NIO Inc. (NIO) Q2 2023 Earnings Call Transcript

NIO Inc. (NYSE:NIO) Q2 2023 Earnings Convention Name August 29, 2023 8:00 AM ET

Firm Individuals

Eve Tang – Capital Markets

William Li – Founder, Chairman and Chief Government Officer

Steven Feng – Chief Monetary Officer

Stanley Qu – Senior Vice President of Finance

Convention Name Individuals

Bin Wang – Credit score Suisse

Tim Hsiao – Morgan Stanley

Yuqian Ding – HSBC

Jeff Chung – Citi

Ming-Hsun Lee – Financial institution of America

Paul Gong – UBS

Jing Chang – CICC

Edison Yu – Deutsche Financial institution

Operator

Good day, girls and gents, and thanks for standing by for the NIO Integrated [First] (ph) Quarter 2023 Earnings Convention Name. Presently, all members are in a listen-only mode. Right this moment’s convention name is being recorded.

I’ll now flip the decision over to your host, Ms. Eve Tang from Capital Markets. Please go forward.

Eve Tang

Good morning and good night, everybody. Welcome to NIO’s second quarter 2023 earnings convention name.

The corporate’s monetary and working outcomes have been revealed within the press launch earlier immediately and are posted on the firm’s IR web site.

On immediately’s name, we’ve Mr. William Li, Founder, Chairman of the Board and Chief Government Officer; Mr. Steven Feng, Chief Monetary Officer; Mr. Stanley Qu, Senior VP of Finance; and Ms. Jade Wei, VP of Capital Markets.

Earlier than we proceed, please be kindly reminded that immediately’s dialogue will comprise forward-looking statements that made underneath the Secure Harbor provisions of the U.S. Personal Securities Litigation Reform Act of 1995. Ahead-looking statements contain inherent dangers and uncertainties, as such, the corporate’s precise outcomes could also be materially completely different from the views expressed immediately.

Additional info relating to dangers and uncertainties is included in sure filings of the corporate with the U.S. Securities and Alternate Fee, the Inventory Alternate of Hong Kong Restricted, and the Singapore Alternate Securities Buying and selling Restricted. The corporate doesn’t assume any obligation to replace any forward-looking statements besides as required underneath relevant regulation.

Please additionally observe that NIO’s earnings press launch and this convention name embody discussions of unaudited GAAP monetary info in addition to unaudited non-GAAP monetary measures. Please discuss with NIO’s press launch, which incorporates a reconciliation of the unaudited non-GAAP measures to comparable GAAP measures.

With that, I’ll now flip the decision over to our CEO, Mr. William Li. William, please go forward.

William Li

[Foreign Language]

[Interpreted] Good day, everybody. Thanks for becoming a member of NIO’s 2023 Q2 earnings name.

Within the second quarter of 2023, NIO delivered a complete of 23,520 good electrical autos.

In July 2023, as we began mass manufacturing and ramp up of extra new fashions, NIO’s month-to-month supply quantity grew quickly to twenty,462 items, representing a year-over-year development of 104% and a brand new month-to-month excessive. Based on the retail statistics of [Cartrack] (ph), in July, NIO was the best-selling model within the premium electrical car section with the transaction worth of over RMB300,000, claiming a 59% market share.

As NIO completes its product lineup, additional expands the gross sales and repair community and the facility community, enhances its all-around gross sales functionality and the [role of] (ph) gross sales and advertising plans, the competitiveness of the NT2 merchandise has been additional unleashed. The supply quantity within the third quarter of 2023 is anticipated to be between 50,000 — 55,000 and 57,000 items.

And now I want to share with you the latest highlights of our merchandise, R&D and operations.

Following the supply of the flagship coupe SUV EC7, the flagship sedan 2023 new EC7, and the all-round SUV all-new ES6 earlier this 12 months, we began to ship the good electrical tour ET5 Touring or ET5T for brief, and the flagship SUV all-new ES8 in June. Within the second quarter, NIO achieved high-quality supply of 5 new fashions, with person satisfaction exceeding our expectations. This additionally proves NIO’s capabilities of conducting quick product iteration and the managing product complexity.

In September, we plan to launch and ship the brand new mid-sized coupe SUV EC6, which marks the completion of our product transition to the NT2 platform. With that, NIO’s whole NT2 product lineup, that includes eight completely different fashions, could have entered the premium BEV market to higher cater to the various wants of the customers within the premium section and drive the regular development of deliveries.

NIO’s product security has been extremely acknowledged by authoritative establishments worldwide. On July 12, 2023, NIO’s good electrical mid-sized sedan ET5 and the mid giant SUV EL7, which is known as ES7 in China, each obtained the 5-star security score from Euro NCAP, making NIO the primary automobile model receiving the 5-star score since Euro NCAP adopted the brand new testing protocols for 2023.

Enabled by the total stack applied sciences developed in-house and the closed-loop knowledge administration, NIO has made important progress within the assisted and clever driving. Consumer base and engagement proceed to develop. At current, over 100,000 NIO customers have activated Navigate on Pilot Plus, or NOP Plus, and have pushed on it for over 80 million kilometers. The mileage penetration price of NOP Plus has reached 53%. Within the meantime, we’ve carried out a number of rounds of early hen packages in Beijing and Shanghai for NOP Plus in all operational domains, together with in city environments.

When it comes to the gross sales and repair community, to this point, we’ve 420 NIO Home, NIO house and pop-up shops in 143 cities and 304 service facilities in addition to 58 supply facilities in 201 cities worldwide. Since July, we’ve began to take a extra lively method in increasing the person touchpoints and gross sales channels and enlarging the gross sales staff in China. These actions will additional enhance our gross sales capabilities and propelling gross sales development.

As for the charging and swapping community, thus far, we’ve put in 1,747 energy swap stations worldwide and offered greater than 27 million battery swaps. Our expressway battery swap community in China consists of 476 swap stations alongside the ten main expressways, connecting 68 main cities. We have additionally deployed over 7,900 energy chargers and 9,700 vacation spot chargers. NIO has turn into the automotive model with probably the most public chargers and probably the most chargers alongside expressways in China. Within the meantime, NIO’s charging map has related with over 1.36 million third-party expenses worldwide.

On July 20, NIO introduced the versatile battery improve service by day, offering customers with extra choices and fulfilling extra use instances.

In July, we organized the host metropolis election for NIO Day 2023, and the town of Xi’an was voted by new customers because the host metropolis this 12 months.

On August 20, we partnered with Worldwide Fund for Nature and Qilian Mountain Nationwide Park in putting in the world’s first photovoltaic self-consumption system with V2G functionality. It options solar energy stations, V2G chargers and battery electrical autos. Furthermore, we initiated the Clear Parks Citizen Scientist program to have interaction extra customers and the general public in conserving biodiversity and supporting the institution of a volunteer system for nationwide parks in hope of striving for a shared imaginative and prescient of blue skies.

In July, NIO acquired a strategic fairness funding from CYVN Holdings, an funding car majorly owned by the Abu Dhabi authorities. The funding bundle totaled US$1.1 billion. As well as, we may even cooperate with the brand new strategic investor to collectively pursue alternatives in our worldwide enterprise.

Though the good EV market is stuffed with challenges and the competitors is more and more fierce, with our steady efforts in core applied sciences, product portfolio, gross sales capabilities, manufacturing and logistics, we’re totally able to rise to the problem. We imagine that with centered advertising and self-strategy in addition to execution, NIO can drive the regular development of gross sales and deliveries whereas additional optimizing the fee construction and enhancing working effectivity on all fronts. We look ahead to NIO’s robust market efficiency within the second half.

As all the time, thanks to your assist. With that, I’ll now flip the decision over to Steven, who will present the monetary particulars for the second quarter. Over to you, Steven.

Steven Feng

Thanks, William.

I’ll now go over our key monetary outcomes for the second quarter of 2023. And to be conscious of the size of this name, I’ll reference to RMB solely in my dialogue immediately. I encourage listeners to discuss with our earnings press launch, which is posted on-line for extra particulars.

Our whole revenues within the second quarter have been RMB8.8 billion, representing a lower of 14.8% year-over-year and a lower of 17.8% quarter-over-quarter. Our whole revenues are product of two components: car gross sales and different gross sales.

Car gross sales within the second quarter have been RMB7.2 billion, characterize a lower of 24.9% year-over-year and 22.1% quarter-over-quarter. The lower in car gross sales year-over-year was primarily because of the decrease common promoting worth because of greater proportion of ET5 and 75-kilowatt hour standard-range battery pack deliveries and reduce in supply quantity. The lower in car gross sales quarter-over-quarter was primarily because of a lower in supply quantity.

Different gross sales within the second quarter have been RMB1.6 billion, representing a rise of 119.9% year-over-year and 9.3% quarter-over-quarter. The rise in different gross sales year-over-year was primarily because of the enhance in gross sales of used vehicles, equipment and provision of energy options, because of continued development of our customers. The rise in different gross sales quarter-over-quarter was primarily because of the enhance in gross sales of used vehicles and provision of energy options, because of continued development of our customers, partially offset by lower in income from provision of auto financing companies.

Gross margin in second quarter of 2023 was 1.0% in contrast with 13.0% within the second quarter of 2022 and 1.5% within the first quarter of 2023. Car margins within the second quarter was 6.2% in contrast with 16.7% within the second quarter of 2022 and 1.1% within the first quarter of 2023. The lower in car margin year-over-year was primarily attributed to modifications in product combine, partially offset by decreased battery price per unit. The rise in car margin quarter-over-quarter was many because of decreased promotion low cost for the earlier technology of ES8, ES6 and EC6.

R&D bills within the second quarter have been RMB3.3 billion, representing a rise of 55.6% year-over-year and enhance of 8.7% quarter-over-quarter. The rise in analysis and improvement bills year-over-year and quarter-over-quarter was primarily attributed to: first, the elevated personnel prices in R&D features and elevated share-based compensation bills acknowledged within the second quarter of 2023; and second, the incremental design and improvement prices for brand spanking new merchandise and applied sciences.

SG&A bills in second quarter have been RMB2.9 million, representing a rise of 25.2% year-over-year and enhance of 16.8% quarter-over-quarter. The rise in SG&A bills year-over-year and quarter-over-quarter was primarily because of: first, the rise in personnel prices associated to gross sales features; second, the rise in gross sales and advertising actions, together with the launch of latest merchandise; and third, elevated rental and associated bills associated to firm’s gross sales and repair community growth.

Loss from operation within the second quarter was RMB6.1 billion, representing a rise of 113.5% year-over-year and enhance of 18.8% quarter-over-quarter.

Web loss within the second quarter was RMB6.1 billion, representing a rise of 119.6% year-over-year and enhance of 27.8% quarter-over-quarter.

Our steadiness of money and money equivalents, restricted money, short-term funding and long-term time deposits was RMB31.5 billion as of June 30, 2023.

Now, this concludes our ready remarks. I’ll now flip the decision over to the operator to facilitate our Q&A session.

Query-and-Reply Session

Operator

Thanks. [Operator Instructions] And the primary query will come from Bin Wang of Credit score Suisse. Please go forward.

Bin Wang

Thanks. My query is about your gross sales community construction. Lately, I heard you employed a couple of of the salesperson from different luxurious manufacturers resembling BMW, Mercedes and Audi. So, what is the cause you employed non-NIO salesperson just lately? And the way is the impression to this point to your gross sales quantity enhance? We additionally discovered that in your third quarter steerage, you truly implied in August and September, September can be decrease in comparison with July. So, sort of what is the cause behind it? It is as a result of provide chain problem? Thanks a lot.

William Li

[Foreign Language]

[Interpreted] Properly, thanks, Bin Wang. On your first query, truly, round June, we’ve realized that within the corporate by way of the variety of our salespersons in addition to the capabilities of promoting merchandise, we’re lagged behind by the rivals available in the market. For instance, for these luxurious manufacturers like BMW and Mercedes, the dimensions of their gross sales staff is six to seven occasions of ours. With out enough personnel or touchpoint, we can’t understand an excellent person satisfaction, understand excellent check drives or excessive conversion price from these two orders. So ranging from June and — July and August, we’ve taken a extra lively method in bettering our gross sales capabilities. And with that, we hope that the corporate will have the ability to assist the brand new orders of 30,000 items per thirty days that can be contributed by our gross sales community in addition to the personnel enhance. In order that by the tip of September, we can understand that focus on.

In fact, it takes time for us to actually prepare the personnel and likewise to seek out the areas. So, we could have that preliminary functionality prepared by the tip of September, after which the actual impact will kick in from October. That’s our present plan for the advance. That is additionally why beginning July and August, we have been taking some lively measures and actions in increasing our gross sales community and touchpoints, particularly in lower-tier cities the place we do not have a full-fledged amenities or shops, we hope to actually safe and rent expertise and seasoned salespersons who’ve their networks and person bases already to assist us with the gross sales check.

And relating to your second query, in July, we’ve delivered greater than 20,000 autos. And as proven by our steerage, our supply quantity in August and September are decrease than that in July. That is primarily as a result of by the tip of July, we’ve introduced the adjustment to our energy swap person advantages. Earlier than customers get pleasure from or entitled to 4 or six free swaps per thirty days, however ranging from August 1, all the brand new orders usually are not entitled to free swaps anymore. This additionally helped us to drag forward some orders or customers with robust demand for energy swap in July, and this has additionally affected the supply quantity in July.

When it comes to the August, we imagine that it’ll take a while for the order momentum and consumption to be again to the conventional monitor. However within the meantime, in August, we have additionally witnessed a brand new excessive of the numbers of check drives and leads. Common talking, in the course of the weekends, we’ve greater than 10,000 check drives. This represents a big development from the previous month. And within the meantime, we additionally perceive that it’ll take a while for the check drive to be actually transformed into orders and we are going to await that. However total talking, we’re very assured in stabilizing the order consumption in addition to the supply quantity. Within the meantime, we additionally want to grasp the exterior challenges, particularly the challenges and the strain from the macroeconomic atmosphere. So, our forecast and steerage have additionally thought of that — these exterior components. However total talking, we’re assured within the supply volumes we offered.

Additionally, we should perceive that in July, within the premium battery electrical car section, priced over RMB300,000, we’ve already realized the 59% market share. This has confirmed a really strong foothold of NIO on this section, and we are going to proceed to make efforts in reworking and changing ICE customers into shopping for EVs within the premium section. On this case, we may even make extra efforts in increasing our channels at touchpoint.

Thanks, Wang Bin.

Bin Wang

Thanks.

Operator

The subsequent query comes from Tim Hsiao of Morgan Stanley. Please go forward.

Tim Hsiao

Hello. Thanks for taking my query. So, my first query, principally, I simply need to comply with up relating to the gross sales volumes into second half. As a result of as William simply talked about, we efficiently upgraded our gross sales staff and gross sales community. So, wanting into fourth quarter, I recall that we count on our month-to-month gross sales can keep above 20,000. So, if that is the case, look into fourth quarter, ought to we count on NIO to develop the gross sales additional to above 20,000 and even like 25,000? And what may the contribution from the 4 quantity driving fashions protecting like ET5, ES6? So, may you simply present some replace relating to quantity?

And my second query is in regards to the gross revenue margin. As a result of based on the administration’s earlier steerage, I believe the car gross revenue margin may get again to double digit within the second half. So, after the RMB30,000 price in late June, do you continue to follow your earlier view on sequential margin growth into second half? What could be the tempo within the quarter and fourth quarter, respectively? That is my second query. Thanks.

William Li

[Foreign Language]

[Interpreted] Thanks, Tim, to your query. Relating to your first query, after all, we goal to understand and stabilize our month-to-month supply to be above 20,000 items beginning This autumn this 12 months. However within the meantime, we’re additionally making ready our gross sales functionality, in order that we will assist the brand new orders of 30,000 items per thirty days. On this case, we’re increasing our channels and likewise personnels. As talked about, we can be occurring these preliminary capabilities by the tip of September, and we are going to take a while for the preparation and ramp-up. We imagine that the impact of our gross sales functionality enchancment can be kicking in from October and November with optimistic progress from that point level.

When it comes to the reference to the NT1 product we have skilled, usually, we understand that it’ll take round one to 2 years for the brand new product to achieve a sound and steady quantity on a month-to-month foundation. For instance, for our first technology ES6, it was launched in 2019, and it was not till 2021 that it has a somewhat steady and sound month-to-month supply. So, we’re very assured with our new merchandise.

When it comes to the amount merchandise, together with ET5, ET5T, ES6 and EC6, these are 4 quantity merchandise. For the EC6, will probably be delivered beginning September and it’ll take a while for the manufacturing and the supply ramp up. However inside its personal section, will probably be dominating the most important market share. So, with these 4 fashions mixed, we imagine that its month-to-month quantity can be stabilized at round 15,000 to twenty,000 items. When it comes to greater quantity — greater service merchandise like EC7, ET7 and ES7 in addition to ES8, we expect additionally increments on their gross sales quantity.

Sure, Stanley will reply the second query.

Stanley Qu

Yeah. Hello, Tim. Relating to the gross revenue margin, as proven in our Q2 financials, the car margin is 6.2%, related with Q1. The important thing causes are gross sales and manufacturing quantity at a decrease degree, driving greater manufacturing prices and different price allocation and likewise extra promotions to the customers and likewise advertising efforts in the course of the product transition interval. However together with our gross sales and quantity ramp-up of our — all our NT2 product, our goal to realize double-digit gross revenue margin in Q3 and 15% in This autumn, if we will management the battery price and different prices effectively.

William Li

[Foreign Language]

[Interpreted] So, we’ve already digested the impression of the value discount.

Tim Hsiao

Received it. Thank very a lot, William and Stanley. Thanks.

Stanley Qu

Thanks, Tim.

William Li

Thanks, Tim.

Operator

The subsequent query comes from Yuqian Ding of HSBC. Please go forward.

Yuqian Ding

Thanks, staff. Yuqian right here. I obtained two. First query is, we virtually have all of the fashions at the moment are refreshed after which newly launched primarily based on 2.0 platform mannequin is a reasonably complete protection. We can be anticipating robust ramp-up within the coming six months in a visual manner. However how can we count on the important thing development drivers, if we’re 12 to 18 months, particularly by way of new product? How can we fill within the already complete product portfolio or the software program goes to be the following leg of development?

The second query is on the OpEx aspect. So, this 12 months, we’ve new mannequin launches and we’ve the gross sales channel improve. However subsequent 12 months, once we’re rolling into subsequent 12 months, may we see absolutely the OpEx worth dialed down a bit of bit? Thanks.

William Li

[Foreign Language]

[Interpreted] Thanks to your query. Relating to your first query, as you might know that ranging from September, we are going to launch our EC6 into the market. And with that every one its fashions on the NT2 platforms can be launched to the market. And over the previous a number of months, we’ve launched 5 model new fashions plus a facelift. In such a brief timeframe, we’re capable of understand the high-quality deliveries of this mannequin. This has additionally demonstrated our R&D effectivity in addition to the robust execution. However within the meantime, we additionally want to understand that it is a problem introduced by the good electrical autos to the complete trade as in a really brief timeframe, we would have liked to catch as much as the modifications of all of the good applied sciences.

However within the meantime, for all of the NT2 merchandise, we’re extra software program options to be up to date and launched. For instance, our new assisted and clever driving. For the approaching months, we can be rolling out some new options and likewise companies. It will assist us to enhance the competitiveness of the product. And in addition, as we have talked about, we’re growing the gross sales capabilities within the corporate in order that we will attain out to broader channels with extra salespersons and assist the brand new orders of 30,000 items per thirty days. This may even be a really concrete basis for the continual development of the gross sales and deliveries within the coming months.

When you have a look at our eight fashions on the NT2 platform, they’re already protecting 80% of the wants within the premium market. And in addition, we’ve additionally adjusted our organizational construction ranging from the third quarter. In order that from the headquarters to the regional corporations, we can be having devoted groups managing and chargeable for every of the mannequin throughout the life cycle. That is additionally the efforts we have produced from the gross sales and advertising perspective.

Stanley Qu

Hello, Yuqian. Relating to the OpEx of subsequent 12 months, the following 12 months finances for us has not been prepared. So at this second, I could not have the ability to provide the exact quantity, however I may give you some feeling. Relating to the R&D expense, as launched in final quarters, on common, every quarter this 12 months, the non-GAAP R&D investments can be RMB3 billion to RMB3.5 billion for this 12 months. I believe for subsequent 12 months, the — we are going to maintain related like funding R&D actions.

And relating to the SG&A expense, as defined by William, we’ve a comparatively extra aggressive gross sales targets for the second half of this 12 months, I believe, ought to be for subsequent 12 months. So absolutely the worth for SG&A will develop accordingly since we’d like extra market actions and occasions. However the share of whole gross sales income, I believe, will decline in contrast with the primary half of this 12 months and likewise the entire — I believe the entire 12 months of 2023, due to the enhancements in each, I believe, supply quantity and likewise working effectivity. Thanks, Yuqian.

Operator

The subsequent query comes from Jeff Chung of Citi. Please go forward.

Jeff Chung

[indiscernible] Good day. I’ve two questions. First query is our refinancing plan going ahead. And the second query is our money circulate projection into the third quarter and fourth quarter. So, why I’m asking it is because we noticed the primary quarter, the web money outflow was RMB10.6 billion, however improved to a money outflow of RMB5.9 billion within the second quarter. And throughout the second quarter, we additionally noticed the stock Q-on-Q delta of round RMB5 billion, whereas the account payable — account receivable remained steady. In order that stated, if the third quarter stock got here down plus the working leverage with a quantity hike, whether or not we should always see the money outflow ought to be considerably narrowing additional? That is my first query.

And my second query is in regards to the third quarter and fourth quarter GP margin steerage. When can we return to a ten% or double-digit degree in addition to the third quarter, fourth quarter SG&A as a share of the income steerage? That is all from me. Thanks.

William Li

Okay. Thanks, Jeff. Stanley, please reply the primary query.

Stanley Qu

Sure, relating to the money circulate, I believe — sorry. Sure, relating to the money circulate and likewise the refinancing plans, I believe a number of factors about this. One is relating to working money circulate, I believe because the supply quantity ramp-up from Q3 this 12 months, our working money circulate can be considerably improved in contrast with Q1 and Q2 of this 12 months. And we additionally carried out a collection of measures to regulate the CapEx funding and likewise handle our funding cadence prudently like delay or cancel of sure CapEx investments. This may even assist us to handle the wholesome money circulate. And moreover, as defined in William’s feedback, we acquired US$740 million strategic funding from CYVN. And we additionally accomplished the providing of our first off-balance sheet ABS in Q3. I believe each our U.S. greenback and likewise RMB financing channels stay [undrafted] (ph). And all these will allow us to maintain a wholesome money place and assist the continued enterprise improvement of the corporate.

And relating to the financing — refinancing plan, we are going to disclose our plan accordingly if there’s any capital market-related updates. However at this second, I believe we do not have the exact info to remark with you. Sure, that is the primary query relating to the money circulate and likewise refinancing plan.

The second is for this 12 months’s margin?

Jeff Chung

Sure.

Stanley Qu

For this 12 months’s margin, I believe we’ve defined within the earlier questions. And for Q3, our goal is to realize the double-digit gross revenue margin and This autumn is 15%. And for SG&A steerage, I believe absolutely the worth will develop together with our supply quantity and gross sales development, however the share of whole income will lower. However based on the market scenario, the adjustment and the change of our advertising technique can be fairly dynamic. So at this second, I can’t provide the exact steerage in regards to the share of SG&A over gross sales income. Thanks, Jeff.

Jeff Chung

Thanks. Only a correction right here. I discussed the stock Q-on-Q delta was RMB5 billion, which was incorrect. I simply checked that the Q-on-Q knowledge was solely RMB2 billion. That is it from my aspect. Thanks. Thanks very a lot.

Stanley Qu

Sure, welcome. Thanks.

Operator

The subsequent query comes from Ming-Hsun Lee of Financial institution of America. Please go forward.

Ming-Hsun Lee

[Foreign Language]

So I’ve two questions. The primary query is, presently, you have got eight merchandise to cowl the vast majority of the posh automobile section. So, may you give extra steerage on any of the brand new product plan subsequent 12 months underneath the NIO model in addition to the ALPS model?

And the second query is, what’s your newest enterprise progress for the cell enterprise? Thanks.

William Li

[Foreign Language]

[Interpreted] Thanks to your query. For NIO model, truly, we do not plan to launch any new merchandise within the 12 months of 2024. In fact, we are going to nonetheless roll out some routine facelifts or product upgrades, however we’ve not deliberate any new merchandise for subsequent 12 months, as a result of we predict that it is extra vital for us to remain centered on our present eight merchandise on the NT2 platform to repeatedly enhance its qualities and likewise market efficiency. Similar to in 2021, we did not launch any new fashions, however nonetheless we’ve realized an excellent gross margin, gross sales quantity in addition to high quality efficiency. So that is the plan for the model of NIO.

When it comes to our mass market model, ALPS, we plan to launch the very first mannequin from ALPS within the second half of subsequent 12 months. Proper now, the R&D actions are continuing based on the plan. Truly, we’ve simply rolled out the verification construct of the primary mannequin from ALPS and this mannequin can be extremely aggressive in its product section.

And in addition for the manufacturers of ALPS, its R&D philosophy is completely different from that of NIO. ALPS is focusing on on the mass market, and we won’t have many merchandise within the lineup for ALPS. However for NIO, it is completely different. It’s focusing on on the premium section the place we care extra in regards to the personalization and likewise the differentiation of the merchandise. Similar to Mercedes and BMW in China, they’re promoting 40, 50 fashions. That may be a distinctive character of the premium section. However for ALPS, for the mass market, will probably be extra household oriented and we may even care extra on the gross sales quantity of every mannequin launched by ALPS.

When it comes to our telephone enterprise, our cell phone can be developed primarily for our new customers, particularly the customers of our NT2 merchandise. And the telephone itself is developed centering on the autos, however with higher mobility and connectivity expertise. We are literally believing that with the telephone enterprise, it could assist us to enhance the competitiveness of our car merchandise, as a result of our telephone enterprise is to not compete with these telephone makers. As an alternative, we want to use the telephone as a service to offer the perfect expertise for our car customers. Furthermore, the underlying software program and the underlying logic between the telephone and the vehicles shares numerous similarities. When it comes to the launch plan for the telephone, we plan to introduce our first telephone product within the second half or in late September.

Operator

The subsequent query comes from Paul Gong of UBS. Please go forward.

Paul Gong

Thanks for taking my questions. So two questions right here. The primary query is relating to the gross sales channel. You talked about that you will develop it. You’re feeling it is behind of the BMW and Mercedes Benz by way of the channel in addition to a gross sales particular person. However how does it examine to different EV start-ups? Are we forward or are we behind? And the way a lot do you concentrate on the growth of the shop community and the gross sales personnel versus the gross sales effectivity enchancment? And also you additionally talked about you’re going to attain 30,000 month-to-month gross sales functionality. How does that examine to immediately? Is that truthful to imagine? Presently, we’ve the potential to promote 20,000 month-to-month gross sales, given we already achieved that in July and increasing could be about 50% in comparison with immediately to 30,000. How does this arithmetic work? That is my first query.

The second query is relating to the battery swap versus quick charging given the batteries, the semiconductors in addition to even the charging piles, DC charging stations, all these appears to be rolling out with the commercial efforts. How — I perceive it is good to have each the battery swap in addition to the quick charging, however would you think about the rolling out of quick charging sort of weak and the battery swap comfort and the aggressive fringe of NIO’s vehicles? Thanks.

William Li

[Foreign Language]

[Interpreted] Thanks to your questions. When you have a look at the dimensions of the gross sales groups compared to different EV start-ups in China, truly, by the tip of June, the dimensions of our gross sales staff is simply half of these of different corporations. In fact, by way of the service community, we’ve specialties and the groups working for the facility swap stations, roadside companies in addition to on the new homes. So for the service and group half, we’ve an even bigger staff than different EV start-ups. However in the case of the precise gross sales particular person, in our firm, we name them fellows. When it comes to the variety of fellows, we’re — even have a a lot smaller staff than all the opposite corporations within the trade.

In April and Might this 12 months, our supply quantity was not very excessive. By then, we did not actually understand the significance of the gross sales capabilities. We’re taking any actions. However ranging from June, as we ramp up our supply volumes, we steadily understand that the inadequate gross sales groups has affected the satisfaction and likewise the execution of many issues, together with check drive and likewise order conversions. That is why ranging from July, we’ve began to develop our gross sales channels in addition to the gross sales staff. For comparability, to ramp as much as the comparable aspect, we imagine that we’d like round 5,000 individuals engaged on the gross sales staff. However after all, it takes time for us to have that many individuals on the staff and likewise to coach them with the corresponding capabilities.

When it comes to the supply quantity, in July, we’ve delivered greater than 20,000 vehicles, however that demonstrated {our capability} by way of the deliveries, which is comparatively simpler than realizing gross sales capabilities.

And one other factor is in regards to the channels. When you have a look at our gross sales distribution, [Jiangsu, Fujian] (ph) and Shanghai, these three locations principally contribute half of our gross sales quantity. However for different provinces like in Anhui, the capital metropolis itself is contributing round 80% to 90% of the gross sales quantity. If we take Anhui for instance for different manufacturers like BMW or Mercedez, half of their gross sales quantity in Anhui province is contributed by cities exterior of Anhui — sorry, exterior of Hefei. And so they principally have dealership shops in all of the cities in Anhui Province. And for us, we opened — we have simply opened our NIO Home within the second largest metropolis in Anhui province that’s in Wuhu. On this case, we might want to take efforts in rising our penetration into the lower-tier cities.

Along with the gross sales channels, we’re additionally growing and increasing our energy swap networks into extra cities. For the previous a number of months, we have been growing our energy swap stations in a a lot sooner method. And in August, we count on that we’ll deploy and set up greater than 100 energy swap stations. In fact, it can take time for all these measures to kick in, however this funding can be essential for our long-term functionality.

Relating to your second query about energy swapping versus sooner charging, as we have all the time talked about, that chargeable, swappable and upgradable have been the philosophy of our energy options, and we have been selecting the optimum options and likewise the perfect expertise for our customers primarily based on the precise eventualities and the use instances. And as we’re growing our energy swapping community, we’re additionally the automotive model with probably the most public chargers in China, as I’ve talked about in my opening remarks. In fact, we imagine that with the event of the quick charging know-how, it can additionally assist us with the facility swap operations as it could enhance the service capability of the swap stations. To not point out that lots of the stations we have put in as of immediately are built-in stations that includes each chargers in addition to energy swap. So, by way of the facility swapping and the sooner charging, we have additionally had many discussions between these two applied sciences, however we imagine that, to this point, energy swapping continues to be having a significantly better expertise than sooner charging, and it’ll proceed to be a really distinctive benefit and the competitiveness of NIO.

Paul Gong

Thanks very a lot. That is very useful. Thanks, William.

William Li

Thanks, Paul.

Operator

The subsequent query comes from Jing Chang of CICC. Please go forward.

Jing Chang

Okay, thanks to your sharing. I’ve two following-up questions. The primary is about our different gross sales income and revenue margin. As we will see that after our coverage adjustment, what’s our expectation for the long run income and likewise revenue margin for different gross sales after our battery swap began to realize revenue? And particularly, do we’ve any inside calculation of the profitability of the battery swapping enterprise? So, what’s the upward pattern of our gross revenue margin for different gross sales in the following couple of quarters? And when will it flip optimistic? That is my first query.

And my second is in regards to the know-how enchancment. Now we have all the time been centered extra on R&D funding and likewise know-how accumulation. So, wanting ahead relating to to our subsequent technology platform, NT3, so what enchancment can we count on? What are the most important areas of our effort to [proceed] (ph)? So, are you able to simply share a couple of insights of details about that? That is my two questions. Thanks.

Stanley Qu

Hello, Jing. That is Stanley. Relating to your first query in regards to the different gross sales, income and margin, as we talked about, we canceled the free battery swap insurance policies in Q3. So due to this fact, there can be extra customers to pay for battery swap companies. And because the gross sales continue to grow, we predict extra battery swap service income will be realized. However because it’s just one month from the coverage adjustment, so we nonetheless want a while to look at and assess the impression of this coverage change.

Second is with the facility swap station, the third technology put into operation ranging from this April, we are going to speed up the deployment of the facility swap stations within the following quarters. And for this 12 months, our plan is to construct 1,000 stations. However at present stage, the capability will not be totally utilized. So, the losses from the accelerated development of energy swap station will enhance. So, I believe that is principally the steerage for the opposite gross sales income.

William Li

[Foreign Language]

[Interpreted] Truly, the inherent effectivity of the facility swap enterprise is fairly excessive. Earlier than we’ve detrimental margin on this half, it is primarily as a result of once we have been providing free energy swaps, the electrical energy prices have been additionally included in that providing. However now we’re charging that individually. As well as, we’re additionally charging our customers RMB30 per swap as a service charge. Truly, we’re seeing rising demand for such charged energy swap companies. Particularly many used automobile customers, they’re truly utilizing the service. So, the share for the customers to make use of the paid swap service can be rising. It is primarily a enterprise for the prevailing customers and present inhabitants.

For the third-generation energy swap stations, we have additionally achieved a tough calculation. When it completes 60 swaps per day, it principally will be breaking even, and its service revenues can be protecting its working prices. Proper now, round 20% of our third-generation stations are capable of understand such efficiency and functionality. So, for the long term, we imagine that energy swap can be a sustainable enterprise. As along with providing energy swap companies, we additionally produce other diversified enterprise fashions like we will leverage the vitality storage.

Relating to your second query about our next-generation know-how, after all, we can be leveraging our full stack capabilities developed in-house. With that, we are going to proceed to enhance the expertise and likewise the efficiency of our merchandise. And we imagine that this can give us a powerful product competitiveness worldwide. And in addition the continual funding into the analysis and the event of the core applied sciences may even assist us to optimize and enhance the car margin in addition to bettering the efficiencies of our operations and R&D.

Thanks, Jing.

Jing Chang

Okay, thanks. That is all my query. Thanks.

Operator

The subsequent query comes from Edison Yu of Deutsche Financial institution. Please go forward.

Edison Yu

Hey, thanks. I’ve one query. I am questioning what’s the administration staff’s openness to embarking on some extra strategic motion? We have clearly seen quite a lot of exercise from the European OEMs in China making an attempt to revive or restructure their efforts. And I additionally suppose within the context of — I believe NIO has made some errors. We talked so much about gross sales, the gross sales pressure immediately, we had quite a lot of provide points final 12 months, a lot of that are associated truly to extra conventional auto aspect. Can we maybe profit truly from having some extra nearer strategic relationships with a number of the OEMs on the market? Thanks.

William Li

[Foreign Language]

[Interpreted] Thanks, Edison, to your query. Total talking, we’re very open to every kind of cooperations with friends within the trade. However to this point, we do not have a lot info to replace or share with you. However in case you have a look at our good applied sciences in addition to our charging and swapping networks, truly, we goal to make use of these applied sciences to catalyze the transformation of the complete trade. As we have additionally introduced on the Energy Day 2023, we’re keen to open up our next-generation battery applied sciences in addition to our charging and swapping networks to the complete trade. Proper now, we’re in some preliminary communications with sure OEMs. They’re additionally interested by utilizing our battery applied sciences for swapping networks. However to make use of that applied sciences, they should adapt their merchandise to our requirements, which might take a while for them to make the ultimate selections. However total talking, we’re very open to every kind of cooperation.

And by way of our present charging community, to this point, 80% of our electrical energy are literally charged for the non-NIO customers. Possibly you’ve got additionally learn this information just lately in Xinjiang, Sayram Lake as a result of it is such a well-liked vacationer spot, we’ve to restrict entry to our public chargers for the non-NIO customers at sure timeframes, and that precipitated some complaints by the non-NIO customers. However total talking, it is also an excellent instance of displaying our present charging and swapping amenities are serving to many EV customers, not simply the person from NIO.

Edison Yu

Nice. Thanks.

William Li

Thanks, Edison.

Operator

As there aren’t any questions now, I might like to show the decision again over to the corporate for any closing remarks.

Eve Tang

Thanks as soon as once more for becoming a member of us immediately. You probably have additional questions, please be happy to contact NIO’s Investor Relations staff by means of the contact info offered on our web site. This concludes the convention name. It’s possible you’ll now disconnect your strains. Thanks.