NIO Inc. (NIO) This autumn 2021 Earnings Name Transcript

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NIO Inc. ( NIO -9.42% )
This autumn 2021 Earnings Name
Mar 24, 2022, 9:00 p.m. ET

Contents:

  • Ready Remarks
  • Questions and Solutions
  • Name Members

Ready Remarks:

Operator

Howdy, women and gents. Thanks for standing by for NIO Included’s fourth quarter and full yr 2021 earnings convention name. At the moment, all members are in listen-only mode. Immediately’s convention name is being recorded.

I’ll now flip the decision over to your host, Ms. Eve Tang from capital markets and investor relations. Please go forward, Eve.

Eve TangInvestor Relations

Good morning and good night, everybody. Welcome to NIO’s fourth quarter and full yr 2021 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 the chief govt officer; Mr.

Steven Feng, chief monetary officer; and Mr. Stanley Qu, senior VP of finance. Earlier than we proceed, please be kindly reminded that immediately’s dialogue will include forward-looking statements made below the secure harbor provisions of the U.S. Non-public 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 latest filings of the corporate with the U.S. Securities and Change Fee and the Inventory Change of Hong Kong Restricted.

The corporate doesn’t assume any obligation to replace any forward-looking statements, besides as required below relevant regulation. Please additionally observe that NIO’s earnings press launch and this convention name embrace discussions of unaudited GAAP monetary info, in addition to unaudited non-GAAP monetary info. Please seek advice from NIO’s press launch, which comprises 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 LiFounder, Chairman of the Board, and the Chief Govt Officer

[Foreign language] Howdy, everybody. Thanks for becoming a member of NiO’s fourth quarter and full yr 2021 earnings name. [Foreign language] Within the fourth quarter of 2021, we delivered 25,034 ES8, ES6, and EC6, representing a rise of 44% yr over yr. [Foreign language] 2021 was a yr filled with challenges for NIO and the worldwide auto {industry}.

By overcoming the pandemic, semiconductor shortages, provide chain volatilities, and lots of different difficulties, we’ve continued to raise the premium good electrical automobile market in China, with a complete supply of 91,429 new autos in 2021, representing a robust enhance of 109.1%. [Foreign language] In January 2022, NIO delivered 9,652 autos, rising by 34% yr over yr. In mild of the Chinese language New Yr vacation, NIO delivered 6,131 autos in February 2022, representing a progress of 10% yr over yr. Throughout the vacation, we adjusted the manufacturing strains to arrange for the supply of 87 in late March 2022.

[Foreign language] Though the person demand and order momentum stays sturdy, the manufacturing and the supply have been affected by the COVID and the volatility of the availability chain manufacturing capability. We count on that the overall supply within the first quarter of 2022 to be between 25,000 to 26,000 autos. [Foreign language] We are going to begin the supply of ET7, the primary product on NT2, on March 28, 2022. In early March, we kicked off the take a look at drive of ET7 nationwide.

Customers who take a look at drove ET7 have spoken extremely in regards to the product. The take a look at drive that order conversion charge exceeded our expectations, which provides us nice confidence towards the competitiveness of NT2. [Foreign language] In 2021, the battery electrical automobile market maintained a faster-than-expected uptrend. In keeping with China Passenger Automotive Affiliation, the retail penetration charge of the battery electrical autos has grown from 5.9% in January to 18.6% in December final yr.

In Tier 1 and Tier 2 cities in China reminiscent of Shanghai, the penetration charge of a battery electrical automobile witnessed a extra outstanding progress. In Shanghai, among the many gross sales of all ICE and electrical SUV priced above RMB 350,000, NIO Inc. joined a market share of a 23% with — is the shares — with ICE gross sales that ranked on the prime in 2021. We imagine that these EV progress developments have been additionally steadily expanded to Tier 3 and Tier 4 cities sooner or later.

[Foreign language] By way of gross margin benefited from the rise of our income per automobile and the fee optimization introduced ahead by the 75-kilowatt hour LFP/NCM hybrid battery. The automobile gross margin reached 20.9% in This autumn 2021 and 20.1% for the complete yr of 2021, respectively. Presently, the entire {industry} is confronted with the stress of a value enhance. We’re paying shut consideration to the dynamics within the provide chain and are working carefully with different companions to reinforce effectivity with a purpose to cut back the impression to the automobile gross margin.

[Foreign language] On a separate observe, NIO began to be listed by means of introduction on the Inventory Change of Hong Kong below the inventory code 9866 from March 10, 2020. The itemizing in Hong Kong marks one other milestone within the historical past of NIO and permits it to serve extra traders sooner or later. [Foreign language] Subsequent, I wish to share some latest key highlights of our R&D and operations. [Foreign language] In 2021, we began to step up our funding in R&D with all of our non-GAAP R&D bills exceeding RMB 4.1 billion in 2021.

We have now sped up the event of latest product and elevated of our investments in full-stack autonomous driving and different core expertise.  [Foreign language] Funding in R&D can be of essential significance for NIO’s long-term competitiveness. Ranging from this yr, we will be a part of the fruitful outcomes from final yr’s R&D funding and efforts. In 2022, we plan to ship three new merchandise based mostly on NT2, with ET7 being the primary. The mass manufacturing of ET7 is nicely on observe.

The product itself has led the {industry} in numerous elements, together with computing energy of autonomous driving. [Foreign language] On the NIO Day on December 18, 2021, we unveiled ET5, a mid-size good electrical sedan. As an ideal mixture of NIO’s  supercar DNA and the idea of design for AD, ET5 is provided with NAD, NIO Autonomous Driving and PanoCinema, panoramic digital cockpits enabled by AR and VR applied sciences. It comes as customary with 100 configurations for consolation, security, and good applied sciences.

After its launch, ET5 has attracted a wider and extra diversified person base, and obtained extra orders than our expectations. The supply of ET5 is predicted to begin in September this yr. [Foreign language] Quickly, we may also launch ES7 of our first SUV mannequin on NT2, which is positioned as a big, premium five-seater SUV, and anticipated to begin to supply from the third quarter of this yr. [Foreign language] Within the coming years, we are going to proceed to raise our R&D funding and efforts in core applied sciences, particularly in key capabilities such because the full-stack autonomous driving and battery applied sciences.

We imagine that the funding in core applied sciences won’t solely improve our sustainable competitiveness in each of our applied sciences and merchandise but additionally enhance total gross margin and profitability in the long term, and finally, create long-term worth for our shareholders. [Foreign language] Almost about manufacturing capability, the manufacturing line operates on the JAC-NIO Superior Manufacturing Middle is in progress section by section. By mid-year, the manufacturing cadence throughout all workshops there’ll attain 60 jobs per hour. [Foreign language] We have now largely accomplished the constructing development of our second manufacturing facility, F2, situated in NeoPark.

Completed the gear set up and are actually engaged on the calibration, F2 is deliberate to be put in operation in third quarter this yr with a designed manufacturing cadence of 60 jobs per hour. On March 16, the primary validation view of ET5 rolled off on the manufacturing line from the F2 vehicle-powered manufacturing heart. [Foreign language] On the aspect of provide chain, we’re nonetheless confronted with the challenges of rising chip provide volatility, uncooked materials prices enhance, COVID, and the problem — the altering worldwide state of affairs. Prior to now two years and extra, our groups and companions have collected a wealthy expertise in securing provides of manufacturing.

We are going to proceed to work carefully and check out our greatest to safeguard the manufacturing and supply going ahead. [Foreign language] 2021 had been a yr of a decisive funding in charging and swapping infrastructure, in addition to the gross sales and the service community. [Foreign language] By way of the gross sales and the service networks, we now have 46 NIO Homes and 341 NIO Areas in 155 cities worldwide. In China, we’ve 60 NIO service facilities and 179 approved service facilities in 146 cities.

[Foreign language] Because the gross sales and the service and community expands shortly, we’ve been repeatedly optimizing the community deployment and the operational effectivity of every touchpoint whereas delivering high-quality providers to customers. In 2022, we plan to open greater than 100 NIO gross sales shops and over 50 NIO service facilities, and approved service facilities. [Foreign language] By way of the charging and swapping networks, we’ve deployed 866 battery swap stations in 190 cities and accomplished over 7.6 million swaps in China. To date, we’ve 711 supercharging stations and three,786 vacation spot chargers in China.

[Foreign language] In 2022, we’re nicely at 30 NIO vacation spot charging routes to the power-up vegetation. With that, NIO will cumulatively function over 1,300 battery swap stations, 6,000 energy chargers, and 10,000 vacation spot chargers in China. We are going to additional broaden our energy community to offer a greater charging and swapping expertise to customers. [Foreign language] Within the world market, ES8 has shaped the appreciation of customers in Norway.

This yr, our month-to-month deliveries have ranked Prime 2 among the many six-seater or seven-seater passenger automobiles. The profitable supply and high-quality person service in Norway additionally helped us accumulate beneficial expertise in offering providers in different international locations and areas, and acquire confidence in getting into extra NIO markets. [Foreign language] In 2022, NIO will convey its merchandise and complete providers to Germany, the Netherlands, Sweden, and Denmark. The workforce constructing and market entry preparation are transferring ahead easily.

[Foreign language] The mass-market model has been progressing based on plan. We have now established the core workforce, specified the strategic course and the model positioning, and reached a essential analysis and growth stage after the primary batch of product. [Foreign language] The event of NIO will not be potential with out the continued help of our customers. In 2021, 3,756 person volunteers to contribute their time and efforts in occasions like auto reveals and NIO Day.

Greater than 20 — greater than 12,000 customers participated in our 260 charity occasions to make lively contributions to society. [Foreign language] At NIO Day 2021, we introduced the person associate program with which NIO customers can share advantages with one another and construct even deeper connection amongst customers locally. [Foreign language] As well as, NIO launched Clear Parks, an ecosystem co-construction initiative. To date, we’ve rollout the initiative in six nationwide parks and pure reserves in China.

We intention to contribute to ecosystem constructing, help the adoption of good electrical autos and clear vitality infrastructure within the pure reserves, and set up a clear and low-carbon vitality state of affairs to guard the authenticity and integrity of ecosystems. [Foreign language] 2021 was a yr for NIO to develop basic powers and make complete appropriations for the following stage of growth. 2022 is a yr for NIO to press forward at full velocity. We are going to ship three new merchandise, proceed to put money into R&D and infrastructure to enhance our long-term competitiveness, broaden our manufacturing capability to fulfill the faster-growing utilization demand, and serve customers in additional international locations and areas.

We are going to at all times keep true to our authentic aspiration of placing customers’ pursuits to first, make steady enchancment, and ship services past the person’s expectations. [Foreign language] As at all times, thanks to your help. With that, I’ll now flip the decision over to Steven to offer the monetary particulars for the quarter. Steven, please go forward.

Steven FengChief Monetary Officer

Thanks, William. I’ll now go over our key monetary outcomes for the fourth quarter and full yr of 2021. And to be conscious of the size of this name, I encourage listeners to seek advice from our earnings press launch, which is posted on-line for extra particulars. Our complete income within the fourth quarter have been RMB 9.9 million, or $1.6 million, representing a rise of 49.1% yr over yr, a rise of 1% quarter over quarter.

Our complete revenues are made up two components: automobile gross sales and different gross sales. Car gross sales within the fourth quarter have been at RMB 9.2 million, or $1.4 million, accounting for 93% of complete revenues on this quarter. It represented a rise of 49.3% yr over yr, a rise of 6.7% quarter over quarter. The rise in automobile gross sales yr over yr was primarily attributed to greater deliveries.

The rise in automobile gross sales quarter over quarter was primarily attributed to greater common promoting worth, lower in subsidization, person automobile financing preparations, and better deliveries. Different gross sales within the fourth quarter was RMB 0.7 million, or $107.5 million, representing a rise of 46.8% yr over yr and a lower of 41.3% quarter over quarter. The rise in different gross sales yr over yr was primarily attributed to the elevated revenues derived from gross sales of service and vitality packages and equipment in keeping with the incremental automobile gross sales as we add elevated revenues from used automobile gross sales and auto financing providers within the fourth quarter of 2021, which was partially offset by gross sales of automotive regulatory credit score within the fourth quarter of 2020. The lower within the different gross sales quarter over quarter was primarily attributed to gross sales of automotive regulatory credit score within the third quarter.

Value of gross sales within the fourth quarter was RMB 8.2 million, or $842.8 million, representing a rise of 49.1% yr over yr, a rise of 5% quarter over quarter. The rise in value of gross sales yr over yr was primarily pushed by the rise of supply quantity within the fourth quarter of 2021. Gross revenue within the fourth quarter was RB 1.70 million, or $266.7 million, representing a rise of 48.8% yr over yr and a lower of 14.7% quarter over quarter. The rise in gross revenue yr over yr was primarily contributed by elevated automobile gross sales and elevated automobile margin.

The lower of gross revenue quarter over quarter was primarily resulted from the gross sales of automotive regulatory credit within the third quarter of 2021, which contributed a excessive revenue. Gross margin within the fourth quarter of 2021 was 17.2%, in contrast with 17.2% within the fourth quarter of 2020 and 20.3% within the third quarter of 2021. The lower of gross margin quarter over quarter was primarily resulted from gross sales of automotive regulatory credit score within the third quarter of 2021, which contributed the next gross margin. Extra particularly, automobile margin within the fourth quarter was 50.9%, in contrast with 17.2% within the fourth quarter of 2020 and 18% in third quarter of 2021.

The rise of auto margin yr over yr was primarily pushed by the excessive common promoting worth, with greater charge of 100-kilowatt hour battery. The rise of auto margin quarter over quarter was primarily attributed to lower in subsidization, use automobile financing preparations. R&D bills within the fourth quarter was RMB 1.83 million, or $286.9 million, representing a rise of 120.5% yr over yr, a rise of 53.3% quarter on quarter. The rise of R&D bills quarter of 1 / 4 and yr over yr was many attributed to the elevated private prices in analysis and growth features, in addition to the incremental design and growth prices for brand spanking new merchandise and applied sciences.

SG&A bills within the fourth quarter have been RMB 2.36 million, or $370.1 million, representing a rise of 95.4% yr over yr and a rise of 29.2% quarter over quarter. The rise in SG&A bills yr over yr and quarter over quarter was primarily because of the enhance in personnel prices in gross sales and repair features, and prices associated to gross sales and repair community enlargement, in addition to incremental advertising and marketing and promotional bills, together with for the host of the NIO Day in December 2021. Loss from operation within the fourth quarter was RMB 2.45 million, or $383.7 million, representing a rise of 162.5% yr over yr and enhance of 146.5% quarter over quarter. Share-based compensation bills within the fourth quarter have been RMB 396.7 million, or $62.3 million, representing a rise of 559% yr over yr, a rise of 49.4% quarter over quarter.

The rise in share-based compensation bills yr and 1 / 4 of cultural was primarily attributed to further choices and restricted shares granted. Web loss within the fourth quarter was RMB 2.14 million, or $336.4 million, representing a rise of 54.4% yr over yr and enhance of 156.6% quarter over quarter. Web loss attributable to NIO’s strange shareholders within the fourth quarter was RMB 1.49 million or $208.7 million, representing a lower of 48.4% yr over yr and a rise of 25.6% quarter over quarter. Primary and diluted internet loss per ADS within the fourth quarter have been each RMB 1.36, or $0.51 per ADS.

Excluding share-based compensation bills and accretion on redeemable noncontrolling curiosity to redemption worth, non-GAAP adjusted primary and diluted internet loss per ADS have been each RMB 1.07, or $0.16 per ADS. Our steadiness of money and money equivalents, restricted money, and short-term funding was RMB 55.4 billion, or $8.7 billion as of December 31, 2021. Moreover, achieved constructive money movement from working actions for the complete yr 2021. And now, for our enterprise outlook, as William talked about, for the primary quarter of 2022, the corporate expects deliveries to be between 25,000 to 26,000 autos, representing a rise of roughly 24.6% to 29.6% from the identical quarter of 2021.

The corporate additionally expects the overall revenues on the primary quarter of 2022 to be between RMB 9.63 million and RMB 9.99 million, or between $1.51 million and $1.7 million. This might signify a rise of roughly 26% to 25.1% from the identical quarter of 2021. This enterprise outlook displays the corporate’s present and preliminary view on the enterprise state of affairs and market situation, which is topic to alter. Now, this concludes our ready remarks.

I’ll now flip the decision over to the operator to facilitate our Q&A session. 

Questions & Solutions:

Operator

Thanks. [Operator instructions] First query comes from the road of Tim Hsiao of Morgan Stanley. Please go forward.

Tim HsiaoMorgan Stanley — Analyst

Hello, William, Stevens, Stanley. Congratulations on this pretty outcome, and thanks for taking my questions. Mainly, I’ve two questions. The primary query is about value and margin as a result of we all know that NIO is healthier positioned to deal with the battery value inflation even with out worth hike.

However might I do know if the rise in mixture of the excessive margin, the 100-kilowatt hour, 75-kilowatt hour hybrid battery pack, or different initiatives might sufficiently offset the margin stress this yr? And individually, if any, or provided that, we have to increase the costs in the future, can NIO enhance the value to the customers who purchased the batteries and in addition the battery asset administration corporations concurrently, or both it take longer to renegotiate the phrases and contract with the battery administration firm if it is extra wish to beat enterprise? In order that’s the primary query. And the second query is on automotive. Presently, I believe ES6 and ES8 have comprehensively lined the SUV market, which is driving vary from 350 to 600, 000. Since we are going to quickly launch ES7, as William simply talked about, how might we successfully differentiate ES7 from a typical SUV mannequin with out avoiding dilution? And are you going to regulate the pricing technique or reposition present SUV fashions together with the launch of ES7? So these are the 2 questions from my aspect.

Thanks. 

William LiFounder, Chairman of the Board, and the Chief Govt Officer

[Foreign language] Thanks, Tim. Relating to the primary query, truly, ranging from the fourth quarter of final yr, we began to ship the 75-kilowatt hour LFP and NCM hybrid battery pack to the customers, which has contributed to the fee optimization and benefited our automobile gross margin progress within the fourth quarter. However I imagine everybody is aware of about that ranging from the third quarter and the fourth quarter of the final yr, we’ve been seeing some uncooked materials value enhance within the {industry}, and there was quite a lot of value enhance within the upstream of the entire {industry} chain, which signifies that we can’t have to share the stress throughout the entire {industry} steadily. At this second, we do not need any plan to extend our pricing but, however due to — throughout the yr, we’re going to improve of a product the competitiveness and the capabilities.

So at the moment, most likely, based mostly on the price of the uncooked supplies within the {industry}, we are going to reevaluate our pricing technique as nicely. However at this second, we’re not going to extend our worth for the merchandise. On one other level, due to the gross sales progress, we imagine that this has additionally contributed to the amortization of the fee and benefited our automobile gross margin enhance. However relating to the uncooked materials value enhance, it isn’t simply in regards to the battery but additionally different commodities just like the copper and aluminum.

These uncooked materials value enhance have additionally affected our automobile gross margin as nicely. [Foreign language] In mild of the fee enhance for these uncooked supplies I’ve simply talked about and different bond prices, our full yr automobile gross margin for 2022 will nonetheless goal to achieve round 18% to twenty%. [Foreign language] The second query is in regards to the ES7. That is going to be the primary SUV product based mostly on the NT2 and it is positioned as a mid-large five-seater SUV.

On this particular phase we’ve witnessed some person demand enhance just lately. For instance, the BMW X5 we imagine goes to begin the native manufacturing very quickly. For the ES7, it may have industry-leading battery electro energy practice and in addition the good applied sciences as nicely. And we imagine it may showcase the high-performance capabilities of the product, and in addition fulfill customers demand when it comes to the premiumness and luxurious feeling.

And we additionally imagine that is going to draw customers who may have a really excessive requirement relating to the product high quality and the premiumness. So, all in all, we imagine the ES7 goes to contribute and going to be complementary to different present ES8, ES6, and ET6 as an alternative of affecting the gross sales of the present merchandise. [Foreign language] We will launch the ES7 within the second quarter of this yr and can share the pricing info as nicely at the moment. At this second we will see that relating to the market phase of the mid-large SUV priced above RMB 400,000 is definitely has an addressable market dimension of over 200,000 items, and this market dimension can be rising.

That is why we’re very assured with the efficiency of the ES7 after its launch.

Tim HsiaoMorgan Stanley — Analyst

Thanks.

William LiFounder, Chairman of the Board, and the Chief Govt Officer

[Foreign language]

Operator

Thanks for the questions. Subsequent query comes from the road of Bin Wang of Credit score Suisse. Please go forward. 

Bin WangCredit score Suisse — Analyst

[Foreign language] I truly have gotten a query in regards to the ET7 service as a result of just lately there was a media name. First one, ET, they are saying that ET7 obtained superb order movement about 15,000 order backlog, which point out a month-to-month quantity could possibly be round 5K. So, what’s your remark about this? And second factor is in regards to the margin as a result of we have seen within the fourth quarter final yr that service truly had very huge detrimental value margin, greater than 30%. And what’s additionally the rationale behind that and what is the outlook of this fastened margin going ahead? In the meantime, you simply supplied 18% to twenty% margin steering.

Is that this simply the automobile gross margin or truly together with the service margin already? Thanks. [Foreign language]

William LiFounder, Chairman of the Board, and the Chief Govt Officer

[Foreign language] Relating to the primary query of the ET7, in fact, we can’t talk about the precise order quantity at this second. However what I can say is that it’s truly way more than the media report. And for the ET7 market phase, we will see another benchmarks. For instance, the BMW 5 Sequence, Audi A6, and the Mercedes C-Class.

ET7 has the same pricing and the goal group with these merchandise as nicely, particularly relating to the BMW 5 Sequence. So for BMW 5 Sequence we will see that the month-to-month supply quantity is round 12,000 to fifteen,000. In fact, for the ET product it is going to want a while for the customers to undertake and settle for. But when we have a look at the examples of the Shanghai market — proper now, within the premium SUV phase in Shanghai, our market share is round 23%.

So if we additionally mirror this to the sedan market, we imagine there may be quite a lot of room for progress and in addition potential for our ET7. So, at this second, we can’t see how a lot we’ll ship each month, however based on the person suggestions that we obtain proper now, we’re very assured with the ET7’s efficiency sooner or later. OK. Stanley [Foreign Language] 

Eve TangInvestor Relations

[Foreign Language]

William LiFounder, Chairman of the Board, and the Chief Govt Officer

[Foreign Language]

Eve TangInvestor Relations

William [Foreign Language]

William LiFounder, Chairman of the Board, and the Chief Govt Officer

[Foreign Language] Relating to the ES7, beforehand I’ve additionally talked about that the ES7 is positioned within the mid-larger premium SUV phase. If we speak in regards to the particular benchmark, we will seek advice from BMW X5. After the native manufacturing of the BMW X5, we will see that the market truly has very excessive expectations for BMW X5’s efficiency. The present market purchase of this phase is over 200,000 items.

So if we have a look at the comparables, we will use the BMW X5 as a reference. And based mostly on this, we’re very assured with our ES7 as a result of we imagine it may possibly truly outcompete the BMW X5.

Stanley QuVice President, Finance

OK, for the second query, because the service flows, we accelerated the development of energy cell station in 2021, and extra energy cell station truly present service to finish customers, which result in the fee enhance of different income, different enterprise in contrast with Q3. And in 2022, we are going to proceed to deploy the batteries charging and swapping services. The anticipated depreciation of working bills will preserve rising. However we imagine the upfront deployment of battery swap stations can contribute to our branding, person expertise, and in addition gross sales and — with the long-term worth to the corporate.

So bearing a short-term lack of energy cell station constitutes a strategic choice of the corporate, and in the long term, the cumulative automobile deliveries going up and the development for service effectivity. We count on that the following two margins ensuing from energy, upkeep and restore service, and in addition different providers will steadily enhance. And different revenues and margins contributed by progressive enterprise fashions like BaaS, NIO Life, and in addition AD as a service will continue to grow.

Bin WangCredit score Suisse — Analyst

OK.

Stanley QuVice President, Finance

And the gross revenue margin goal, 18% to twenty% for 2022, is for automobile, not the general gross margin. Yeah. Thanks.

Operator

Thanks for the questions. Subsequent query comes from the road of Ming-Hsun Lee of Financial institution of America. Please go forward.

Ming-Hsun LeeFinancial institution of America Merrill Lynch — Analyst

[Foreign language] So my query is relating to the capability in lidar hybrid battery and in addition the chip, particularly CATL additionally introduced the chip scarcity will trigger the value hike. So I additionally wish to know whether or not the NVIDIA Orin chip will constraint your automobile supply this yr? [Foreign language]

William LiFounder, Chairman of the Board, and the Chief Govt Officer

[Foreign language] So relating to the manufacturing capability, beforehand, I’ve additionally talked about that by the center of this yr, our first manufacturing facility that’s the JAC-NIO Manufacturing Centre goes to achieve a manufacturing cadence throughout the completely different workshops that’s round 60 jobs per hour. And the designed manufacturing capability of the Manufacturing unit 2 can be going to be round 60 jobs per hour. However, in fact, for the Manufacturing unit 2, as a result of it is a new manufacturing facility, then we are going to want a while to ramp up the manufacturing steadily. So if we take into consideration the 60 jobs per hour, it signifies that if we work with 4,000 hours yearly, then the annual manufacturing capability goes to be 240,000 items and for each month is round 20,000 items.

If we work additional time somewhat bit to five,000 hours per yr, then it signifies that the annual manufacturing capability goes to achieve round 300,000 items. So that is in regards to the automobile manufacturing capability. We imagine that within the fourth quarter of this yr, we are going to see some basic enhancements relating to the automobile manufacturing capability, which goes to help our subsequent step of manufacturing. For the battery manufacturing capability bottleneck, sure, beforehand, we’ve additionally talked about about this, and ranging from final yr, we’ve been working along with our associate, CATL, so as to add further manufacturing strains for the battery cells.

And we imagine, based on the present plan in 2022, the battery manufacturing capability ought to be capable to meet our demand. In fact, the fee enhance of the battery is one other matter. Truly, I imagine the chip scarcity is an even bigger problem for us, as a result of in our automobile we’ve over 1,000 chips, and amongst these 1,000 chips, we’ve most likely round 10% of the chips might face the availability shortages or challenges occasionally. So, for us, ranging from 2021, we began to see some chip value enhance, and this has affected our automobile gross margin in 2021.

Based mostly on this expertise in 2021, we’ve already considered of the chip value enhance when it comes to setting our goal for the automobile gross margin. We imagine the principle problem relating to the chip is extra in regards to the provide. However relating to these high-end chips just like the NVIDIA Orin chips and the Qualcomm 8155, we’ve a long-term and direct strategic cooperation with NVIDIA and Qualcomm. So we imagine we must always be capable to have ample provides for our manufacturing.

For these widespread chips or the cheaper chips, like from TI and Infinium, we might face some challenges occasionally, and that is going to have an effect on our manufacturing. In fact, we’ve another methods to mitigate these challenges. For instance, we will discover another chips to interchange these chips or we will most likely scan the market to construct up our strategic stock to keep away from these dangers. We imagine, total talking, within the second half of this yr or across the fourth quarter of this yr, we must always be capable to see some basic enchancment when it comes to our automobile manufacturing capability and the battery manufacturing capability.

However we should still face some challenges when it comes to the availability chain volatility, particularly the semiconductors.

Ming-Hsun LeeFinancial institution of America Merrill Lynch — Analyst

Thanks.

Operator

Thanks for the questions. Our subsequent query comes from the road of Jeff Chung of Citi. Please go forward.

Jeff ChungCiti — Analyst

[Foreign language] I’ve acquired three questions. So primary is ought to we think about any MSRP hike within the close to time period to offset potential battery and aluminum value hike? If sure, how? And if no, why not? The second query is in regards to the current EC6 product gross sales quantity visibility over the following few months. Any confidence we will preserve 10,000 items a month, in addition to the — might you give us extra coloration on the ET7 ramp-up tempo within the second quarter? Final however not least is the lithium spot worth in China. Do you suppose it has already peaked because of the latest authorities intervention? Thanks.

William LiFounder, Chairman of the Board, and the Chief Govt Officer

[Foreign language] For the present ES8, ES6, and EC6, in fact, if we have a look at the digital copy of that, that is truly based mostly on the NIO Expertise Platform 1.0, which was developed in 2018. So for this chip, the effectivity could also be impaired if we run some difficult software program. In order that’s why ranging from this yr or inside this yr, we’ll improve to the good {hardware} of our current merchandise. And we’re additionally going to offer after-sales improve providers for the customers relating to the good {hardware} upgrades.

We will launch this program at an acceptable time. For the present ES8, ES6, and EC6, we imagine, we don’t want to regulate the pricing at this second. However, in fact, based mostly on the good {hardware} improve of the present merchandise and in addition we’re going to launch some mannequin yr product, then at the moment, we imagine most likely we will reevaluate our pricing technique based mostly on the fee enhance within the provide chain. You have got additionally requested in regards to the efficiency of our present product, whether or not it ought to be capable to nonetheless preserve the ten,000 items per thirty days.

In keeping with our order momentum in March, we imagine, that this will meet our expectations, and we imagine that person demand is just not an issue for us as a result of if we examine our present ES8, ES6, and EC6 with different EV merchandise and ICE merchandise available in the market, we imagine we nonetheless have quite a lot of aggressive benefits. So the general demand momentum stays fairly sturdy. [Foreign language] For the ET7 product ramp-up, as a result of the ET7 goes to be manufactured within the first manufacturing facility we known as F1 and they are going to share the manufacturing line with the present product ES8, ES6 and EC6. On the identical time, we may also introduce some new manufacturing applied sciences and strategies within the manufacturing of ET7.

In order that’s why, ranging from final yr, we began to regulate the manufacturing strains within the F1 to help the brand new product manufacturing. Within the meantime, I’ve additionally talked about in regards to the ES7, which goes to begin supply within the third quarter of this yr. This product can be going to be manufactured within the F1. So the state of affairs in F1 is sort of difficult, as you possibly can see, as a result of we’d like to verify we’ve ample manufacturing capacities to help the present ES8, ES6, and EC6, however on the identical time, we additionally want to provide the ET7 and in addition put together for the manufacturing of the ES7.

In order that’s why we imagine the ramp-up progress of the ET7 might be going to be somewhat bit slower in contrast with that of the ET5. So it appears ET5 goes to be manufactured in a separate new plant known as F2. So we imagine that most likely across the third quarter of this yr, we must always be capable to attain a traditional manufacturing cadence for the ET7. [Foreign language] Relating to the lithium carbonate value enhance, we’ve performed very in-depth analysis relating to the general {industry} chain, particularly the upstream.

We imagine the fee enhance or the value hikes is especially because of the opportunistic worth hikes, and there’s no particular huge gaps when it comes to the demand and the availability of the lithium carbonate supplies. In fact, proper now, we will see some Chinese language authorities like MIIT have already began to arrange some mechanisms to handle the state of affairs. On the identical time, we additionally like to induce the businesses within the upstream of the {industry} chain that they need to suppose extra from the long-term advantage of the general growth of the entire {industry} as an alternative of manipulate or take the chance of the fee will increase to extend their worth.

Jeff ChungCiti — Analyst

[Foreign language]

Operator

Thanks for the questions. Subsequent query comes from the road of Nick Lai of J.P. Morgan. Please go forward.

Nick LaiJ.P. Morgan — Analyst

Sure, thanks for taking my query. Two easy questions, first on margin and the second on export enterprise. I imply, William after which — possibly talked in regards to the GP margin already. Let me swap focus to the OP margin, yeah.

Final yr, we perceive the R&D spend and — assumed a rise lots partially — largely half due — largely because of the top-line enhance. So trying to 2022, how ought to we take into consideration SG&A and R&D expense when it comes to both greenback phrases or proportion to income? Is it honest to state RMB proportion to income ought to enhance — ought to drop meaningfully whereas SG&A ought to transfer kind of in tandem with the top-line gross sales? And the second query is relating to [Inaudible]. I perceive it is most likely not an enormous portion of auto complete gross sales, however contemplating the newest dynamic in Europe and advising stronger RMB in opposition to both greenback or Euro, any replace on the [Inaudible] entrance? Thanks.

William LiFounder, Chairman of the Board, and the Chief Govt Officer

[Foreign language] Relating to the OP margin, final yr, when it comes to the corporate’s technique, we wish to make it possible for the gross revenue can cowl the SG&A value. And we imagine via the effectivity enchancment and execution, we’ve adopted via this technique in 2021. Within the coming years, we are going to proceed to make decisive investments when it comes to the R&D and the infrastructure. In fact, our technique will keep the identical, that’s, we wish to be sure that we will use the gross revenue to cowl the SG&A prices.

If we have a look at the EU market, in fact, final yr, as a result of that was the primary yr for us to enter the worldwide market, then it signifies that final yr we have to make some advance funding, and we imagine this yr the effectivity is far greater than final yr. However when it comes to the R&D entrance, we’re going to step up our R&D investments. This yr, we imagine, the R&D funding goes to be greater than doubling than that of 2021 as a result of we’re going to put money into some long-term core applied sciences and a few basic applied sciences, in addition to the brand new merchandise for 2023, in addition to some product adaptation for the worldwide market. By the year-end of 2022, our R&D headcount goes to achieve round 9,000, and we imagine that is going to be an enormous enhance in contrast with our present R&D workforce dimension.

So that is the general plan for the 2022. By way of the general strategic course for the corporate, our goal is that we will obtain breakeven for a single quarter within the fourth quarter of 2023, and we will obtain breakeven or attain profitability in 2024 for the complete yr. [Foreign language]

Steven FengChief Monetary Officer

OK. So the second query is about our world enterprise, proper? No, truly, proper now, each month we ship about 108 in Norway, so that reinforces our confidence lots. It proves our product’s aggressive and in addition our enterprise mannequin. Nevertheless, since we are going to kick off our SUV in Europe within the second half of this yr, so the contribution of the European market to gross sales quantity will not be very important on this yr.

However now on, NIO continues to develop and enhance its product portfolio and repair community, set up native person communities, and pursue a excessive person satisfaction. With that, we imagine that market share and gross sales quantity in Europe will come alongside naturally.

Operator

Thanks for the questions. I am going to now take the following questions. 

Steven FengChief Monetary Officer

[Inaudible]

Operator

Please proceed. Permit me to take the following questions from Fei Fang of Goldman Sachs. Please go forward.

Fei FangGoldman Sachs — Analyst

[Foreign language] Let me simply shortly translate for myself. Can administration speak somewhat bit in regards to the utilization metrics of your infrastructure in battery swap stations, supercharging stations? How typically individuals use it? What is the unit economics, or what is the distinction between prime cities versus lower-tier cities? Thanks.

William LiFounder, Chairman of the Board, and the Chief Govt Officer

[Foreign language] Beforehand, we’ve additionally talked about that, accumulatively, we’ve accomplished over 7.6 million swaps, and it signifies that the present standing for the swap station is that day by day, we will full round 30,000 swaps. For some areas with extra customers, in fact, we will accommodate over 1,000 swaps for one energy swap station in in the future. However highways, most likely, in in the future, the facility swap station goes to accommodate round 10 to twenty swaps per energy swap station as a result of we’ve deployed the facility swap station community upfront, most likely one or two years upfront. Due to the design goal of the facility swap station community is that the ratio between person — the ratio between the facility swapper to the person must be round 1-to-1000.

But when we have a look at our present energy community, particularly for the facility swap community, we’ve over deployed some energy swap stations at this second to verify we’ve a significantly better expertise for the customers.

Fei FangGoldman Sachs — Analyst

[Foreign language]

Eve TangInvestor Relations

[Foreign language]

Fei FangGoldman Sachs — Analyst

OK. Good. [Foreign language]

Steven FengChief Monetary Officer

Subsequent query.

Operator

Definitely. Subsequent query comes from the road of Edison Yu of Deutsche Financial institution. Please go forward.

Edison YuDeutsche Financial institution — Analyst

Thanks for taking our questions. First one, are you able to give us some sense of the characteristic rollout cadence within the autonomous driving? What sort of options do you suppose the lidar will allow, and when can we count on these to reach on the automobile? After which the second query is in regards to the NIO ecosystem extra broadly talking. There are studies that you just’re engaged on a smartphone. How will we take into consideration, you recognize, what is going on on past the automobile? I do know there’s — VR could possibly be an enormous half.

Any ideas there could be appreciated. Thanks.

William LiFounder, Chairman of the Board, and the Chief Govt Officer

[Foreign language] Thanks to your query. In fact, and the timing of the supply of the ET7, we’re going to begin to present the improved ADaaS options first to the customers. However on prime of that, we’ve already queued up the full-stack autonomous driving capabilities from the notion to the controlling technique. So we goal to begin offering the AD as a service most likely within the fourth quarter of this yr with our NAD expertise.

[Foreign language] In fact, we’ve at all times been actively discover the potential connections and the synergies between the automobile and smartphones and different cell terminals as a result of we imagine there are many synergies between these two merchandise when it comes to the elemental applied sciences, the availability chain, and the software program. On the launch of the ET5 on the NIO Day, we’ve additionally launched some AR and VR applied sciences as nicely, and we imagine there must be a number of room for innovation and we will additionally take into consideration some progressive purposes within the autos. [Foreign language] Edison.

Operator

Thanks for the questions. Subsequent query will come from the road of Xue Deng from CICC. Please go forward.

Xue DengCICC — Analyst

[Foreign language] So my subsequent query is, what is the capex price range in 2022, and can you please introduce the element about the principle instructions and the precise amount of cash? Thanks.

Steven FengChief Monetary Officer

[Foreign language] Thanks, Deng Xue. Sure, as talked about by William, our gross revenue margin already can cowl our SG&A expense and that is additionally our goal for 2022. So, our money readily available will primarily be used to — for our R&D actions and in addition capital expenditures for our new product developments and manufacturing services, gross sales — service community and enlargement, and in addition the charging and dealing infrastructures. And total, additionally as talked about in our earlier explanations, we are going to enhance our swap stations to 1,300 stations by the tip of 2022.

And we are going to additional open 100 NIO Home and NIO Area, and 60 NIO service facilities — 50 new service facilities in 2022. So — and we are going to additional to — assemble our NeoPark, situated in Hefei, in 2022. So the overall expenditure, I believe, is over — could possibly be an enormous enhance in contrast with 2021. Yeah, thanks.

Xue DengCICC — Analyst

[Foreign language]

Operator

Thanks for the questions. The following query comes from the road of Paul Gong from UBS. Please go forward.

Paul GongUBS — Analyst

Yeah. Hello, thanks for taking my query. Glad I nonetheless have an opportunity to ask the way you went at this late second. Yeah.

Let me simply restrict my query to at least one. I wish to know extra about your ideas in regards to the mass-market model. Clearly, you must compromise among the options that NIO has for extra engaging pricing factors or some value competitiveness. So amongst all of the options for the NIO providing, together with, say, the outside, the inside, the autonomous driving options, the acceleration, the driving vary, the battery swap stations, in addition to, to illustrate, the digital expertise, and in addition the service.

So what do you suppose is the issues that you’re ready to compromise in your mass-market manufacturers that will be reserved completely for the NIO manufacturers and you are not anticipating from the mass-market manufacturers? Simply this query. Thanks.

William LiFounder, Chairman of the Board, and the Chief Govt Officer

[Foreign language]Thanks to your query. In fact, if we wish to enhance our quantity and broaden our person base, completely different corporations may have very completely different methods. For instance, some friends like Tesla, they’ve adopted very completely different methods in contrast with ours. For Tesla, they principally differentiated the Mannequin 3 and Mannequin Y from the Mannequin X and Mannequin S with a really huge worth hole.

So by doing this, they entered the mass market with the Mannequin 3 and Mannequin Y. To date, this has been fairly profitable, however on the identical time, we’ve additionally seen some draw back. For instance, the gross sales of the Mannequin X and Mannequin Y have decreased considerably regardless of the product cycle. So we imagine there are some underlying basic guidelines of the auto {industry}, that’s there’s a restricted bandwidth of a selected model.

It’s totally troublesome to think about a single model can truly help the pricing vary from RMB 100,000 to RMB 1 million. It is not possible, and I imagine that is in opposition to the widespread sense. So, for NIO, proper now, we goal the market phase that’s round $50,000 to $100,000 and if we wish to attain all the way down to the mainstream market, that’s priced round $30,000 to $50,000. We imagine it is a a lot greater market, and there’s a affordable market dimension for us to develop and we will additionally obtain an affordable progress margin.

We additionally have to take some classes discovered from the Mannequin 3 and Mannequin Y. We perceive, in fact, for this mass market, we may also have to rethink the elemental structure of our product and in addition want to consider utilizing completely different sorts of supplies and in addition completely different manufacturing applied sciences for our merchandise as a result of, when it comes to the mass-market model, in fact, additionally they must be efficiency-driven. And for this particular market phase, priced from $30,000 to $50,000, we imagine, a extra smart method versus to make use of a brand new model to enter this new market phase. And we imagine it is a higher technique for us.

We will additionally see some profitable examples available in the market with this technique. For instance, Audi and Volkswagen, and the Lexus and Toyota. We imagine this may also be a technique for us to disrupt the market as nicely. However, in fact, for the mass-market manufacturers, the prerequisite for that is to verify we will obtain excessive effectivity and in addition obtain an affordable automobile gross margin.

Paul GongUBS — Analyst

Thanks.

Operator

Thanks for the questions. Now, I wish to flip the decision again over to the corporate for closing remarks. 

Eve TangInvestor Relations

Thanks as soon as once more for becoming a member of us immediately. If in case you have additional questions, please be happy to contact NIO’s investor relations workforce via the contact info supplied on our web site. This concludes the convention name. It’s possible you’ll now disconnect your line.

Thanks.

Period: 107 minutes

Name members:

Eve TangInvestor Relations

William LiFounder, Chairman of the Board, and the Chief Govt Officer

Steven FengChief Monetary Officer

Tim HsiaoMorgan Stanley — Analyst

Bin WangCredit score Suisse — Analyst

Stanley QuVice President, Finance

Ming-Hsun LeeFinancial institution of America Merrill Lynch — Analyst

Jeff ChungCiti — Analyst

Nick LaiJ.P. Morgan — Analyst

Fei FangGoldman Sachs — Analyst

Edison YuDeutsche Financial institution — Analyst

Xue DengCICC — Analyst

Paul GongUBS — Analyst

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