, a 41.6% year over year increase. The sales volume in the China market reached 137,000, a 35% year over year increase, whereas the volume in the international market rose by nearly 3x to more than 12,000 units, a 197.1% year over year increase. Despite the challenges that COVID-nineteen had on the market economic condition globally, our 2020 annual year sales volume surpassed 600,000 units, an increase of 42.8% compared to 2019.

The sales volume in the China market eclipsed 570,000 units, a 45.8% year over year increase, whereas the volume in the international market reached over 29,000 units, a slightly increased from 2019 despite the challenges that COVID-nineteen lockdown had on key market around the world. Despite the initial impact of COVID-nineteen in Q1 twenty twenty, we have realized a rapid growth last year. This result is well in line with our aggressive growth strategy made two point zero set for 2020 and beyond. Under our New two point zero strategy, we're rapidly expanding our product portfolio to meet the specific needs of different market segments of the urban commuter customers by leveraging our unique design and advanced technology. In addition to expanding our product range, we're committed to expanding the reach of the retail sales network.

This will mean expansion to more cities while simultaneously creating a more dense sales network in existing cities. The year 2020 was the first year we put our new two point zero strategy into play and we have achieved significant results in both product portfolio and the sales network expansion. In 2020, we introduced four new products to the China electric bicycle market segment, the N2, the MS, G2 and G0, all affordably priced between RMB2499 to RMB5799, approximately $375 to $900 at today's exchange rate. These four new electric bicycle products have been a hit in each of their respective target market, accounting for 41.2% of our 2020 sales. These four products cover the two major design styles, a simple naked e bicycle and a fully covered e bicycle with a riding range from 40 kilometers to 90 kilometers on a single charge, meeting multiple consumer segments mobility needs at affordable price.

Now for the electric motorcycle market, we have expanded upon our signature NQI and NQI plus products. We will have a G3 series in 2020 for the new market especially in China, while introducing the NQI GT for our international customers. The upgraded G3 is a bigger in size with faster speed ranging from 40 kilometers to 60 kilometers per hour and the price range from RMB4599 to RMB6799, a good complement to our electric motorcycle offerings. For the Europe and Americas market, we launched a new product called NQi GT inherited the design style of our award winning M Series and combined with our GT powertrain technology. MQI GT is a dual battery electric moped with top speed up to 70 kilometers per hour and the range of 110 kilometers on a single charge priced at EUR33.99.

Besides scooter and motorcycle products, we continue to enrich our accessory portfolios. In 2020, we expanded our accessory lines by over 150 new products. With more than 1,600,000 customers globally, we have a strong customer base to sell into. The 47.6% growth in accessory and spare parts sales in 2020 for the China market last year is an indicator that we are on the right track to further tap into this revenue stream. Now supported by the new product launches in the first three quarters in 2020, we have established our sales network expansion in Q4.

In Q4, we added three fifty branded stores and reached a total count of sixteen sixteen fifteen stores in China, setting the quarterly record in store expansion. For the entire year, we added five sixty six stores, much more than the last three years despite the COVID-nineteen impact in the first two quarters. Not only we were able to add more stores, we also strengthened our footprint in more lower tier cities around China. We now have 66 cities in China that have five or more new branded stores, a 30% plus jump from 2019. Now for international market in 2020, we have increased our market coverage to 46 countries from 38 in 2019.

We added additional 90 flagship stores and the premium stores across the globe. Outside of China, we now have 116 flagships and premium stores as compared to 26 at the 2019 despite the COVID-nineteen situation. Keep in mind that we continue to sell our products through a network of more than 1,000 dealers outside China. The expansion of our new flagship and premium overseas tours will be of a great benefit to future retail growth as we expand the product range to meet mobility needs and trends of those regions. Now in addition to the channel expansion in the international market, we also made significant strides in our B2B division, especially sales to support the scooter sharing operators.

Most notably is the contract we signed with Lime in Q4 twenty twenty, the largest mobility sharing operator globally. We're now Lime sole solution provider for the multi sharing. Globally now we support 19 sharing operators in Europe and Americas with our total number of vehicles in service doubling in 2020. Demanding market share scooters play a key role introducing electric mobility to a wider range of customers, a key first step in helping us redefine urban mobility globally. To support our new two point zero growth strategy of aggressively entering urban mobility market, we also expanded our branding and marketing activities.

Starting in 2020, we invested in advertising in mainstream TV series and popular shows in China, which accumulated over 2,500,000,000 views online offline during the airing of those programs. We continue to invest our effort in new social media channels like with our Douyin and Kuaishou quarterly views reaching 70,000,000 respectively. This represents a 10x increase over 2019. In overseas market in Q4 specifically we have up our effort in social media with close to 1,300,000 interactions on Instagram and Facebook. Particularly, Bella Hadley, the top American supermodel was started riding a new scooter in New York City with Sprint in September 2020, which was featured in Vogue and other media as well.

We also continue to invest in co branding and marketing activities. In Q4, we launched MS Electric Bicycle Gundam Limited Edition. For the reference Gundam is the incredibly popular Japanese cartoon series. In a few short days after the launch of the project, we will map more than 50,000,000 unique views across the variety of social channels. Now our enthusiastic users have also created many interesting stories in 2020.

We had a new fan from Shanghai who spent two sixty one days riding along the entire border of China, amassing more than 30,000 kilometers. In The U. S, we have one of our overseas elite users making a video of extreme strike diving riding out of back of plane on a new bullpen. And the customers in Bali decided to modify our classic panels with traditional Balinese crafted wood panels highlighting how EV and ecology can promote sustainable mobility. And a quick fun fact for you, as of this morning our users around China have now amassed more than 7,800,000,000 kilometers of riding distance.

Each of those kilometers is a testament to the important role we play in the daily lifestyle of users who depend on us to get to work, do work and also go out for a casual cruise. Both branding and marketing effort have significantly increased our brand awareness. NIO is being voted as the most valuable brand in urban mobility in China by a leading financial management in China. As we wrap up a successful year in 2020, we are very optimistic for 2021. Our addressable market in China, the lithium ion based electric biocrystalline motorcycle market will continually enjoying rapid growth that can be directly attribute to a handful of key factors and events.

First of all, the overall electric two wheeler market expected to grow by double digits simply because it all led after battery scooters will need to be retired due to expiration of the temporary licenses granted back in 2018 and 2019. Starting this year, this will create additional demand of more than 10,000,000 units every year over the next three or four years. Secondly, the downward pressure on the cost of lithium ion batteries will help to further increase the penetration of the lithium ion battery powered e bikes and e motorcycles. Just in the last past two years, we have observed this trend. In 2019, the lithium battery powered e bikes and e motorcycles accounted for less than 10% of the total market in China.

And by end of twenty twenty, it's already in its high teens. So in summary, see the rising tide of market for the lithium battery powered e bicycles and e motorcycles fueled by the regulatory compliance combined with the lower cost of the lithium battery hardware has an incredible opportunity in China that we at Niu are poised to capture significant growth from. Now excited with this market potential, we launched the Year of New campaign during the Chinese New Year this year, which happened to be the year of us for the year of new in Chinese. Our multiple platforms and we generate more than 300,000,000 views. Both efforts in branding and marketing have acted as a catalyst in driving our Q1 sales in 2021.

For the international market, COVID-nineteen situation has accelerated the individual urban mobility demand despite the short term impact on the retail operations in 2020. Besides electric motorcycles, we observed significant market growth in many individual urban mobility sectors like power assisted bicycles, kick scooters and other form factors. As part of our new two point zero growth strategy, we have diversified our product portfolios into those fast growing markets with our first power assisted bicycle, the EOB-one will be shipped in

Speaker 1

the first

Speaker 3

half of this year and we are developing more products in those categories for immediate release to capture the market growth across all segments. In addition, we also observed a return of growth in shared mobility market starting from the second half of twenty twenty, again driven by the demand for individual mobility. We are well positioned to capture the growth in this market in 2021 with more offerings for our sharing operators. Now our overall product development, we have tens of new products in R and D pipeline for the domestic China market, Europe, American market and Asian market. This product will cover a wide range of urban mobility categories from micro mobility to urban mobility.

In a few short weeks from now in April, we will post our spring global product launch event, where we will debut a handful of new products that will be ready for purchase in the 2021 for both the China and overseas market. Overall, we expect our total sales volume for the annual year of 2021 to surpass 1,000,000 units. Aided by the suitable product offerings, our sales network expansion will also be accelerated. In April, we expect to celebrate our opening of our 2,000 branded stores in China. And we target to further accelerate the opening of our stores throughout the rest of 2021.

The international market with the ease of COVID-nineteen situation, we also expect to accelerate our flagship and previous store openings. Now with this, let me turn to Hari to talk about financials.

Speaker 2

Thank you, Yan, and hello everyone. Our press release contains all the figures and the comparisons you need. We've also uploaded the detailed format figures to our IR website to easy reference. As I review our financial performance, we are referring to the fourth quarter figures unless I say otherwise. That all monetary figures are RMB unless otherwise noted.

Our Q4 sales volume reached 150,000 units increased by 42% year over year. China sales volume increased by 35% as a result of retail sales network expansion, new product launch in Q2, Q3 and also strong online sales. In the fourth quarter, our online sales volume increased by three times compared with Q4 twenty nineteen, driven by the successful sales during the Double eleven and the Double twelve shopping festivals. Our 35% growth rate in China is higher than the general market growth. According to IRIT, the China electric bicycle market grew by around 17% in the fourth quarter.

We delivered a higher growth. For the international markets, our Q4 sales volume was 13,000 units, a significant increase compared with the 4,000 units in Q4 twenty nineteen. The sales volume is higher than our initial expectation mainly due to the additional orders we managed to get from sharing operators in overseas market. With regards to product mix, N Series accounted for 20% of total sales volume due to strong overseas sales. M Series accounted for 25 due to M2 and MS new product launch.

U series accounted for 25%, but Goa series accounted for 30%. Out of the 30% from Goa series, 20% is from the mid end product G0 model. The high percentage of G0 sales volume affected our ASP when comparing with Q4 twenty nineteen. However, when comparing with Q3, the percentage of volume from G0 decreased by 7%. And as a result, our ASP for China scooter sales improved by 11%.

Total revenues increased by 25% to million, above the guidance we provided earlier, mainly due to the higher overseas sales to sharing operators as I mentioned above. Our revenue increase was driven by sales volume growth of 42%, partially offset by decreased revenue per scooter or ASP of 11.5%. There are few reasons for the ASP decrease. First, the sales of low priced model G0 reduced our ASP. As a result, the China scooter ASP decreased by 16%.

Second, the lower spare parts sales to overseas market led to the decrease of ASP for accessory spare parts and services by 23%.

Speaker 4

Third, the

Speaker 2

high proportion of scooter revenue from overseas market partially offset the two negative factors mentioned above. In total, the ASP decreased by 11.5% in the fourth quarter. On quarter over quarter basis, our ASP, however, improved by 25% mainly due to change in product mix. Gross margin was 25.2%, 0.9 percentage points lower than this time last year, but 4.3 percentage points higher than The lower gross margin compared with last year was mainly caused by sales volume rebates to distributors in China. In the fourth quarter twenty nineteen, China sales volume grew by only 16% and the Mainland China distributors did not meet the sales volume target.

Therefore, we gave low percentage related to the distributors. In Q4 twenty twenty, most of the China distributors met the sales volume target and received regular rebate. When comparing Q3 twenty twenty, our gross margin improved by 4.3 percentage points mainly due to two reasons. First, favorable change in revenue mix being the highest percentage of revenue from overseas market and also higher percentage of revenue from accessories, spare parts and services where our gross margins are higher than average. Second, improved gross margin from China e scooter sales as a result of continued cost savings.

Despite the sales of low margin GZERO model, our China e scooter sales gross margin has improved to a higher percentage than that of 2019 when there were no sales of GZERO models. Our total operating expense, including share based compensation were RMB110 million increased by RMB23 million or 27% year over year. The increase was mainly caused by higher sales and marketing expense of RMB10 million for retail sales network expansion and various branding and marketing activities. As a percent of revenue, our sales and marketing expense excluding share based compensation was 8.6%, lower than 8.8% in Q4 twenty nineteen. R and D expenses increased by RMB10 million mainly for staff costs and design spend because we have more products in the R and D pipeline, many of which will be launched in the second quarter of this year.

Our share based compensation expense were RMB10.4 million similar to the amount in Q3. Compared with Q4 last year, it is an increase of RMB2.6 million due to the new branch to employees. Our income tax expense was around RMB14 million, million higher than the same period last year. The higher income tax had a significant impact on our net income. Some of our subsidiaries have used after accumulated loss and therefore began to pay corporate income tax.

Our long term income tax rate is estimated to be around 20%. For year 2021, our average tax rate is estimated to be around 15%, because we can still use the cumulative loss from one of our entities in China. Our GAAP net income was million and adjusted net income was RMB69 million, so that's slightly higher than Q4 twenty nineteen. The adjusted net income margin was 10.2%, 2.6 percentage points lower than Q4 twenty nineteen, mainly because of lower gross margin of 0.9% and higher income tax expense. The income tax expense as a percent of revenue was 2%, 1.9% higher than this time last year.

If you compare the adjusted net income before tax between Q4 twenty nineteen and 2020, it increased from RMB69 million to RMB82 million, by year over year growth of 19. Turning to our balance sheet and cash flow. We ended the quarter with RMB1.1 billion in cash, cash deposits and short term investments. Our operating cash flow was negative RMB163 million, mainly due to reduction in payables of million as a result of seasonality. On a full year basis, our operating cash flow was a positive RMB460 million.

Our Q4 capital expenditure was around RMB41 million mainly related to capacity expansion of RMB21 million, new store building of million and R and D spending of RMB7 million. On a full year basis, our capital expenditure was around RMB150 million. Now let's turn to guidance. We expect the first quarter revenues to be in the range of RMB420 million to RMB478 million, an increase of 80% to 105% year over year. With that, let's now open the call for any questions that you may have for us.

Operator, please go ahead.

Speaker 0

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Your first question comes from the line of Vincent Yu from Needham and Company. Please ask your question.

Speaker 5

Thank you management for taking my question and congrats on the strong year. I have three questions. First question is, can the management share with us a news plan for offline store opening for this year of 2021? How has the store opening process gone so far given strong consumer and distributor interest? My second question is about the unit sharing operators.

Can we can you talk about how many units sharing operators contributed in 2020? And how big of opportunity this mobile mobility sharing platforms customer represents in terms of any unit sales in 2021? My third question is about gross margin outlook. Can management shed some light on the gross margin outlook for 2021? How much cost saving can we expect to be generated from AUM and the battery pack respectively?

Thank you.

Speaker 3

So thanks for the question. So let me quickly cover the first question in two months for openings. So we actually I think with our diversified product portfolio, we started Q4 last year and even starting Q1 this year, we do see acceleration of new store openings. And as I mentioned, in Q4 last year, we were able to open more than 300 stores. So actually in Q1 this year, if you recall that by end of Q4 last year, we had about sixteen fifteen stores.

Now we expect to have our 2,000 stores opened basically in early April. That means despite the Chinese New Year break, we're able to open another close, not 400, but three eighty something stores within the three months. So that's actually a tremendous growth. And we actually we don't expect to slow down. I think with more product coming out, especially with new product coming out in April, we expect to open more stores for in Q2, Q3 and Q4 this year.

So I think right now we have about 1,600 stores. By the end of last year, had 1,600 stores. I think there is no minimum we can add 1,000 or even more than 1,000, 1,200 to 1,300 stores this year.

Speaker 2

And for your second question about the how many units we sold to sharing operators during 2020. During 2020, we sold around 8,500 units to sharing operators that account for close to 30% of our total sales in overseas market. Normally, contribution from sharing operators accounts for 20% to 30% of our total overseas sales volume. We also expect a similar percentage in year 2021. And for your third question about the gross margin outlook.

First of all, what we can share with you is during 2020, the cost savings contributes to 4% to 5% of the margin expansion during 2020. However, during 2020, because we launched the low margin G0 model that has an active impact on our gross margin, but we are able to offset that with cost savings in most of our scooters. During 2021, we expect a similar percentage of cost savings in all the parts also lithium batteries. And because of that, we expect that the gross margin will be more or less stable similar to what we see during 2020. For the product mix, as already mentioned by Yan, in 2021, we may launch further products, new products in the price range similar to what we have for G0.

Therefore, that product launch may have a negative impact on the overall margin. But we are also confident that we can use the cost savings to offset all the negative impact and to keep our margin stable. So this is answer to your second and the third question.

Speaker 5

Thank you, Tade. Thank you very much.

Speaker 0

Thank you. Your next question comes from Alex Potter from Piper Sandler. Please go ahead.

Speaker 6

Excellent. Thanks very much. So my first question is regarding guidance. The full year scooter delivery guidance of around 1,000,000 units, that was good. That looks around what we had expected.

But the Q1 revenue guidance is a little bit weaker than what we thought. So it implies sort of a pocket. And I know there's seasonality to consider here, but it seems like the Q1 sequential downtick in revenue versus Q4 is a little bit bigger than we had expected. So is there anything to call out there or is this just normal seasonality?

Speaker 2

I think the first part of all is the normal seasonality because normally in Q1, that's the Chinese New Year. During Chinese New Year, factory will be shut down. Also, the logistics companies do not provide any further services. This year, during Chinese New Year, there's also some control from the local government because of COVID-nineteen. Therefore, there's more impact from that.

But as to that, we also want to give the guidance. We're also relatively conservative on the overseas sales volume, mainly because we see the continued challenge for us to book containers to ship to the overseas market. If we take out all this impact, if we're purely looking for the older book, we see a very strong sales volume growth for the first quarter. So in summary, it's more because of seasonality, but we try to be prudent considering the short term impact on COVID-nineteen or some challenges for overseas shipping.

Speaker 6

Okay. That makes sense. Thanks very much. I also had a question on, I guess, the prices for international scooters. I can appreciate the gross margin in the quarter was really good.

There was some mix underlying that, good cost control. But if you just look at the price of the scooter that you sell in the international markets versus Q4, the price has come down. Is there anything specific driving that?

Speaker 2

Not really. I think it's purely because of the two things. I think one thing is because overseas market we are studying models, auto end models. So it really depends on how much model in different segments our distributor order from us. In Q4 last year, we have some of the orders for M Series.

The M Series has a slightly lower sales price compared with N Series. That explains the reasons. Secondly, some of our sharing operators when they book place orders, they only order the body part of the scooter instead of order the entire scooter and they place separate orders for the spare parts, etcetera. So that's for the battery that also lowered our ASP. But for us, it's all quite normal.

So this is the first reason. The second reason is because of the depreciation of U. S. Dollar against RMB. Because in the overseas market we price our products in U.

S. Dollars. With the weakening of U. S. Dollar against RMB, we do see some impact on the average That's the two reasons for slightly lower ASP for international market.

Speaker 6

Okay, great. That's super helpful. Then maybe the last question I had was on supply chain. There's been obviously a lot of commentary around semiconductor impact on various supply chains but also in the electric passenger vehicle market there's been a lot of commentary regarding bottlenecks in the battery supply chain, potential delays, production delays that are impacting people's ability to ramp production. Have you seen any of those supply chain impacts either with regard to semiconductors or with regard to battery?

Speaker 3

I think that's a good question. Actually in the last few weeks, we actually observed a little bit more stringent supply chain in terms actually in both situations in semiconductor in the chipset. There are some chips that we're using in our central controllers, so that has an impact on us a little bit and as well as see the temporary shortage in the batteries. For us, we have secured some supply chain at the beginning of the year, so that helps us to really to cope with the situation. And we basically we also have a temporary glitch about one week or no longer than two weeks of glitch.

But that has we were able to actually able to handle the situation so far. But yes, a lot.

Speaker 6

I appreciate it. Good quarter guys.

Speaker 0

Thank you. Our next question comes from Jing Chiang from CICC. Please ask your question.

Speaker 4

Hi. So congrats on your bidding guidance fourth quarter results. So I have three questions. So first is, so can you give us more color on the new products to be launched in April and such as the price range and how to distinguish them with old product series? And the second one is so news or rumors report that we are producing or prepared to produce new energy vehicles.

So how do we think about our business expansion such as go to the NEV or other products? And also my last question is referred to talking about GOBA and same price mid end models. So as we open more stores and maybe more exposure to lower tier cities and more customers, will we consider to separate the Goba and new brands to different channels? That's my three questions.

Speaker 3

Thanks for the questions. I'll address them and then I'll have Harden to comment as well. First of on the new product launch in April, we're very happy to actually invite all of you to actually attend the launch event. So you actually can see the product in person and actually see the product actually experience the product as well. We actually have multiple products that we launched in April covering actually multiple categories.

Their categories are high end electric bicycle, high end also let me call it mid end electric bicycle market in China as well as covering the electric motorcycles in China as well as some of the new categories like the power system bicycles and the overseas market. So it's actually a wider range of products that we're going to launch in spring, we call it global spring new product launch, which is going to happen in Changzhou and that's where actually by that time we have a Phase two of the factories. We have completed with our new factory last year, completed Phase one, Phase two of the factory will be almost ready in April, not completely ready, but you see the gist of it and that helps to increase production capacity as well. So I think that was the new product launch in April. In terms of the rumors on the car side, assume you're talking about recently there were I think their news reporting not news reporting like from social media, it's actually one of our new users actually I think he is an industrial designer and he did a concept design of his new decided to do electric car, what the electric car, a small electric car would look like.

So he posted on his own social blogs and then got picked up. We actually we thought it was talented, to be honest our industrial our IT team actually tried to reach out to users and see whether this pattern is, whether we can use this pattern on our two wheeler device. We didn't really, in his blog, we use our logo, so there is a little bit, what we call a, brand new pattern infringement, but we thought we will let it go, but we cleared up in our own Weibo saying hey, this is it's purely out of passion of our one of our users. Now lastly on the Gova series, I think on this note even though I think we have multiple products under the Gova series, but having said that I think the Gova series still represents the internal design, industrial design, internal product quality. It's basically as good as the N series or M series and the U series.

So I think in the midterm, we still put it we still like to have our dual series under the new brand because I think it it actually represent what new brand representing, which is, you know, technology, freedom and style. So we're coming out more products and there's a goal this year as well this year and that will help us to actually bring our product to more a wider range of consumer segments.

Speaker 2

Just to supplement on the new product launch, in terms of price range, the new products to be launched, we will have our products in the similar price range like G0, but we're also going to launch premium products with sales price similar to M2MS. So we will have quite a few offerings to our customers. And also for the new product launch, we're also going to target different customer segments. For example, one of our products new products will more target towards female. With that, it will help us to further expand our customer base and also help us increase our sales volume in 2021.

So that's the answer to your two or three questions.

Speaker 4

Thank you. And quick follow-up question. So as I know that Mr. Li Na, our large shareholder, he set up his own company to produce new energy vehicles. So is there any potential opportunity for us to like potential cooperation between NIO and this own brand?

Speaker 3

Yes, I think nothing I'm aware of. Of NIO, I think mission was really find out urban mobility and make us better. So we're purely focused on urban mobility, I think mainly the two wheelers. We have a product which is called PE, which is not launched yet, but that's a three wheeler product still under the motorcycle market. I think this is what we are good at in terms of recovery, individual permabilities.

Speaker 4

Okay. Thank you. That's all my questions.

Speaker 0

Thank you. Our next question comes from Alice Ma from UBS. Please ask your question.

Speaker 7

Hi, management team. Thanks for taking my questions. I have three questions. The first one is that could you give us more elaboration on due to the new regulation in China, how do you think the segmentation between the e motorcycle and e bike after the three years of transition period? As you have just mentioned, I think most of your incoming products in China are mainly e bike segment.

So can we understand that in the future after the transition period, your focus in Chinese market will mostly be the e bike market, while in the overseas market will mainly be the e motor cycle?

Speaker 3

Thanks for the question. I think first of I think there is from the new regulation there is a clear separation on the e bikes versus e motorcycles. Basically the e bikes have to be under the e bike regulations where for example, so the weight has been less than 55 kilos, there is restriction on the size of the bike as well as the speed. I think according to some data basically last year, roughly about 22,000,000 or 23,000,000 units for e bike, where the rest of 10 plus million units for what they call the e motorcycles or life e motorcycles. So I think that as we're seeing that whether that percentage will increase, it really I think it really depends on the city by city regulations on motorcycles, because some places where when they actually put a restriction on motorcycles then you're going to see the e bike percentage will increase.

Now from our point of view, from new point of view, we actually have product in both markets. On e bike market, we have our multiple products from our M2, MS, U plus, E1, U. S. And our Gova G2, G1, G0. So I think it's like eight product lines in tomorrow e bikes.

And for the e motorcycle as well, have our N1, N plus, G3 and we have more product coming out for the motorcycle market. So I don't think we're it's not like we're going to focus on one versus the other. I think for both market, I think we have advantage in terms of design, we have advantage in terms of technology that I think we're actually able to gain market share in both markets. The good thing on the trend of both market is the trend of lead acid to lithium ion batteries. You actually see that trend both on e bike it's very obvious because for the e bike to be less than 55 kilos, most likely you would need to use the lithium ion battery powered scooters.

So we're seeing a lithium ion battery start to pick out the percentage in terms of penetration. Now for e motorcycles, traditionally it's most of the asset. We're the first one doing the lithium ion battery. And people actually start to enjoy portable lithium ion batteries because it's easier to charge, you can take the battery out. So we're actually seeing a also seeing a basically an increase in term of lithium ion battery penetration in the e motorcycle market.

So NIO being the sort of the first smart electric lithium ion battery scooters both on the e bikes and e motorcycles, I think we have advantage in terms of capturing the market growth on the lithium ion based e bikes and e motorcycle market.

Speaker 7

Okay. Thank you. Very clear. And my second question is about the market segmentation among the mid or high end scooters versus the lower end market. What do you think is the respective percentage market share?

Speaker 3

I think it's difficult to talk about the sort of percentage, I don't have the sort of percentage at hand, but I can give you a rough price range basically in terms of retail price we're seeing anywhere the cheapest ones can go as low as RMB1500 to the expensive one which we own most of the market shares up to RMB8000 ish. So I think that sort of gives you a sense. But now if you look at the market average price, think maybe I think market average price probably retail was about RMB2500 ish. The market average price is about RMB2500 to RMB2600 ish less than RMB3000 ish, RMB2500 to RMB2700 ish. So I think that's where the market average price.

Now the interesting thing is actually our product offerings, our cheapest one is actually at RMB2200, RMB2300 ish. So it means our cheapest one is just right below the market average. So most of our product offerings are in the mid starting at the mid end of the market, where the traditional the other competitors, the players they have a more cheaper product.

Speaker 2

And just to supplement that, even though there's no official data about different with the market size and the different segments, other way to think about it, the sales volume in Tier one, Tier two cities. The people in Tier one, Tier two cities have high disposal income. They also have a higher willingness to pay. They tend to buy more expensive, more premium products. In China, Tier one, Tier two cities, the sales volume each year around RMB6 million to RMB7 million accounts for 22%

Speaker 1

to 25% of

Speaker 2

the total market. So that's kind of a proxy you can think about how large the premium segment is for the overall market.

Speaker 7

Okay. Very clear. Thanks a lot. And my last question is about could you elaborate more like how you leverage the data you have gathered already from the ECUs currently? Like do you use that to support opening new stores or do you use that to more like design the products or so on?

Thank you. Thank you.

Speaker 3

So we actually use data in three dimensions. Well, first of all, all the data, even though we collect the data, but all the data is being used anonymously in the sense that we use data as a collectively as a group. Now, we do observe the data to calculate, to analyze user behaviors that help us to one either design new products or provide an upgrade for the existing products. Most of our scooters actually support the over the air upgrades of the OTA, where basically every three months or six months there is actually new software can be actually download the upgrade to your scooters that actually will make your driving experience a little bit better in terms of acceleration smoother, all that stuff. So a lot of those actually are being those upgrades have been done by observing the user behaviors, understand how we can actually fine tune the controller, fine tune the software such that we improve the product experience.

So that's on the existing product. On the new product, obviously, we look at how for example, interestingly, observed that

Speaker 1

less than 30% of

Speaker 3

our users actually drive more than 20 kilometers a day. So that help us to understanding that help us to understand what's the typical battery, basically battery capacity we need to provide for our users such that on one hand, it can provide ease of he or she can drive three days or four days without doing a charge. At the same time we don't want to overload the user with a huge huge cabin batteries which will add up the cost as well as make the battery happier. So those are sort of the consumer insight we can use to for product new product development. Second part is actually what we have is called the heat map, because we the users geo information, so we know where the user drive the scooters, where the user park the scooters.

So we actually have the heat map of each city and that actually helps us to open to find a store location, to open stores, because most of our retail stores are not just for retail, they're also for after sales services. So you can easily think that will be areas where we observe there are tons of users, but without a single store. So that means we need to open a couple of stores in those regions that will actually provide adequate customer service to the users. So that way we do that as well. So those are sort of the more interesting things we use with the data.

So I think the more interesting fact is actually those data are being accumulated. So far we have about 7,800,000,000 kilometers of riding distance and then on a daily basis there is more and more knowledge being accumulated into our data servers. Such that it's let me put it this way, it's endless. Basically, the more you look at it, the more you analyze it, then there's more interest in fact you can find out. Analyzing data actually provide better services or better products for our users.

Speaker 7

Okay. Thank you.

Speaker 0

Thank you. Our next question comes from Zhijin Li from Citi. Please ask your question.

Speaker 8

Good evening, management. I'm Zhijin Li from Citi. Congratulations on May NIO Prosperity NIO. And my first question is, what's the main innovation direction of our follow-up new offerings? Considering that the confidence that they become more and more fierce especially in the high end markets?

Speaker 3

Sorry, can you repeat the question? So I didn't catch it. You're talking about our competitors and the advantage of our new product offerings?

Speaker 8

Yes. I mean, what is our the most highlight of our follow-up new offerings compared to other competitors?

Speaker 3

I see.

Speaker 2

Guess, how do I describe it? I guess, you have

Speaker 3

to see the product, to be honest. It's very difficult to describe what are those highlights. Because every year we do those new product launches, we keep it very secret and when people actually observe the new product there is also a lot faster saying wow, this is actually really cool. So you actually have to see the product. But let me just give you sort of a very vague answer will be so we have multiple products coming out in April and the product is designed to address different customer segments.

Because I think more and more in this industry we understood that different customer segments actually different consumers, different customer segments actually have different needs for this urban mobility. Some of them actually would require longer driving distance and some of them actually would require bigger space in terms of especially if they need to take their kids to school. And also male or female may have a different view in terms of what's being called a beautiful scooter. So I think in the past when we started new, it always started with N1, N1 basically sort of one form factor for the entire market. But as we are starting to actually covering a wider range of consumer base.

We actually realized that we need to design multiple products with different products to actually attune for the multiple customers' segments' taste. I think that's probably sort of the main highlight. Besides there new what we call smart functionality in the upgraded scooters, there are also a new powertrain technologies in the scooters that will make the scooter drive faster, longer mileage based on the same battery. Those are sort of the technology upgrade. But if you take one highlight, you're going to see a multiple design styles, multiple form factors that actually attune for different customer needs.

Speaker 8

I see. Very helpful. Thank you. And my last question is that, how do we utilize our tremendous user data? And may we have any way to explore any new functions in the futures by utilizing our user data?

Speaker 3

So I think as I mentioned earlier, so basically currently we're using data in three ways, right? We're using data to analyze customer behaviors to help us to define better product, basically new product definition, new product design to better suit our customer needs, that's one. Second, we're actually using data to fine tune our softwares and software in our controllers, in our ECUs such that for the existing customers without buying a new product based on the upgrade software over the air, they actually have experience they will have upgraded or improved riding experience. And lastly, we're also using data to in terms of retail expansions, open stores as well as sales and after sales service stores in the locations where we call the white spot where we have users, but we don't have service stations. And one more thing to add is actually the data we're also used for sometimes for targeted advertising because really analyzing what our users profile and analyzing what our users behavior, we have a better understanding of our potential users and that will help us to do a target advertising.

So those are sort of the four where we use it to really just drive our main business. Now in terms of monetizing on existing data, we haven't done that. I think the only part we are doing is actually for the users to continue enjoying this what we call smart connectivity, there is annual fee of I think it was like RMB38 or RMB50 annual fee we charge on the user mainly to support on the sort of on the data reconnectivities.

Speaker 8

Yes, I see. It sounds very promising. Thank you. You.

Speaker 0

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

Speaker 3

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

Speaker 0

Thank you all again. This concludes the call. You may now disconnect.