In the third quarter, the gross profit margin achieved a low double-digit percentage, and in the fourth quarter, the gross profit margin increased to 15% (NIO Summary).

Below is the summary of the conference call for NIO.US. For an interpretation of the financial report, please refer to "NIO: A Quarterly Loss of 6 Billion? Stay Positive, Hope is Not Far Away".

I. Management Discussion

• Delivery Status: In the second quarter, 23,520 vehicles were delivered, with 20,462 new vehicles produced in July, a YoY increase of 104%. The expected delivery volume for the third quarter is 55,000-57,000 vehicles.

In July, NIO ranked first in the high-end electric vehicle market with a transaction price of over 300,000 RMB, capturing a market share of 59%.

• Product Iteration: Following the delivery of EC7/ET7/ES6 in May, ET5T and the all-new ES8 were delivered in June. A total of 5 new models were delivered in the second quarter, demonstrating rapid product iteration.

NIO plans to deliver the all-new EC6 in September and complete the transition to the NT2 platform.

• Intelligent Driving: User engagement has increased, with over 100,000 NIO PLUS subscribers and a cumulative mileage of over 80 million kilometers. The penetration rate of NIO PLUS mileage is 53%.

The enhanced navigation assistance, covering urban areas, has been tested by pioneer users in Shanghai and Beijing.

• Sales and Service Network: NIO has 420 NIO Houses and NIO Spaces, covering 143 cities, with 304 service centers and 58 delivery centers in 201 cities.
• Starting from July, we have been actively expanding user touchpoints and sales channels, as well as further expanding our national sales team. These initiatives will enhance our sales capabilities and drive sales growth.
• Charging and Battery Swap: NIO has deployed a total of 1,747 battery swap stations, providing users with over 27 million battery swap services. Among them, 476 high-speed battery swap stations form a network covering 68 major city clusters.

NIO has also deployed over 7,900 supercharging piles and 9,700 destination charging piles, making it the brand with the most charging piles in China and on highways. At the same time, our charging network has connected to over 1.36 million third-party charging piles worldwide.

• Flexible Battery Upgrade Service: On July 20th, NIO launched the flexible battery upgrade self-rental service, providing users with more flexible battery upgrade options.
• Strategic Investment: In July, CYVN, an investment institution under the Abu Dhabi government of the United Arab Emirates, completed a total strategic investment of approximately $1.1 billion through targeted issuance and transfer of existing shares, and will engage in strategic cooperation in future international operations.Q&A

1. Why did you hire salespeople from other luxury brands like BNW and Audi?

• In June, we realized that the number and sales capabilities of our salespeople were lagging behind our competitors in the market. The salespeople at BMW and Mercedes-Benz, for example, were 6-7 times more than ours. This had a significant impact on customer satisfaction and we were unable to meet the demand for selling 7/8 models simultaneously.
• Starting from July, we have been working to enhance our sales capabilities. Our internal goal is to deploy salespeople and expand our network by 30,000 units per month. We hope to establish these capabilities by the end of September and achieve efficiency by the end of October.
• We are also looking to recruit experienced salespeople in lower-tier cities and markets. Although we may not have physical stores in some areas, we believe that experienced salespeople can execute sales tasks more effectively.

2. Why is the delivery guidance for August and September lower than that of July, which saw over 20,000 deliveries?

• At the end of July, we adjusted the rights and benefits related to battery swapping. Previously, customers were entitled to four free battery swaps per month. However, starting from August 1st, this benefit was no longer available. This adjustment was made to meet the demands of essential customers in advance. Additionally, we took into consideration the macroeconomic pressures. Nevertheless, we remain confident in achieving our goals.
• It will take some time for the order volume to return to normal in August. However, we have seen a significant increase in test drives in August, reaching a historical high of around 10,000 test drives per weekend. This is a substantial improvement compared to June and July. Converting test drives into orders requires time.
• Currently, we hold a stable market position with a 59% market share in the pure electric vehicle market above 300,000 RMB. We aim to accelerate the replacement of fuel vehicles through channel and sales capability enhancements.

3. What is the sales outlook for Q4? Will it reach 20,000-25,000 deliveries?

• Our goal is to deliver over 20,000 units per month, and we will continue to strive for this in Q4. However, we are preparing for a monthly delivery volume of 30,000 units. This requires time for personnel training. We believe that we will see results in October and November. NIO has historically achieved good growth after a year of a vehicle's market launch, and we are confident in the sales increase of this product lineup.
• We expect to deliver between 15,000 and 20,000 units of ET5+ET5T+ES6+EC6, while ES7+EC7+ES7+ES8 will contribute to incremental growth.

4. What is the expected gross margin?

• In the first quarter, our gross margin was 6.2%. This was due to lower delivery volume, resulting in higher costs, as well as increased promotional investments during the product transition period.
• As sales and production increase, and with better control over battery and other costs, we expect to achieve a double-digit gross margin in the third quarter and increase it to 15% in the fourth quarter. The impact of price reductions has already been factored into these expectations.

5. What are the key growth drivers for new products?

• By September, all eight NT2.0 products will be launched, demonstrating our high efficiency in research and development.
• The release of NT2.0 software features will drive the development of intelligent driving services in the coming months, enhancing our product competitiveness.
• We are expanding our sales capabilities and aiming to establish a sales team and network capable of selling 30,000 units per month.
• 8 models have already covered 80% of the high-end market demand. In Q3, organizational restructuring was completed, and each model requires a separate team from headquarters to regional level.

6. Regarding operating expenses, will the absolute value of operating expenses decrease next year, considering the increase in sales expenses due to the launch of new models and upgraded sales channels this year?

• In terms of research and development expenses, they will remain at a similar level as the second quarter.
• As for marketing expenses, the reduction in sales expenses may occur next year due to aggressive sales targets in the second half of this year. The absolute value of sales management expenses will increase accordingly, but the percentage of total sales revenue will decrease, as delivery volume and operational efficiency are expected to improve.

7. Any plans for future refinancing? Cash flow forecast for the third and fourth quarters? In the second quarter, the net cash outflow improved from $10.6 billion in the first quarter to $5.9 billion. Accounts payable and accounts receivable remained stable, and inventory changes contributed a cash flow increment of $2 billion. If inventory continues to decrease in the third quarter, along with improved operating leverage and sales volume, will the cash outflow further narrow?

• With the improvement in delivery volume in the third quarter of this year, operating cash flow is expected to significantly improve compared to Q1 and Q2.
• We have also implemented a series of measures to control capital expenditure, such as deferring specific capital investments. This will also help us manage a healthy cash flow.
• Additionally, we have received a strategic investment of $740 million and conducted off-balance sheet ABS issuances in the third quarter.
• Any updates regarding refinancing plans will be disclosed.

8. Currently, there are 8 products. What are the plans for new product releases next year, including the new Alpine sub-brand?

• There will be no delivery of completely new products next year, but there will be annual product improvements.
• The first product of the sub-brand will be launched in the second half of next year, and the development progress is smooth. The development concept is oriented towards the mass market, aiming for high sales volume for each model. There won't be many styles, as the focus is on the household market.
• NIO targets the high-end market, so there will be relatively more models.

9. Progress in the mobile business?

• The mobile business revolves around providing NIO users with a mobile-centric experience, rather than competing for the market of domestic mobile phone manufacturers. It aims to better match the mobile user needs related to the vehicle, including underlying software and cabin software compatibility.
• The plan is to deliver mobile products in late September.

10. How does the sales force and channels compare to other startups?

• Compared to other startups, as of the end of June, the number of pure sales personnel is only about half of others. Although there are more personnel for service stations/roadside assistance/NIO HOUSE/community, there are fewer salespeople compared to competitors.
• NIO is aware of this issue, and when there were more deliveries in June, the quality of test drives and transaction efficiency were affected by the lack of manpower.
• Starting from July, personnel and store numbers have been increased. To achieve similar efficiency as competitors, around 5,000 personnel are needed. Although the delivery capacity reached 20,000 units in July, it fell behind the plan from a conventional sales perspective.
• NIO has a significant sales volume in Jiangsu, Zhejiang, and Shanghai, accounting for more than average. Provincial capital cities account for 80%-90% of the sales volume. NIO HOUSE has just been established in Wuhu, but BMW and Mercedes-Benz have 4S stores in every prefecture-level city. **Channel expansion is an urgent task.**
• The speed of battery swapping stations has been increased in June, with over 100 stations deployed every month, significantly improving user touchpoints.

11. How to balance the layout of battery swapping and charging?

• Adhering to the overall concept of rechargeable, swappable, and upgradable, we aim to create the best charging and swapping experience. Currently, NIO is the brand with the most charging piles deployed in China. Fast charging technology can increase the total number of users for associated services at battery swapping stations.
• Currently, we mainly deploy integrated charging and swapping stations to better meet the demand. The swapping experience is much better than charging and is a very important competitive advantage.

12. Expectations for other sales revenue and profit margin? Internal calculations for battery swapping? When will the gross profit margin of other businesses turn positive?

• The policy of free battery replacement was canceled in the third quarter. Therefore, more users will pay for battery replacement services. With the continuous growth in sales, we believe that more revenue from battery services can be achieved.
• However, it has only been one month since the policy adjustment, so we still need some time to observe and evaluate the impact of this policy change.

13. NIO's third-generation battery swapping stations?

• The third-generation stations have been operational since April this year, and we will accelerate the deployment of battery swapping stations in the coming quarters.
• Our plan for this year is to establish 1000 stations. However, the production capacity will not be fully utilized at this stage. Therefore, accelerating the construction of battery swapping stations will increase losses.
• The battery swapping business is highly efficient. If we compare the gross profit with our previous free battery swapping, the electricity cost is also included. If we look at it from the perspective of service fees, our current battery swapping is a paid service, charging a service fee of 30 yuan per swap. The proportion of paid battery swapping is also increasing. For example, for some second-hand car users, they must use paid battery swapping. This is an existing business.
• A battery swapping station can break even by swapping batteries 60 times a day. Currently, around 20% of the swapping stations have reached this standard. Considering the income from energy storage, the business model is even better.

14. NT3.0 platform?

• Improve the overall capabilities of the entire stack. The experience of the product and the performance of the product itself can continue to improve and surpass.
• The development of core technologies can also increase gross profit and improve operational efficiency, including research and development efficiency.

15. Progress in cooperation?

• We are open to cooperation and currently have no information to communicate with everyone.
• From the perspective of intelligent technology, the charging and swapping network helps accelerate the transformation of the industry. The next generation of battery packs/swapping networks will be open to the industry, and some companies are already in preliminary discussions. They need to redevelop their vehicles, which is a significant decision that requires time.
• Over 80% of the charging network's electricity is used by non-NIO vehicle users.

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