NIO-SW Minutes: ES6 Sold Over Ten Thousand Units in July, Gross Margin to Return to Double Digits in the Second Half of the Year.
Below are the core contents of the NIO-SW 1Q23 conference call summary. For financial report analysis, please refer to "NIO-SW: Reflection is More Important Than Selling Cars".
I. Key Points from Management
Delivery Data/Market Share
In the first quarter of 2023, NIO-SW delivered a total of 31,041 high-end intelligent electric vehicles, a YoY increase of 20.5%.
In April and May 2023, NIO-SW delivered 6,658 and 6,155 new vehicles respectively. We expect the total delivery volume for the second quarter of 2023 to be between 23,000 and 25,000 units.
With the ramp-up of production capacity for multiple new models, including the all-new NIO-SW, we are confident in the sustained growth of our delivery volume.
Product Development and Operations
NIO-SW's product quality has received widespread praise from its first batch of delivery users.
We have begun scaling up deliveries to users. The 2023 NIO-SW brings more than 15 product updates and upgrades, continuing to lead the transformation of the high-end intelligent electric mid-to-large sedan market. The EC7, as the future flagship sedan SUV model, inherits the genes of high performance and has ultimate driving performance.
NIO-SW's product quality and safety have been recognized by authoritative institutions. On April 24th, the ET5 received a full score in the China Insurance Automotive Safety Index safety rating. On June 1st, in the JT Call 2023 China New Energy Vehicle Quality Report, NIO-SW has been ranked first in the luxury pure electric vehicle market for four consecutive years. At the same time, in the JT Call 2023 China New Energy Vehicle Charm Index study, NIO-SW ranked first in the luxury pure electric vehicle market.
On June 15th, we plan to release the ET5 Hunting Edition and begin deliveries in the same month. As the world's first intelligent electric travel car, we believe the ET5 Hunting Edition can meet the diverse usage scenarios of individual and family users, greatly enhancing our competitiveness in the high-end family car market.
In addition, the flagship SUV model, the all-new ES8, will also begin deliveries soon, and the newly upgraded mid-size sedan SUV EC6 is planned to be released and delivered in the third quarter. With the smooth progress of the new model switching work, eight platform-based products will be launched in the future to meet the diversified needs of the high-end intelligent electric vehicle market and provide users with an experience beyond expectations.
In June, NIO-SW's intelligent system Banyan will also be upgraded to version 2.0, bringing more than 120 new features and experience optimizations. By integrating future products, services, and communities, it will bring a unique intelligent driving experience to the entire industry. It is worth noting that Banyan 2.0 has added automatic planning of charging routes, which, based on the powerful system capabilities of future energy clouds and charging and swapping infrastructure, can help users complete long-distance travel charging and swapping path planning with just one click.
Analysis and Q&A
Intelligent Driving
Since NIO-SW fully pushed the enhanced navigation assistance NOP plus BETA to users, NOP plus BETA has significantly improved in terms of safety, comfort, and traffic efficiency based on the full-stack self-developed intelligent driving technology and data loop. With the push of Banyan 2.0, NOP plus applies self-developed BEV models and network occupation technology at the perception level. At the regulation level, it applies large-scale model technology based on full-scale data. The experience advantage of NOP plus will be further expanded.
At the same time, high-speed navigation and battery swapping has entered a large-scale testing phase, and the first batch of 40 high-speed battery swapping stations will be opened in the third quarter, gradually covering more sites to achieve uninterrupted point-to-point navigation assistance in high-speed scenarios.
Sales and Service Network
We currently have 365 NIO-SW centers and spaces covering 136 cities, with 359 service and delivery centers covering 196 cities.
In terms of charging and swapping network, the first batch of third-generation swapping stations went online on April 13. The third-generation swapping adopts three-position collaborative swapping, which is faster, more powerful, and smarter than the second-generation station. So far, we have deployed a total of 1,474 swapping stations worldwide, of which 119 third-generation stations have provided users with more than 23 million swapping services. We have also deployed more than 7,000 supercharging piles and 8,800 destination charging piles. At the same time, our charging map has access to more than 1.1 million third-party charging piles.
On April 17, the first batch of 500 kW ultra-fast charging stations of NIO-SW went online. In the future, the new generation of charging and swapping stations composed of 500 kW ultra-fast charging piles and third-generation swapping stations will make the performance of ultra-fast charging piles more efficient and stable through efficient and flexible power allocation between stations and piles.
In the face of the ever-changing market environment, we will adjust the focus of marketing work in a timely manner to ensure the market competitiveness of products and services. In the second half of 2023, as the future NT2 platform models enter the high-end market, the 2023 Thousand Stations Plan will be gradually implemented. In the future, the product competitiveness brought by the resolute investment in the core full-stack technology of intelligent electric vehicles will gradually be reflected, and we are ready to participate in the more intense competition in the next stage.
Q&A
Q1: Will you consider optimizing and streamlining the layout of vehicle models and marketing, and suspending investment in mobile phone chip research and development, and focus resources on high-volume vehicle models? Will the launch of the Alpine brand next year follow the previous plan?
A1: From the perspective of the current second-generation platform, all eight models have been developed and will be fully launched in the market soon. Our current focus is to ensure that each of our vehicles can reach its target user group with a new organizational structure and new marketing strategies. Because when we defined these products, each vehicle still had its own positioning, and how our entire marketing team can sell these eight vehicles at the same time - whether it is the layout of this exhibition hall, online user access, or the energy allocation of frontline sales colleagues offline - is indeed a new challenge. We have recently done a lot of work to ensure that each car is taken care of from headquarters to the region, while also ensuring that our resources are tilted towards some key high-volume models (including our strategic model, the new ES8). Overall, we are now focused on ensuring that these 8 models have sufficient market share in their target markets.
In general, we will respond to market changes more quickly to ensure the competitiveness of our products and services. Regarding R&D, we will definitely continue with some long-term R&D projects, because although we have some short-term pressure, we still need to build long-term competitiveness. Of course, we will make some adjustments based on the company's resources and priorities.
The launch of the Alps will still follow the original plan, and these products will be delivered at the appropriate time in the second half of next year. Of course, we will ensure that the investment cycle is compact, especially in terms of market investment time, which will be more efficient for the entire company. We will manage this more carefully in terms of rhythm and efficiency.
Q2: What is the order situation since the launch of the new NIO-SW? Is there any obstacle to delivery? When can we achieve the goal of monthly delivery of 20,000?
A2: Currently, the locked orders for the new NIO-SW have met our expectations, and the conversion rate after the test drive is very high, which gives us great confidence in its performance. NIO-SW is still in the production process in June, and all our colleagues in the supply chain and manufacturing are working hard to prepare.
Regarding the 5566, we still believe that there is an opportunity to achieve the goal of 20,000. However, the challenge is greater for the ET5.
We will launch the ET5 Hunting Edition on June 15th, and its target user group is larger because it is a car that is very suitable for families. We believe that its competitiveness is still very strong.
Q3: What is the outlook for gross profit margin in the third quarter and the second half of the year?
A3: .
Q4: Regarding the cash situation, is there any new short-term financing needs? What progress has been made in the A-share IPO?
A4: The deliveries in Q1 and Q2 this year were indeed lower than in Q4 last year, which also affected some operating cash flow. However, we believe that with the recovery of deliveries in the third quarter, the operating cash flow will definitely improve. The company's cash can support the company's business development in the foreseeable future.
As a listed company, we will of course be very careful in managing our cash. Our financing channels, whether in US dollars or RMB, are smooth, and if we have appropriate needs, we will certainly communicate with the market. From the market's perspective, if there are new market plans, we will certainly communicate with everyone. Q5: How much does the battery price affect Q1 gross margin? What is the trend of battery prices in Q2 and Q3?
A5: .
Q6: What is the guidance for Capex/OPEX this year?
A6: Our capital expenditures will continue to focus on the construction of battery swapping stations, charging networks, sales networks, tools, and production facilities. For our new models, we will control the pace of these investments well. However, at present, I think we cannot give a clear guidance on capital expenditures for this year, and we will dynamically adjust them according to expenditures and situations.
Regarding operating expenses--
Part of it is R&D expenses. The next few years are still a critical stage for our R&D and the key stage for our core technology to be put into mass production as new models. The average R&D expenses per quarter in 2023 will remain at RMB 3-3.5 billion. We will also manage the expenditure curve and continuously improve our system efficiency.
Part of it is SG&A expenses. We can see a decrease in Q1, mainly due to the reduction of marketing activities and the seasonal impact of the Chinese New Year, as well as more marketing activities such as auto shows, roadshows, and new model releases. SG&A will increase from Q2, but efficiency will improve from Q3, as all NT2 products will be launched and achieve higher sales.
Q7: Will there be a reduction in configuration and price to increase sales? Will the break-even point be postponed?
A7:
Of course, we have many other flexible measures that we are also considering, such as better methods for users who do not need to swap batteries. Of course, we are still conducting research in various aspects, and of course, this will still be based on the interests of users. From our perspective, of course, we must also consider the interests of users who have already purchased our cars.
Regarding the break-even point, of course, from the current situation,
Q8: What is the outlook for Capex in the next two years compared to this year?
A8: Ensuring the stability of operations is an important goal for us. From the current situation, our Alpine promotion plan is still being promoted according to plan. Our factory can support the production of both NIO and Alpine brands, so we do not need to make large Capex investments in the entire production and manufacturing process.
From the market side, our battery swapping stations are also. From a certain time this year, the battery swapping stations we deployed can also support the use of two brands. Of course, if Alpine goes to the market, there will be some Capex investments in sales and service networks, including some opex investments. But we will compress this time as tightly as possible.
So overall, we believe that the entire company has prepared for agile response in all aspects for a rapidly changing market. In terms of cash management, we will definitely be more careful in managing cash and maintaining the smooth flow of various financing channels. From the perspective of our capital market docking, whether it is financing in US dollars or RMB, our channels are unblocked. So overall, we do not think that there will be major problems in cash for the entire company. But of course, we will still do some more detailed management.
Q9: What is the proportion of high-volume models to total sales? How do you anticipate the long-term gross profit margin (after 2024)?
A9: I believe that in the long run, the proportion of high-volume models for 5566 will be around 80%, but in the long run, as I mentioned earlier this year, I think that with the launch of all NT2 products, I...
Q10: How do you view the phenomenon of ET5/7's high opening and low walking sales? Will the new NIO-SW also face the same risks?
A10: Indeed, the performance of our three models last year, especially in the second quarter, was somewhat different from our expectations. As mentioned earlier, we have not adjusted the prices of these cars, so compared to last year, because our first batch of car buyers also have many car purchase rights, including some subsidies.
In fact, this year, including the overall environment, the competition in our target market is also very fierce, which has led to a batch of users who will definitely flow to some competitive models. Of course, there are also some internal competition relationships, such as some ES7 users who may flow to NIO-SW, including some ET5 users who may wait for the ET5 hunting version, and so on, which are some more real situations. So of course, we will have some targeted adjustments and measures for such situations. We will also make some targeted adjustments in channel organization structure and marketing strategy in the near future.
Of course, I don't think we have such concerns about some of the new NT2 cars we launched this year. From the current situation, for example, we delivered the first EC7, and its demand is still very stable. So of course, from the current situation, we have great confidence in the performance of NIO-SW behind it.
Overall, we have great confidence in the new models launched this year, including ES8. In fact, the number of pre-orders we recently received far exceeded our expectations. So overall, we think that the external interference factors this year are actually much less than last year, and the quality rhythm of new car launches is more stable.
Overall, I think our confidence level is that we will have a normal rhythm for delivering these five new cars this year. Of course, like NIO-SW, we have also made a 2023 model today. After we started delivering it, its performance also met our expectations, so overall we believe that the rhythm of these products this year will be better.
Q11: How do you anticipate the profit margin brought by the Alpine brand? A11: Actually, if you look at it now, the brand is still in a chaotic period. Users are still choosing this car based on price. So, the brand power, such as the advanced nature of our products, the leadership of our service and experience, including the entire experience of our product, service, and community system, I think the value may not be reflected in the price, which is actually a current reality.
But in the long run, I think it will eventually return to this value. Of course, we still have confidence that the value of our products and services will be recognized by users in the long term. If you look at it, there are also some external factors, such as changes in lithium prices, which affect our gross margin.
If you look at it, in 2021, we can achieve a gross margin of 20+. This is not an impossible task for us. If the lithium price returns to a rational level, it is not difficult for us to achieve a gross margin of 20+.
So, if you look at this matter fairly, in the long run, as the scale and management efficiency improve, and as we vertically integrate and self-develop in some key components, we certainly believe that achieving a gross margin of over 20 and achieving 25 is based on a very realistic foundation.
From the perspective of the Alps, it will certainly be different. It may find the optimal solution around its price range. We have also seen that some companies can achieve a gross margin of over 20 at a price of over 200,000. I don't think there is any trick to this. It is more about product definition.
If, like NIO, 1000+ TOPS of computing power and more than 30 sensors are standard, the cost is there, and even if you are a wizard, you cannot reduce this cost. Therefore, our key task is to make users perceive this value, which is our main task.
From the perspective of the Alps, we are not worried about its gross margin situation at all, because we are very clear about how its products are defined. From the perspective of NIO, we define our products based on this price, so it will take some time to achieve its gross margin improvement, but overall, we don't think it is impossible.
Q12: How about the specific situation of Enhanced Navigation Assistance NOP plus BETA?
A12: More than 50,000 users are already using Enhanced Navigation Assistance NOP plus BETA, and the total mileage of use has exceeded 41 million kilometers, with more than 2 million kilometers of use per week. Its performance is very good. We have already tested some navigation assistance functions in urban areas, and we will open more city tests to users at the appropriate time this year. Based on our own evaluation, we still have confidence in its experience. Of course, in the distant future, when regulations and all aspects allow, we will also test and launch our NAD service. Q13: Is the establishment of the battery swapping station network a very favorable new model, especially for our penetration in low-tier cities? What is the current progress?
A13: The answer is yes. We have seen a very obvious flywheel effect between the battery swapping station network and our sales growth. As mentioned earlier, we have deployed 1,500 battery swapping stations nationwide. By the end of this year, this number will increase to around 2,400. We provide users with about 60,000 to 70,000 battery swaps per day, with an average of 40 to 50 swaps per day per station.
This means that on the one hand, our users rely on participation as their favorite charging method. On the other hand, these associations are being used very effectively. This is why we see a clear flywheel effect, and this is why we are determined to accelerate the deployment of pulse verification. We are also very confident that more package solutions will bring more sales growth. In fact, in some young data rivers and some first-tier cities, we have seen an increase in sales after the cost side has improved. This is why we are very confident that as more and more battery swapping stations choose to penetrate low-tier cities, sales will naturally bring very strong momentum, or steadily increase in low-tier cities, which is the minimum. I think that as more and more original equipment manufacturers take fossil fuel charging seriously and more or less regard it as a standard way, battery swapping stations will become a convenient way for more and more electric vehicle users.
Q14: Sales target for the second half of the year?
A14:
Q15: Would it be a challenge for the company if there are not enough battery swapping stations in China's second-tier cities?
A15: This year we will deploy 1,000 battery swapping stations, most of which are on highways, and of course, we will deploy many others to some third- and fourth-tier cities, which we think will have a very direct impact on sales. So we have started to speed up. We have started to deploy third-generation stations since May, and we hope to deploy nearly 100 battery swapping stations in June. The subsequent speed will be faster and faster, and these will of course be reflected in our sales growth.
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