NIO: "Production capacity is the bottleneck, sales in each month of the fourth quarter set a record" (minutes)

Below is the content of the NIO Q2 earnings call. For financial report analysis, please refer to "Don't be intimidated by the loss, NIO is approaching the "good days""(https://longbridgeapp.com/topics/3422260).

I. Management Remarks:

1. In Q2 2022, NIO delivered 25,069 vehicles, a YoY increase of 14.4%. In July and August 2022, NIO delivered 10,052 and 10,677 vehicles, a YoY increase of 26.7% and 81.6%, respectively. With the gradual delivery of ET7, ES7, and ET5 built on the NT2 platform, as well as the 2022 model upgrades of ES8, ES6 and EC6, we expect total deliveries in Q3 2022 to be between 31,000 and 33,000 vehicles.

2. Despite a significant increase in battery costs in Q2, thanks to the delivery of high-end ET7 and contributions from partially priced orders, combined with fine-grained management of sales policies, the gross profit margin of our vehicles reached 16.7%.

3. The mass production preparations of ET5 and medium-sized intelligent electric cars are also in full swing. Compared with when the products were put on the market, performance and configurations have been further optimized and improved. We are confident that ET5 will become one of the most popular medium-sized luxury sedans. We have launched the first batch of ET5 pre-production cars in the new factory and new park and plan to start mass production this month. The first batch will be delivered to users on September 30.

4. In terms of sales and service networks, we have 395 new houses and spaces in 149 cities worldwide, and 263 new service and delivery centers in 151 cities worldwide.

5. In terms of charging and swapping networks, we have installed 1,094 battery swapping stations, including 285 high-speed battery swapping stations, providing over 12 million swapping services to users. At the same time, we have deployed 1,873 charging stations, including 5,341 supercharging piles, 5,466 destination charging piles, connected with more than 560 thousand third-party charging piles, and provided one-click charging services more than 860,000 times. NIO is committed to creating a rechargeable, replaceable, and upgradable power system to make the charging experience better than the refueling experience.

6. Q2 revenue was RMB 10.3 billion, a YoY increase of 21.8% and a QoQ increase of 3.9%. Our total revenue consists of two parts: vehicle sales and other sales. In Q2, vehicle sales were RMB 9.6 billion, a YoY increase of 21% and a QoQ increase of 3.5%. The main reasons for the YoY growth in vehicle sales are the increase in delivery volume, while the QoQ growth in vehicle sales is mainly driven by the increase of the average selling price. In Q2, other sales were RMB 700 million, a YoY increase of 34.6% and a QoQ increase of 8.2%. The YoY increase in other sales mainly comes from the increase in revenue from auto financial services, services and energy pack sales, and second-hand car sales. The QoQ increase in other sales is mainly due to the increase in second-hand car sales and revenue from auto financial services. In the second quarter of 2022, the gross margin was 13.0%, which declined year-on-year due to increased investment in power and service networks leading to a decrease in vehicle profit margins and other sales profit margins.

Q&A with Dolphin Analyst:

Q: Will supply chain bottlenecks affect ES7 or ET5 shipments in Q4 and what preventive measures have been taken? What is your view on US restrictions on exporting high-end chips to China?

A: Based on the experience of the Shanghai outbreak from March to May, the impact of the epidemic on the automotive supply chain is relatively controllable. Although the output in Q3 did not meet the expectations of supply chain partners due to the impact of integrated casting yield rate, we have sent dozens of engineers to help partners improve the yield rate. Currently, there has been some improvement, and we expect this problem to be resolved in October. We are confident in achieving our annual delivery targets, although the pressure in Q4 will be greater.

The US sanctions on Chinese chips will not affect our operations in the short term because automotive chips are not yet involved. Plus, our chips can meet the needs of the next production stage. Meanwhile, we continue to cooperate with Nvidia, cloud service providers, and keep a close eye on developments. In terms of core technology, our goal is to establish a fully self-developed capability.

Q: Does the company have any latest guidance for sales and marketing and R&D? Recently, at the Chengdu Auto Show, ET5 and ET7 received good feedback. What is your view on industry competition, and will it accelerate the roll-out of new products? Media reports previously said the company will consider a third brand. Does the company have such plans now?

A: Overall, we have our own pace in terms of expense and R&D investment. This year is an increased R&D investment year, geared up for leverage in the future, and SG&A will continue to decrease.

Demand for ET5 continues to rise, and we believe it will become a very popular product, with more new models and upgraded products expected to be released next year. The existing 866 products will switch to the new NT2 platform next year, and we are very confident in next year's performance overall. In general, the pace of new product roll-out will accelerate next year.

Concerning new brands, we focus on price ranges and different customer needs, so we are actively considering how to make more segmented market users enjoy the benefits of smart cars.

Q: How does the company maintain its sales target of 100,000 units in the second half of the year? Through investigation, we found that ES7 and ET7 require a wait for 3-4 months, and ET5 will not be available until next year. Does this mean that there are over 15,000 orders for ES7 and ET7, and over 50,000 orders for ET5?

A: We strive to achieve the annual target set at the beginning of the year, which also means that there will be considerable delivery pressure in Q4. We have made many preparations in Q3, and the Newbridge F2 plant has been in large-scale production and debugging since Q3. This plant will be used to produce ET5, and single production will also reduce complexity. We will overcome difficulties and create new delivery records in Q4. Beforehand, we didn't disclose the numbers of orders. But we can assure you that the orders for both ET7 and ES7 are sufficient, especially for ES7, which has been performing better than expected recently. Our recent problem lies in the production capacity of the supply chain.

Q: What is the level of monthly production capacity for ET5 in December this year? What is the trend of the comprehensive production capacity in Q4?

A: The ramp-up of production capacity requires a process, especially for new products. We are fully prepared for the goal of delivering over 10,000 ET5s in December, with an internal target of surely more than 10,000 units. The delivery of each month from October to December will break record, with December being the peak of delivery.

Q: We noticed that William visited the United States last month. Could you share if there is any new information? The second question is, our initial plan was to launch a new battery in Q4. Are there any new updates?

A: NIO is a global company. We set up our research and development center in Silicon Valley in 2015. Due to the pandemic, we haven't visited our US office in a few years. Therefore, we went to the US to check the progress of our work recently. For the past five years, we have been preparing for entering the US market, and the time for us to enter the US market is getting closer.

The 150 kWh battery pack is a new technology. We and our partners are preparing for it in all aspects. Unfortunately, we are unlikely to provide this service in Q4 this year. We are still conducting relevant evaluation.

Q: Some people place orders not because they want to buy a car for themselves, but because they want to queue up and transfer it to others in the future. This may cause the number of orders to be artificially high. Has the management noticed this issue? From the second and third brands (Alpine and Firefly), it seems that the management has more thoughts on the future brand matrix. Could the management share more information?

A: We have strict regulations on order transfers. I don't think this phenomenon of order transfer is common, and the proportion is very low.

In terms of brands for the mass market, the overall research and development progress is still following our schedule. It will enter the market with the new NT3 intelligent platform. In the past year or two, we have found that the penetration rate of electric vehicles in China is getting higher and higher. To accelerate the transition from gasoline cars to electric cars, we need more products in a larger price range to serve a wider range of users.

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