Fourth Quarter and Full Year 2024 Earnings Conference Call
Unknown Executive: Good morning and good evening, everyone. Welcome to NIO's fourth quarter and full year 2024 earnings conference call. The company's financial and operating results were published in the press release earlier today and are posted on the company's IR website.
Unknown Executive: On today's call, we have Mr. William Li, Founder, Chairman of the Board, and Chief Executive Officer, and Ms. Stanley Qu, Chief Financial Officer. Before we continue, please be kindly reminded that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the views expressed today. Further information regarding risks and uncertainties is included in certain filings of the company with the U.S. Securities and Exchange Commission, the Stock Exchange of Hong Kong Limited, and the Singapore Exchange Securities Trading Limited.
Unknown Executive: The company does not assume any obligation to update and forward-looking statements except as required under applicable law. Please also note that News earnings press release and this conference call include discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial measures.
Unknown Executive: Please refer to NIO's press release, which contains a reconciliation of unaudited non-gap measures to comparable gap measures.
William Li: With that, I will now turn the call over to our CEO, Mr. William Li. William, please go ahead. Hello, everyone. Thank you for joining NIO's 2024 Q4 and the four-year earnings call. In Q4, the company delivered a total of 72,689 smart EVs. Setting a new quarterly record, in December, our monthly deliveries surpassed 30,000 for the fourth time. For 2024, the company's total deliveries reached 221,000. 970, marking a 38.7% increase year over year. The NIO brand continued to lead the premium segment. Delivering 201,209 vehicles. Securing a 40% market share in China's BEV segment priced above $300,000.
William Li: The Envoy brand delivered 20,761 vehicles in the mainstream family market. The market share of the Anvil L60 has been steadily increasing since its launch. ranking among the top three in China's BEV, SUV market price between 200,000 and 300,000 rand. In January and February, Due to the nationality and the Chinese New Year holiday, the company delivered 27,055 vehicles. We expect the total deliveries in Q1 to reach 41,000 to 43,000 units. reflecting a year over year growth of 36 to 43%.
William Li: On the financial side, our efforts in supply chain optimization and cost control have delivered strong results. NIO's vehicle margin improved to 14.9% in Q4, while Envoy achieved a positive vehicle margin in the early stage of production run-up. run up. As a result, the company's overall vehicle margin reached 13.1% in Q4. At the same time, the profitability of our after-sales services continued to improve, along with growth in technology service revenue, leading to a positive growth margin in other sales in Q4.
William Li: Now, I'd like to share some updates on our products and operations. Starting this year, our three smart EV brands have entered a new product cycle. for the premium brand NIO at NIO Day on December 21st. The Long-Term NIO ET9, a flagship smart executive setup. As the result of NIO's 10-year tech innovation, AT&M set a new benchmark for premium smart executive EVs. with industry-leading technology and a distinctive experience. It has been well received by users in the second the fourth edition. in a limited offering of 999 units. Sold out within hours. and their signature version continue to see strong demand.
William Li: 89 delivery will begin at the end of this month. Besides, NIO's version products, ET5, ET5T, ES6, and EC6, will launch their 2025 models in Q2, featuring upgrades in design, cutting experience, and a smart driving chip. Moreover, with another major product launching in the second half of this year, the enhanced product lineup will further solidify NIO's leadership in the premium BEV market while driving its overall profitability. For the mainstream mass market brand Anvil, the first product, L60, gained strong recognition among family users for its safety, space, cloud-leading energy efficiency, and convenient recharging experience. Our second product, L90, is positioned as a flagship large family SUV.
William Li: It will be introduced... and in Q2 and the delivery in Q3. Onward, the third product will be launched in Q4, forming a well-rounded SUV lineup to cater to a broader range of mass market users.
William Li: For the high-end small car brand FireFly, since its debut in December 2024, FireFly has received bold attention, particularly from young buyers and families looking for a second car. The brand is set to launch and begin delivery in April, leveraging NIO's SaaS network for rapid market expansion. With these three brands, The company is building a comprehensive product metrics spending 150,000 yuan to 800,000 yuan. Catering Device User Group. As we expand our sales and service networks, we are set to reach more users and drive sustainable growth.
William Li: In terms of smart driving technology and experience, AI technology continues to drive us towards our vision of relieving stress and reducing accidents. Prioritizing AI-based safety enhancement, NIO will lead to the industry's best automatic emergency steering feature. It leads the market in speed range, object detection, and use case coverage. To date, NIO's Smart Safety has prevented over 3.4 million potential accidents for users. and the release of AES has further improved the driving safety. We've made breakthroughs in switching to our next generation architecture based on the NIO world model, MVM. We'll provide driving, parking and safety assistance across all scenarios.
William Li: The early board program will begin in early April, with mass release gradually rolled out. Globally, NIO has 183 NIO houses and 462 NIO spaces. Wire Angle has 449 stores in China. Ensuring a well-balanced sales carpet. On the service side, the company operates 388 service centers and 64 delivery centers.
William Li: We are putting more efforts improving operation, operational efficiency, so as to better support our new product cycle and deliver on its best exceptional user experience. As of now, the company has deployed 3,245 post-warp stations worldwide, including 970 stations on highways in China, having provided over 69 million swaps for NIO and Envoy use In addition, NIO has built over 25,000 power chargers and destination chargers. Factory swap remains the preferred recharging solution for NIO users on long trips. During the Chinese New Year holiday, we set a new record with over 137,000 battery swaps in a single day, with top stations handling over 180 swaps.
William Li: With unmatched speed and convenience, battery swaps is the optimal recharging solution for long distance and holiday travel. It's a strategic approach where we reinforce our competitive edge of the BEB market. Laying a strong foundation for the sales goals of our three brands during the upcoming product cycle. They were actively engaging with partners in more countries and regions to expand our global footprint. As we grow our global sales channels and start Firefly deliveries, the company is accelerating its global expansion while delivering best-in-class EV solutions to users worldwide.
William Li: The company remains committed to social responsibility and sustainability. In December, MCSI upgraded NIO's ESG rating from A to AA. In general, Corporate Knights ranked NIO as the number one car company in its list of 2025 Global 100 Most Sustainable The competition landscape in the smart EV industry is evolving rapidly.
William Li: Making 2025 a critical year for the market is shaping This year, with nine new models across three brands, the company is forming a comprehensive product lineup. While the tech-driven cost optimization with further enhanced profitability with global expansion picking up speed, the company will be able to unlock new revenue opportunities. In the meantime, the company is enhancing operational capabilities and the business awareness, according Ensuring Great Value Creation and Efficient With this action in place, we are confident in navigating field competition and achieving our four-year operating target. Thank you for your support.
Stanley Qu: With that, I will now turn the call over to Stanley for Q4's financial details. Over to you, Stanley. Thank you, William. Let's now review our key financial results for the fourth quarter of 2024. Our total revenues reached 19.7 billion RMB, increased 15.2% year-over-year and 5.5% quarter-over-quarter. Vehicle sales were 17.5 billion RMB, up 13.2% year-over-year and 4.7% quarter-over-quarter. Primarily driven by higher deliveries, partially offset by a lower average selling price due to changes in product mix. Our other business segments also delivered solid performance. Other sales were 2.2 billion RMB, grew by 33.8% year-over-year and 12.7% quarter-over-quarter.
Stanley Qu: The annual growth was from increased sales of parts, accessories, after sales vehicle services, and provision of power solutions along with a rise in sales of technical R&D services. The increase quarter over quarter was driven by higher sales in technical R&D services, used cars and other parts, accessories, and after sales vehicle service. Looking at margins, vehicle margin was 13.1% in this quarter, compared with 11.9% in Q4 last year and unchanged from last quarter. The year-over-year increase was mainly due to lower material cost per unit. Other margins turned positive this quarter, mainly due to the increase in the provision of technical R&D services, as well as the sales of parts, accessories, and after-sales vehicle services, with relatively higher margins.
Stanley Qu: Overall gross margin was 11.7% up from 7.5% in Q4 last year at 10.7% last quarter. Turning to OPEX, R&D expenses were $3.6 billion RMB, decreased 8.5% year-over-year, and increased 9.6% quarter-over-quarter. The year-over-year decrease was mainly driven by reduced personnel costs and design and development costs. While the quarter over quarter rise reflects additional investment in design and development partially offset by the decreased personnel cost. SGA expenses were 4.9 billion RMB up 22.8% year over year and 18.7% quarter over quarter. The year over year increase was mainly driven by increased sales and marketing for new brands and products and higher personnel costs from sales and service network expansion.
Stanley Qu: The quarter over quarter increase was mainly due to the seen enhanced sales and marketing efforts and higher percent professional services costs for general corporate function. Loss from operations was $6 billion RMB, down 8.9% year over year, and up 15.2% quarter over quarter. Interest and investment loss was $0.2 billion RMB, compared with investment income of $1.4 billion in 2023 Q4 and $0.3 billion in 2024 Q3. primarily due to the fair value change of equity investment. Other loss net in Q4 was $0.5 billion RMB, primarily due to the loss from the revaluation of overseas RMB-related assets caused by the depreciation of RMB against U.S.
Stanley Qu: dollars this quarter. Net loss was $7.1 billion RMB, showing an increase of 32.5 percent year-over-year and 40.6 percent quarter-over-quarter. Lastly, we ended the quarter with total cash at cash equivalents, restricted cash, short-term investment and long-term time deposits amounting to $41.9 billion RMB.
Stanley Qu: That wraps up our prepared remarks.
Stanley Qu: For more information and details of our unaudited fourth quarter and full-year 2024 financial results, please refer to our earnings press release.
Unknown Executive: Now I will turn the call over to the operator to start our Q&A session. Thank you. If you wish to ask a question... Please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you're on a speakerphone, please pick up the handset to ask your question. For the benefit of all participants on today's call, please limit yourself to two questions. And if you have additional questions, you can re-enter the queue.
Tim Hsiao: Your first question is from Tim Tsai from Morgan Stanley. Please go ahead. Hi, this is Tim from Morgan Stanley. Thanks for taking my question. I have two questions. The first question is about cost reduction effort. Because a lot of market focus is put on NIO's latest round of restructuring. So just want to know that how much of cost saving would management expect to achieve? And when are we going to see the contribution emerging in upcoming quarters? That's my first question. Thank you. Thank you, Tim.
William Li: Last year, we started to make some measures to reduce the cost of mining. The goal of reducing the cost of mining has been achieved this year. So we can see that Q4 has met our expectations. Sponsored ADR Class A Sponsored ADR Class A Sponsored ADR Class A Sponsored ADR Class A Sponsored ADR Class B Sponsored ADR Class A We've already seen a lot of measures to improve the return on investment. From a report... Oh, you can translate it first.
William Li: Thank you for the question. Regarding the cost reductions, actually, since last year, we have already started the cost mining initiatives. And for the 2024 full year, we were also on track for the cost reduction initiatives. As you can see, in our vehicle margin for Q4, it has fulfilled our expectation. And we will continue such cost reduction actions this year from multiple aspects, including supply chain, R&D. And in that case, we foresee that our vehicle margin will also continue to grow starting Q2. And in terms of expenses, actually, in Q4 last year, as we have launched the new brand Envelope together with its product, we have started to make investments and expenses in developing its sales and service networks, as well as in the brand-related activities.
William Li: And such activities and expenses will continue in Q1 this year, including the new brand and also the sales and service networks.
William Li: But in the meantime, starting Q1 this year, we have started an all-employee comprehensive cost reduction initiative covering R&D, supply chain, sales, and also service teams. We call it CBU or sales business unit. Basically, we ask all the teams and employees to take the ownership and accountability of the company's operational targets. We already have seen some good results and actions taken voluntarily by the R&D teams, as well as by the sales and service teams in reducing the cost and improving the efficiency. I believe that starting from Q2, we will be able to see some significant improvements in terms of both cost and cost.
William Li: In Q3, we will continue to deepen our control over cost and cost. We believe that with the increase in sales, the increase in gross profit, and the control over cost, we are confident that we will achieve the profit we set out in our company in Q4 this year. Scaling, please. Thank you.
Tim Hsiao: My second question is about Envelope. Just want to know that what actions could Envelope take to regain the growth momentum? Will NIO stick to the bounty brand strategy or it could potentially change Envelope to a sub-brand? Want the NIO to save cost and enhance efficiency? So that's my second question.
William Li: Thank Thank you. The sales of Le Dao this year did not reach our expectations.
William Li: Translation by Pop! Galaxy Sponsored ADR Classlower sponsored by WEBE For example, according to our own research, even compared to NIO, its popularity is only 1% of NIO's. So now this also reflects that after we have digested the previous orders, there is indeed some pressure in terms of new orders. This is indeed the first big reason. For this, we have actually started recently. During this year's Spring Festival, we have also increased some brand investments. For example, we have made a lot of investments in China's high-speed rail stations, in residential elevators, and in social media. We have also conducted some more active marketing activities.
William Li: So from the perspective of brand visibility, we have also seen a continuous increase recently. So we are busy with this work.
William Li: Thank you for the question. Regarding Envol, its self-performance starting this year didn't meet our expectation, and we have also reviewed the comprehensive reasons and causes for its performance. The first reason is because of the brand awareness and exposure. Envol is still a new brand. In terms of its brand awareness and awareness, it is actually far below its competitors. We have also done some study and research on the influence of the brand awareness of Envol, and in terms of the brand awareness, it is only one-third of that of NIO. In that case, as we consumed all the existing order backlogs, we are facing larger pressures regarding the fresh orders.
William Li: Starting this year, especially during and after the Spring Festival holidays, we have also taken a series of actions to help strengthen and improve the brand awareness and exposure. We have rolled out some offline advertisements in the train stations and also in the elevators of the apartment buildings. We have also doubled down on the social media campaigns to help improve the exposures, and we are seeing some good effects in helping Envol be more famous and well-known. The second reason is because of the sales of our stores, which is also a part of the run-up process. When Envol went public last year, we had 100 stores and 105 stores.
William Li: By the end of last year, we had increased to more than 100 stores, and so far, we have increased to more than 400 stores. As I mentioned earlier, our stores are all newly-opened. These stores need to play a role, and their sales need to play a role. This is also a part of the run-up process. According to our own data, the sales of stores that have been open for more than three months and stores that have just been open for a month are about three times more efficient. So we can see that after the stores have matured and the management has matured, they will play a role.
William Li: Of course, we are also improving the efficiency of our stores. In general, although we have put some pressure on Q4 and Q1 this year, we believe that we will be able to play the role of a sales service network in the future. And the second reason is regarding the coverage of the points of sales. We have been ramping up the sales store coverage of the Anbo brand. Last year, when we just launched the brand, we have around 105 stores in China. And by the end of last year, we have opened up another 100 stores. And so far, we have more than 400 stores in China.
William Li: Yet most of the stores are still quite new in terms of their efficiencies and the productivity. They are not yet to a mature level. So it will take some time for these new stores to start to yield real results. We have also done a comparison between a mature store being in operations for more than three months in comparison to a newly established store. The productivity can be as different as three times. As this new store is getting more mature and skillful, we believe that they will also start to play a bigger role. So as you can see, we have made some investments in our sales and service networks in Q4 last year and also Q1 this year.
William Li: And we've been under the pressure for this investment and expenses. Yet we also believe that these stores and the network will soon start to yield results and kicking with effect. Of course, this is related to the maturity of the sales and service network. Now, 60% of our sales and service network is joining the company within three months. Sponsored ADR Class A Sponsored ADR Class A And the third reason is also relevant to the maturity that is regarding the maturity level of our sales force. For the fellow teams of the Ombud brand, 60% of them have been in the company for less than three months.
William Li: And it will take some time to train the team and for the sales teams to polish their sales skills to be able to yield good results and make deals. As the team is getting more mature day after day, we also see that more and more fellows are now able to making deals. And we also encourage these fellows to do more proactive outreach by going out of the stores to actively reach out to the potential users and help expand the funnel. And this will also help us to improve the order performance. And for this year, if we look at the month over month trend for the number of fresh orders, it has been increasing steadily.
William Li: And in terms of number of test drives that we've been receiving and doing month over month, it is also breaking the record. And we believe that these fresh orders and the test drives will also soon be converted into orders and sales volume. Sponsored ADR Class A Sponsored ADR Class A And the fourth reason is regarding the power swap station availability for the on-call users. As in the past several months, we've been We've been making more progressive modifications on the power swap stations to make sure that they are compatible with the on-board product and also providing more batteries for the swap stations.
William Li: Now more than 1,500 power swap stations in China are available for on-board users. And also at the early stage of the product launch we had the short supply of batteries. In that case there was only one battery for the available power swap stations, not enough for the on-board users to experience the full power swap service. But now we are supplying more batteries for the power swap. In that case the experience for the power swap among on-board users are also improving, also enhancing a better work from us for the brand. And also in many regions where we see more power swap stations available for on-board users we also see actually more self-volume for the on-board products.
William Li: Together with our Power Up County initiative we believe that with more power swap stations available in the lower tier cities this will also help improve the penetration rate of on-board in those lower tier cities. And a very interesting number to share with you is that actually in 12 regions in China the self-volume of on-board has already outnumbered the volume of NIO. This is also a good effect or result of our dual brand synergy and also strategy. The recent sales growth has also been affected by competition and negative public opinion. We estimate that the impact will be around 30% to 40% according to our research.
William Li: Sponsored ADR Class A Sponsored ADR Class A Sponsored ADR Class A Sponsored ADR Class A And also another compound factor is that our recent assault volume is majorly affected by the fierce competition as well as the negative public opinions on the brand and also Sponsored ADR Class B As we pick up speed with our orders and also test drives as we further enhance the brand awareness, expanding our sales and service network, growing our team and their maturity level, and also enhance the coverage and availability of the power substations for the onboard users, we believe that the sales volume of L60 will pick up and also fulfill our expectation.
William Li: In terms of efficiency improvement, will it be shared with NIO? Of course, in terms of sales network, power substation network, management support team, and financial personnel support team in some areas, we will be using it. Sponsored ADR Class A Sponsored ADR Class A Sponsored ADR Class A And regarding your question on the efficiency improvement and also the synergies can be leveraged between two brands. Actually, in terms of the after-sales services, power swap stations, and as well as the supporting functions such as finance, human resources, and some regional functions, this has been shared across two brands from the beginning.
William Li: And recently, we are also making further adjustments in some regions for the supporting and the management roles. We are also trying to have one team to oversee both brands, and we see some good effects by having one team overseeing two brands in terms of the sales and the service management. And in terms of the point of sales of Anvil, or the sales network of Anvil, we will keep it separated and independent of the NIO brand, as these two brands targeting different user groups and also are from different brand segments. Recently, we have also been testing some mechanisms so that the sales teams of the two brands can have some internal incentive mechanisms to help sell the cars of another brand.
William Li: We are also looking at whether this can improve efficiency. We are also doing some tests like this. Recently, we are also having some pilot programs where we have the incentives and the policies to encourage the sales team to also sell the product from the other brand. We already have seen some good results by rolling out the pilot program.
Tim Hsiao: Thank you, Tim.
Tim Hsiao: Thank you.
Bin Wang: The next question is from Bin Wang from Deutsche Bank. Please go ahead.
Bin Wang: My first question is about your guidance about the first question. Sponsored ADR Class A Sponsored ADR Class A Sponsored ADR Class A Sponsored ADR Class A Hello, Wang Ming, regarding the profit margin, the first quarter is also the sales season, and the future products of our brand, including 5566, are also facing the switch to 2025 models, so the impact of the inventory will bring a certain pressure As William just said, the sales volume is still a certain distance from our expectations, so there will be some challenges in terms of distribution and profit margin. So in general, the profit margin in the first quarter will still have some pressure compared to the fourth quarter.
Stanley Qu: But from a year-round goal and a fourth quarter goal, we still strive to achieve a profit margin of 20% in the fourth quarter, and a 15% profit margin in the first quarter.
Stanley Qu: Thank you for the question. Regarding your questions on the vehicle margin, normally Q1 is the off-season in the sales of the vehicle products, and also in Q1, we are in between generations for our 5 and 6 series, as they will soon be upgraded to the model year 2025. To clean up the inventories for the existing generation, we are also under pressure regarding the vehicle margin for the new brand. And in terms of the on-road brand, as William has mentioned, the sales performance of the on-road product didn't meet our expectation in this year. Considering the amortizations and other factors, we are also under pressure and a challenging situation managing the on-road product and its vehicle margin.
Stanley Qu: So, overall speaking, the company's vehicle margin in Q1 will not be as good as you would expect it based on our margin performance in Q4 last year.
Stanley Qu: But still, our four-year target is to achieve break-even in Q4. In that case, we have also mapped out a roadmap of our product margin. For the new brand, we would like to achieve a vehicle margin of 20%, and for the on-road brand, it will be 50%.
Stanley Qu: Sponsored ADR Class A Sponsored ADR Class A In addition, we have been doing a lot of work on self-reliance in the past two years. This has also started to bring us a lot of help last year and this year. For example, this year, we are going to install the God Machine 9031 chip, which we have been using for a long time. Next, it will also be installed on the 5566. This chip will bring us a cost savings of about 10,000 yuan compared to the four Orin chips. Of course, we have also made some overall adjustments to the system.
Stanley Qu: For example, our company itself has a very strong cost management and analysis team. We also made some improvements to their ability and influence in the previous year. Now, the cost team will also report to me independently. If each point exceeds 7.5% of the cost calculation, it will be submitted to me and the members of our committee to review.
Stanley Qu: Sponsored ADR Class A Sponsored ADR Class A And the second major action, or the second major contributor of the improved vehicle margin will be contributed by the launch of our new models. As mentioned by William, this year, we're going to introduce and launch nine new models, including completely new models, as well as the model year facelift. For the model year facelift, they will help improve the overall cost for these existing models. And in terms of the new models, in the second half of this year, the new brand is going to unveil and introduce a major product with the new model year facelift, which will be launched in the second half of this year.
William Li: Sponsored ADR Class A Sponsored ADR Class A 关于今年的销量目标,虽然一季度我们预期的增长大概在36到43,也就是说40左右,但我们全年仍然是把销量翻番作为我们年度的销量目标,第一个主要的销量增长的动力主要还是来自于新车,下星期我们就开始要交付 together. Then we will begin from line one... Sponsored ADR Class A Sponsored ADR Class A Sponsored ADR Class A Sponsored ADR Class A Sponsored ADR Class A Sponsored ADR Class A And also, a further comment on the key driver behind the cells volume is the network effect of our power swap network and the recharging network in general. If you look at the cumulative cells volume of the NIO brand and the distribution of the cells, actually half of this volume is contributed by the cells in the Yangtze River Delta area.
William Li: For the Jiangsu province, we have already achieved the power up county plan, which means in every county in Jiangsu province, there is at least one power swap station. And for the Zhejiang province, we aim to achieve also county level coverage by end of this month, except for two islands where they will not have the power swap stations. And also, for the power swap strategy in general, as you may know, our recent strategic partnership with CATL, this will further help us to expand our reach in the county levels with our power swap facilities. In the first half of this year, our power swap network will cover the counties of more than ten provinces in China.
William Li: And by the end of this year, cumulatively 27 provincial level divisions will have power swap stations available at the county level. And the network effect of this swap station will play a very important role, because we have already proved that last year we doubled our efforts on the power swap network in bigger provinces like Hubei and Anhui provinces. And we already see some good results before the swap stations were merely available in big cities. But then we find that the county level coverage is more important in promoting the cells. And for the cells volume in these two provinces, after we achieve the county level coverage, their cells volume is far above the average.
William Li: And this year, we will continue such efforts to cover more counties in more provinces, especially big provinces like Henan, Shandong, and Sichuan. With that, we will help improve the overall market share and the market reach of not only the new brand, but also the on-board brand. Especially the on-board brand.
Bin Wang: Thank you, Wang Bin.
Paul Gong: Thank you. The next question is from Paul Gong from UBS. Please go ahead. Hi William, thanks for taking my question. The AI and robotics has been a very hot topic in this earnest season. In one of your peers earnest call, the AI has been mentioned by 49 times during the whole call, but I guess it hasn't been mentioned here.
William Li: Can you please remind us your latest thoughts on the AI, autonomous driving, robotics, etc.? Thank you. Thank you, Paul. From NIO's point of view, we are the first company in the world to have an AI companion, Gnome, which is very popular with our users. Gnome is the latest model, including our own base model, as well as the third-party models. Therefore, Gnome's satisfaction and frequency of interaction are getting higher and higher. Gnome has become a very profitable IP for us. It has a lot of peripherals, and it has a very high selection rate. As you can see, last year we released some directions for our four models, and we will use them on AD recently.
William Li: We are looking forward to this version. I have seen some of its...
William Li: Sponsored ADR Class A Sponsored ADR Class A 从我们角度来讲,我们近期的任务 From our point of view, our recent tasks Sponsored ADR Class A Another thing I want to add is that from the perspective of NIO Capital, we have invested in the best AI technology in the industry. Memo Sponsored ADR Class A Thank you for the question. Regarding the application of AI technologies, NIO is the first car company to introduce an AI companion in the car. It's Nomi, and it's loved and well-received by many users. For Nomi, it has its own large language model capabilities, Nomi GPT, but on top of that, it is also supporting third-party large language models.
William Li: With that, the satisfaction and also the interaction rate of Nomi is growing. Nomi is also a quite profit-making IP with a lot of popular merchandise and also high take rate. And in addition to the AI application on Nomi, we also have AI applied to our smart driving technologies and experience. As last year, we have introduced the new work model, NWM, and the latest AD version with smart driving release will be based on the new work model. And actually, I have participated in some internal beta version tryouts, and I can say that I really look forward to that version.
William Li: It has quite good performance in terms of the active safety and in the experience in general. And of course, AI is a very important basic capabilities in terms of AGI, in terms of robots, in terms of the fundamental capabilities for AI. But for the foreseeable future, for us, we will mainly focus on our core business, that is the automotive product. And in that case, AI will be more of the enabler to achieve better product experience as well as better business and the management. As AI itself is one of our top full stack capabilities, and it is ever present in every aspect of our business.
William Li: And as many people are talking about how the automotive product is becoming an AI agent, and I believe that the company itself is also turning into an AI agent. But still for the short term, our primary focus is still our core business as well as our operating target.
William Li: But a side note here is that New Capital has invested in a lot of AI companies, especially industry leading AI companies. And in that case, we're in close contact with the cutting edge technologies and also the outstanding funding teams in the AI arena. And in-house, we also have a capable AI talent working on the relevant field. Thank you, Paul.
Paul Gong: Sorry, my second question. My second question is regarding the number of models. I think the company has eight models at the same time right now. And after this year's new model launch, it would move into some mid-teens. Given the cannibalization between each other and also one of the peer has demonstrated with even only one single model, the volume could still be achieved.
William Li: Shall we consider to concentrate more into some blockbuster models and eliminate some of the less popular models to be more focused? What do you think is the most optimal number of models for each of the brands? Thank you, Paul. Of course, from the perspective of NIO, Envoy, and FiveFly, our car model strategy will be different. This is also related to the distribution market and its positioning. From the perspective of NIO, we will generally maintain a relatively stable number of such models. We think that from 300,000 to 800,000, we can basically cover the needs of business, family, and for me.
William Li: We think that with the launch of ET9, we can basically cover the needs of 300,000 to 800,000. Sponsored ADR Class A Users have their own unique individual habits and needs. On the matter of numbers, we will totally responsible for the Bunny Write amount. We produce 2 new models, and 3 from eversafety. We will not increase the number of models. We will control the number of onward models in a reasonable scale.
William Li: Sponsored ADR Class A Sponsored ADR Class A Sponsored ADR Class A Thank you for the question. As we now have three brands, NIO, Envoy, and Firefly, our overall product strategy and portfolio for these three brands will also be quite different, as it is also dependent on their respective segment and also brand positioning. For the NIO brand, we will basically keep the existing lineup, spanning from 300,000 RMB all the way to 800,000 RMB, and it will cover for me, for family, and for business segments. With ET&I being delivered, we are completing this price coverage from 300,000 RMB all the way to 800,000 RMB per segment in the premium market.
William Li: And for the premium market users, they actually care more on the personalization and also the unique identity of the vehicle products. If you look at other premium brands like BMW and Mercedes, they actually offer 40, 50 products in their lineup. So for this segment, users care more about the differentiation and also the personality of their products. As for the Envoy brand, we will be more careful with the number of products in the lineup. This year, we are going to introduce two new products under the Envoy brand. Together with L60, there will be three products in the lineup by end of this year, and we will not drastically increase or expand the existing portfolio, but to control that within a reasonable range.
William Li: As for the Firefly brand, it is a high-end small car brand. In that case, it's not necessary to really offer too many different products. So our overall strategy is to have a differentiated product portfolio and lineup for different brands, but overall maintaining a rather stable and reasonable product lineup across three brands. But for each model, there will be also emphasized highlights and also targeted user groups. Thank you.
Yuqian Ding: The next question is from Yuqian Ding from HSBC. Please go ahead. Okay, thank you, Rui Chen, I'm Yuqian. I have two questions. First, I'd like to ask about cash reserves, supply chain feedback, and our potential financing plan. We've invested more than 250 billion yuan in cash, but if there are some fluctuations in our operations, will the supply chain feel a little worried? Because the supply chain may hope that the company's reserves will be stronger. In terms of sustainability, will the company have a further financing plan?
Yuqian Ding: Can we have a little bit more clarification on that?
Yuqian Ding: Second question is about the CAPEX guidance. Can we see a little bit of a breakdown into a refreshed CAPEX guidance this year? We talked about a commitment into SWEP network, but since we signed up the collaboration with CATO, can we leverage partnership to do some CAPEX building? Can we expect the CAPEX to taper off this year? Thank you. Okay, Yuqian, the first question is, by the end of 2024, the company's cash reserves will be 49.1 billion yuan. In fact, QE, of course, the entire sales will have a slowdown according to our guidance, and the operating cash flow will have some outflows.
Stanley Qu: Of course, as we just said, this year is actually a big year for our product, and with the increase in sales in the second quarter, we still have confidence. The next operating cash flow can be greatly improved. So, as we just mentioned, in fact, at the beginning of the first quarter, we also made a lot of adjustments and classic actions. Such a financial impact will also be reflected in the second quarter report. In general, we will still manage our cash flow more cautiously to ensure that our existing resources can support the development of our next business.
Stanley Qu: As for financing, in fact, whether it is the US dollar market or the RMB market, whether it is a public or a non-public market, our financing channels are relatively rich. As for financing needs, we will continue to pay attention to the entire market dynamic according to the development of the company's business, and then flexibly arrange our financing capital market strategy and financing plan. Thank you for the question. Regarding your first question on the cash reserves, by the end of 2024, our cash position was 49.1 billion RMB. And in Q1, as we see the decrease in the south volume quarter over quarter, we did experience an operating cash outflow.
Stanley Qu: Yet, as we have introduced that this year will be a pivotal year for our product launch, as we witness the rebound start in Q2, we will also see major improvement in the operating cash flow. And also, as we have previously introduced, starting Q1 this year, we have conducted a series of adjustments and also streamlining activities. This will also be reflected in our financial performance starting Q2. Overall speaking, we will be prudent with our cash flow management to make sure that our resources can sustain our continuous growth and development. And regarding your second question on the fundraising, we have a variety of fundraising channels for the capital market, for the U.S.
Stanley Qu: capital market, RMB capital market, public or private. We will be planning our fundraising requirements and activities according to the operations of the company as well as the changes in the market.
Stanley Qu: The second question is about CAPEX. In 2025, which is also the big year for our products, we will gradually put these related products into use. In addition, our third factory in Hefei will also be put into operation with our new products. So this year's CAPEX scale will increase a little more than in 2024. Of course, we will carefully control the overall rhythm, combining with the cash situation I just mentioned, to manage the use of our cash. Regarding distribution, you just mentioned the capital expenditure of the power station. Since last year, the principle of network construction at the power station is to try to coordinate the resources of our partners.
Stanley Qu: Last year, we also launched a plan for home appliance partners. So in this year's plan for home appliance telecommunications, we hope that most of the construction of the power station will still rely on the resources of our partners. So the construction of the power station will not take up too much of our CAPEX scale. And regarding the question on the CapEx, as we have mentioned that this year we will launch major products. In that case, we have made the CapEx spending in the toolings and also the production equipment together with our supply chain partners. And in the meantime, as we are launching new products, our third factory is also going to be put in operation depending on the world production plan.
Stanley Qu: So our CapEx this year will be higher than in last year, but still we will have a very prudent measure and manner in managing our investment pacing and also our cash position to make sure that we have a very good control over the spending. In terms of the CapEx for the PowerSwap stations, starting last year in terms of the PowerSwap network expansion, we have already started to adopt one principle. That is to leverage the resources of our PowerSwap partners as much as possible. As last year we have announced the PowerUp partner plan where we invite the partners to jointly build the swap stations and the network.
Stanley Qu: For the PowerUp county plan this year, most of the stations will actually be sponsored or built by our partners than by ourselves. In that case, the CapEx utilization for the PowerSwap stations will also be relatively limited. Thank you.
Ming Sun Li: The next question is from Ming Sun Li from Bank of America.
Ming Sun Li: Hello William and Guanling Chen. I will ask questions in English. So, first question is regarding your autonomous driving technology plan. When do you plan to roll out your end-to-end model? And in the future, do you consider to use the Thor chips in your car? Or you will use your Shenzhen chips in all of your NIO branded models? Thank you. That's my first question.
William Li: Sponsored ADR Class A Thank you for the question. Actually, last year, we have already implemented the end-to-end solution to our active safety features, as different companies may have a different priority or force ranking on the technology applications, and for us, we believe that safety matters the most. That's why we have implemented the end-to-end model, firstly, in our active safety features, and we did see major improvement regarding the safety level, week over week, by 40%. So it is playing a very important role in providing a safer trip for our users. And in terms of the end-to-end solution-based Navigate on Pilot Plus for the city roads, we have also started small-scale testing and internal testing, and we plan to release that to our users by the end of April, after a series of preparations and also approval applications.
William Li: And regarding the use of the chip for smart driving, ET9 is going to premiere our in-house developed chip for the smart driving. It is made with advanced manufacturing process in next 1931, and after ET9, our 2025 model year, the 5 and 6 series will also be launched and equipped with the in-house developed chip for the smart driving. So all the future new models will be equipped with this in-house chip. As for the on-board brand, currently, it is using the OrinX chip for the smart driving functionalities, and it does not have plan to use SOAR.
Stanley Qu: Thank you.
Stanley Qu: My next question is regarding the OPEX. Because in the past few quarters, we continue to see your gross margin continue to improve QOQ, but for the operating expense, do you have the latest guidance and new plan? For example, in the past, William mentioned that the stabilized R&D will be RMB $13 billion every year. Could you give any new updates for this number? And also, for the sales and marketing expense, do you have any target ratio, OPEX ratio for this number? Thank you. About OPEX, we will continue to invest RMB3 billion in non-GAAP every quarter. This year, we will focus on high-investment-return projects to optimize our project flow and ensure that our R&D costs can be invested efficiently and efficiently.
Stanley Qu: Thank you for the question. Regarding OPEX, in terms of the R&D funding and expenses, for this year, we will continue to have the same intensity level for the R&D expenses, around 3 billion RMB every quarter on the non-GAAP basis. Of course, as mentioned by William, this year we have rolled out the CBU mechanism where we emphasize more on the project with high return and also high yield. In that case, we will also optimize our project initiation and approval process to make sure that our R&D expenses are reasonable and also efficient. Regarding SG&A, the first quarter was indeed challenging, mainly because the first quarter's overall sales were relatively low, so compared to the overall sales volume, the proportion was higher.
Stanley Qu: Secondly, due to the expansion of the personnel and performance of Leidao, QE is still in progress, so the cost of QE for Leidao's SG&A sales will also increase. However, we have already taken some management actions, we will improve the performance of sales, reduce the scale of non-first-line salespeople, and combine and reduce the interoperability of future and Leidao's dual-brands and some other management support functions. Next, we will sell our Firefly models in the NIO system. All of this will be reflected in our report in the second quarter. The overall proportion of SG&A's sales revenue will increase as our sales volume increases, and our goal of achieving profit-loss balance in the fourth quarter.
Stanley Qu: Compared to the first quarter and the fourth quarter of last year, I believe there will be a great improvement. This efficiency will gradually be reflected in the increase of our sales, as well as the increase of our personnel and performance. And regarding the SG&A expenses, we did have bigger challenges to manage in the first quarter of this year. As Q1 is normally the off-peak season for the sales, the overall volume in Q1 is not so high. In that case, the SG&A expenses account for a bigger part to the sales revenue. And also, in this quarter, we are still building up and expanding the sales and service network, as well as growing the sales force capabilities for the Envoy brand.
Stanley Qu: In that case, Envoy's SG&A expenses is also higher. But as we have introduced, we are going to take a series of actions to improve the efficiency and the productivity of the teams, and also to streamline the non-frontline sales functions to consolidate some of the sales functions between the NIO and the Envoy brand, and also to leverage NIO's network for the sales of Firefly. With all these actions taken, we expect the better results to be reflected in our financial performance in the coming quarters. As we grow our sales volume and also gradually achieve the break-even target in Q4, you will also see SG&A accounting for smaller portions to the sales revenue.
Stanley Qu: And with that, you will see also the effect reflected by the improvement in both volume and also in the efficiency of people.
Unknown Executive: Thank you William, thank you Stanley.
Unknown Executive: That's all my questions. Thank you.
Jing Chang: The next question is from Jing Chang from CICC. Please go ahead. Thank you for the question. I have a small question. We can see that the margin of other income of our 4G company has increased to 1.1%. Can you tell us why? Is it because of the after-sales or the shortfall of the power service? If we look ahead, with the increase of the total number of power cars, we expect the margin of other sales to gradually reach what level? So my question is regarding to the other sales, other revenues, and we can see that in the fourth quarter, the gross profit margin of other sales has already been positive and reached 1.1%.
Stanley Qu: So could you please break down the reasons for this?
Stanley Qu: Sponsored ADR Class A Sponsored ADR Class A Sponsored ADR Class A Thank you for the question. Regarding the growth margin of other cells, it mainly consists of three things. The revenues from the after-sales services, revenues from the power services, and also revenues from the technical services we provide to the supply chain partners and also to affiliated parties. As for the power networks, as we are still making advanced deployment of the power swap stations, we will still encounter slight loss-making with the combined margin of the after-sales services and the power services if we exclude the technical services.
Stanley Qu: In terms of the technical services, if we can make major deals or if we can make major progress, probably there will be some good news to disclose. Thank you.
Tina Hou: The next question is from Tina Hou from Goldman Sachs. Please go ahead. Thanks, management, for taking my question. So I have a quick one just regarding our longer-term outlook, say, by 2030, do we still maintain our previous, I think, volume and the margin outlook? And could you please remind us of your revenue scale, sorry, your sales volume scale target as well as your maybe overall growth margin as well as operating margin? Thank you.
William Li: Yes, although we are still on the way to achieving this year's profit, but if we look at the long term, it is true that in the field of smart EV, or in the field of cars, if we want to maintain a certain relative competitiveness, in the long term, to achieve a scale of more than 2 million units, to achieve a profit rate of 20%, a net profit rate of about 7% to 8%, should be said to be a long-term, a car that can continue to operate, a goal of a smart EV company. Of course, this is also our long-term, in terms of operation and sales, we think it is a long-term, a basic growth line.
William Li: As right now, the company is still striving to be breaking even in Q4 this year. If we set for a longer term outlook for the future, we believe that for the smart EV companies or for the automotive industry in general, to maintain a relative competitive edge among the competition, a annual volume of 2 million units with 20% growth margin, 7 to 8% net will be a baseline for a smart EV company to survive for the longer term. Thank you, Tina. Oh, thank you. Thank you, William. Thank you.
Unknown Executive: As there are no further questions now, I'd like to turn the call back over to the company for closing remarks. Thank you so much for joining us today. If you have further questions, please feel free to contact NIO's IR team through the contact information on our website. This concludes the conference call. You may now disconnect the line. Thank you.