Q2 2019 Earnings Call
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Thank you.
Thank you so much on operating through your language beyond listen only mode. Thank you for certain parties as you can imagine we're in a very sensitive period during which we are not at liberty disclose the confidential information related to those projects.
Let us to initial decision to cancel the original call on September 24th.
Further.
We believe that Q2 earnings release distributed yesterday provided a good update on the company's operations and financial performance.
This is a very fast moving and fluid situation with many advisers, helping to navigate this period of time.
And it has not been easy to find the path that is best for everyone.
However, after receiving numerous investors inquiries since the original call cancellation, we ultimately decided that resuming our original plan to hold the call provides more transparency in serves the interest of our investing community better.
As it relates to the call. Please understand that we will not be able to disclose any specific information or answer any questions regarding the neo China funding projects today.
We will disclose further information when the projects reach a stage there with subject that would.
Subject us to a disclosure obligations.
With this I will turn the call over to William Li for our business highlights.
Thank you Lori will intend to everyone.
Our call today, I was being mainly Chinese and I mean, if Tom Williams.
In February .
So digital woman you can go full attention when was the family.
I don't bulk or send me bank supposedly going in and he didn't he thought he also has to be yes, eight indeed the basis I'm not going then called on the median will go into that they will the yet.
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General and Chen will make you would have delayed enthusiasm in total and how many of you can you dug into one.
Yes, Hello offline.
In the second quarter.
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We.
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And 17 or high performance, you had said function.
HM.
Other five senior high performing premium market I'm asking me. Please comment you think you live or anything like Jim.
Third quarter, we expected to Delever between 4000 204400.
Right, Okay, accumulative anyway, Yeah, hey, thanks.
Very 20, we found them by the end of September users in over 270 seeking throughout China.
Today already yes, I guess it takes you just have to learn more than 259.
And to support all the users on there's no new power has completed more than 200000 cars.
All the wind clean power center.
Well then they are people that don't therefore dealt with money that you would you called you know.
He is the two most of them personally I'm not here like we intend to Tony you into a piece of the two sadiola time to put in some years ago them that Uh huh.
Good thing because you did not regardless of how much she didn't know down during this call is ideal of agnostic about natural defenses and timing of all kinds of that give them look we'll tell people nobody anytime he just into the future. So that they're looking for a total of 2 million more top talent to get it would trading income color.
Safety issues, obviously, we feel to cancel.
We achieved over the second quarters leeway results against the backdrop pulls back.
First continued Oh wait.
The Chinese auto market, we saw a 14.3 person softening passenger vehicle coal sounds itself from a year earlier second good competitive discounting among <unk> auto brands with data showing that average selling high pacman has dropped to 20.
And then just 25% compared to its people I'm sorry electricity for subsidy reductions just starting late March I know you can easily HM which in fact in demand for electric vehicles and roughly between consumer discretionary spending as a result offer my.
For your mom and uncertainties surrounding U.S., China tweak pension.
That does not sometimes you monetize senior you know bias and yes age related so now that goes on getting them there assuming to comment I mean D.
Thanks Lloyd.
Well, but she also then it goes on too much and as soon as to how many been number yes, either he has to change the minimum wage somebody to him.
Despite the overall environment.
For the first eighth month on 2019, South already is a right right in China clean electric I seem to be market.
Yes, Hey, Winston only electric vehicle among the other nine I see models in top 10 also although HM two large as easy money.
Well, then somebody will hear more kids with double yet Steve made your volume will get into yesterday, they look pretty something in Atlanta.
I guess the U.S.C. you saw that doesn't yet come Thomas you. How many did did you can do either mm.
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Sometimes don't realize welcome Joe we are more clean food, all but don't tend to be targeting the neither yes things that she's Amanda pushing yes, we haven't hyper will not be cut to the Gulf will pivot if possible can talk about it yes. It creates a limitation the easy to hung in there.
It was another dog by East America's Best adequately limiting called me a quick to shoot akimbo. He isn't one tempur to them down to them to dr. tissue lighten downtime in the me for him he hambok woman the permanent to me.
We've started to Delever is off all the intrinsic <unk> Kim. Thank Ben we have received a broad I, probably maybe he's only anticipate some folks Louisiana and all the user is particularly well if outstanding fighting a hearing extended to driving range and.
How dismiss design features we have seen growth of all the order backlog of salaries and a lot before we.
As we started to go out and more expensive sounds memory.
And more importantly, I can go and more than anything you can act as over official brand ambassadors and threatened favorable word of mouth.
From the production perspective, we will begin producing Anderson remains I guess, the sixers standardization, Adam more competitive retail pricing at the end of September imitation starting in October . So could you give me Lorraine they get sake, I mean, yes, eight waves and 84 kilowatt hour.
We attack extending their in D.C. driving range to 520, some years and just 430 some years respectively.
Board well continue to enhance product competitiveness and strengthen fell by further advancing longer software and autonomous driving technology.
Turning to lean Sendas HIFU yields for the time. He did so we did a pool sounds like doing the color considered in the meat.
I will answer that don't tend to go Saudi impactful, presumably him thinking how we'll look for job it sounds like <unk> <unk>, but DRG to pay the Neal pilot a boom and bust. So somebody attack you do see him up out to clients you did a student who got.
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Can you give unpardonable come to the potential.
We believe that commitment to long term competitive <unk> supported by cutting edge technology outstanding products and actually set I think you continue to invest in leading technology and how easily has filed over 4000 to tighter spacing.
And in Q2 aren't new pilot has achieved a comprehensive level kids was eight has acted very carefully and I'm, saying.
Furthermore, as I have often Neil and that again eight boes, Brent good <unk> brand and the paradoxically. According to research by getting powered on China, New energy vehicle user experience.
We usually have given has an average rate of 4.9 out of a fine one hundreds of thousands services.
Well, the invade who might tell them that sort of banking momentum that she is sort of caught up so to lead our might sound quite imbalances.
20 minutes, you talk like somebody comes with a combined kick off into the country BB somebody who used to sell hope. It took a hit you talk to you can be summed it up in China.
My phone can take the challenging market conditions, we are aggressively expanding alright, South Africa to accelerate Audrey taking comprehensive badger securities over costs across the organization and improve operational efficiency younger companies really well share.
More details on taking shape teach the later even call Lewis. Please go ahead.
Thank you William.
Fixing the challenges in Chinas auto industry, we're focusing ourselves initiatives in three areas, creating retail points of sales called neo space spaces strength, any regionally driven promotions and implementing commercial leasing options for corporate users and fleet operators.
First Neil space.
We are expanding our sales network through Neal brand itself.
Zones called Neal spaces, Neil spaces, which are normally less than 200 square meters will allow us to quickly cost effectively have meaningfully increased the number of cell points.
In the in the market they will be primarily located in shopping centers and mall communities with high traffic flow. The majority of the neo spaces will be invested by our selected partners.
By the end of 2019, we aim to have.
Style pushed around 200 neo spaces in over 100 cities across China.
He is well bassi expand ourselves footprint throughout China, where more potential users can see touch feel and drive and truly enjoy exhilarating, yes, six and yes, eight driving experiences.
Second we are significantly strengthening ourselves approaches by encouraging more regionally driven promotions in September we introduced the the free battery swapping policy. It it is attracting a large group of potential users to the cities with existing swapping stations in Beijing I see.
Vehicle users have opportunities to buy and yes, yes, six with extra incentives.
In addition, we offer more than eight different auto financing programs with seven thanks to our users which in a victory diversifies the solutions available to meet different users cash needs.
With these actions being implemented we have seen order growth accelerating said significantly since September .
Number.
We're also driving sell through selling cars to corporate users and fleet operators. Moreover, we are introduced a membership scripts subscription program, which users have opportunities to read and drive our products for one month or more.
For the experience the product and services.
In addition to the sales initiatives, we're implementing comprehensive cost control measures across the organization.
These measures primarily focused on increasing.
Deficiencies and streamlining operations within our sales and service network, and our R&D functions as well as reducing our headcount.
First our sales and service network.
As mentioned previously we're expanding our offices sales network by adding new spaces, new spaces or cost of way to implement significant and larger footprint in the markets and much less capital intensive compared to our flagship Neos houses.
Turning to R&D, we remain committed to advance driving technologies and development of our second generation platform and P. too.
In the future R&D investments will focus on mass production applications, we're actively seek strategic partnership opportunities and bass technology development as a means to prudently manage our spending in this category.
We'll also be reducing costs by further optimizing the size of the workforce. After extensive internal reviews, we have determined that our head count can be further reduced we target to reduce our head count around 7800 by the end of the third quarter from over 9900 in January 2019, and we expect further headcount reductions by the end of this year through.
Both restructuring and spinning off some business business units.
With this I will now turn the call over to our Vice President Finance, Nick one to provide the financial details for this quarter. Nick. Please go ahead.
Thank you loose.
I will now go over some of our financial results for the second quarter of 2019.
To be mindful of the length of this call I will address financial highlights here and encourage listeners to refer to our earnings press release, which is posted online for additional details.
Our total revenues in the second quarter of 2019 were 1.5 billion RMB or 219.7 million us dollars, representing a decrease of 7.5% from the first quarter on 2019.
Our total revenue made up two parts vehicle sales and other sales vehicle sales in the second quarter on 2019 were 1.4 billion RMB four 206.1 million U.S dollars, representing a decrease over 7.9% first quarter of 2019, mainly due to the decrease in sales volume caused by.
Via electric vehicle subsidy reduction announced in late March and slowdown of macro economics in China, which has been exhibited by the U.S China Trade War.
Other sales in the second quarter of 2019, or 94 million RMB or 13.7 billion U.S dollars, representing a decrease of 2% from the first quarter of 2019, mainly attributed to the sales decline in charging piles, which was in line with decline in vehicle sales.
Cost of sales in the second quarter of 2019 was 2 billion RMB or 293.2 million euros daughters, representing an increase of 8.8% from the first quarter of 2019, mainly caused by accrued recall costs in relation with the company's voluntary recall of 4000.
803 vehicles announced on June 27, 2019.
Total recall costs accrued in the second quarter of 2019 were 339.1 million RMB 449.4 million us dollars, including 283.3 million RMB or 41.3 million euros daughters recorded in cost items vehicle sales.
And 55.8 million RMB 4.1 billion euros daughters recorded in cost of other sales respected respectively.
Excluding the accrued recall costs cost of sales in the second quarter with 1.7 billion RMB or 243.8 million U.S dollars, representing a decrease of 9.6% from the first quarter of 2019.
Gross margin in the second quarter of 2019 was negative 33.4% compared with negative 13.4% in the first quarter of 2019, excluding accrued recalled costs gross margin in the second quarter was negative 10.9%.
More specifically vehicle margin in the second quarter of 2019 was negative 24.1% decreased from negative of 7.2% in the first quarter of 2019, mainly driven by the accrued recall costs, excluding accrued record cost vehicle margin in the second quarter was negative for focus.
And.
Research and development expenses in the second quarter of 2019 were 1.3 billion RMB or 189.4 million users increasing 20.6% sequentially.
Primarily attributed to an increase in rigorous testing activities of the NSX before its mass production in the second quarter of 2019.
Selling general and administrative expenses in the second quarter of 2019 were arm of 1.4 billion RMB or 207 million us dollars, increasing 7.7% sequentially.
Primarily driven by the company's marketing expenditures on the Shanghai Auto show and Essex Test drive campaign in the second quarter.
Loss from operation in the second quarter of 2019 was 3.2 billion RMB four 469.9 million us orders, increasing 23.2 percentage sequentially.
Excluding accrued recall costs and expenses loss from operations in the second quarter was 2.9 billion RMB or $418 million dollars.
Our net loss was 3.3 billion RMB or $478.6 million dollars in the second quarter of 2019, increasing 25.2% from the first quarter of 2019.
Basic and diluted net loss per Ats in the second quarter, we're both 3.23 RMB 447 cents.
Our balance cash.
And cash equivalents restricted cash and short term investment was 3.5 billion RMB four 503.4 million us daughters as of June 32019.
And now for our business outlook.
For third quarter of 2019, the company expects deliveries of vehicles to be between 4000 204400 units.
Representing an increase of approximately 18.2% to 23.8% from the second quarter after 2019.
Total revenues to be between.
One point.
1590, $3 million or 232 million use daughters, and a one point.
Six to six 3 billion RMB.
For us dollars $242.2 million.
Representing an increase of approximately 5.6% to 10.3% from the second quarter of 2019.
This concludes our prepared remarks ill now turn the call over to the operator to facility our QNX sessions.
Thank you.
Ladies and gentlemen, we will now begin the question and answer session to ask questions on the phone. Please press star one and break trend named Depay announce if you like to cancel requests. Please press the pound all hash key.
The benefit of all participants on today's call. Please limit yourself to two questions and if you have additional questions. Please reenter the queue.
First question comes from July of Fun way from C. I see see please go ahead.
Thanks for taking my question.
Okay.
The first because it was about your cash flow from Atlanta activities.
We appreciate the progress of the capital raises in China, and besides the 10th instrument deal were judged by our the financing an option is such that you and my second question is about.
Pardon.
And at six we have observed very jumbled in terms of ethics.
Sales declined after the call, which could you share loss saw about they felt a little of eight and ethics. Thanks.
Thank you a phone I think on the first question or we're not going to take that question for now because it relates to try to financing project you do know that I'm trying to release that we do a 200 million U.S. dollar.
<unk> bond deal so that when a is the one that is already disclosed regarding to the yes eight yes six orders William do you want to address that question. Please.
Okay.
The headwinds.
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Due to delays.
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Yeah.
Mhm.
Thanks for your question.
So HM.
Ryan all good things and fine challenging that's a factor.
That being challenged by HM.
Because we said subsidiaries action from Boston Twentys HM.
I mean, everything up and down I have to be fine I'm busy the time so [laughter].
Not a woman and female two children is done so I'd say good she doesn't buy them woman been middle to take that she Jim I hear things no change in digital camcorder stemco related downtime for the yeah. So difficult to kill you would do they have to put us not to women children bias and yes. It is down.
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Please use the figure.
And then we had another two bedroom golden criticism, because it does it goes without the other.
It was telling you to the here soon township I hadn't shown up.
As you can see in July and August .
We didn't take mm <unk> to provide remain over them pricing actions like anything new there.
You can you consider that kinda back from high coupon, there's plenty of made the kinds of a yet they actually increased the my in Pennsylvania.
Hi, Jeff now have a mentioned at the price also those is clean eating into Washington has that the premium cars in the market is actually has ever you. So this means that well a factor that that was also over time, but no July and August time.
On a woman phasing out he has taken a ziggos how do you didn't see a closer look would have hit new highs if you're not you seem to them. So opinion kinda that Joe Wilson to go. He has stated that because neither the slow down could take Oh can go to handle trulia definitely in line not a woman size listen, but because the jumbo possible again the families.
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We have quite confident about the components amazed offer that usually Florida and the timing.
And they continue in September the leap I'm does it sounds Oh, so yes, they are kicking off in the market.
<unk> October were going to Delever the agent for kilowatt hour battery version, yes, eight we believe we stated he can actually how if I could take they said they find range up you have made.
Which has been a issue for you guys, making them hot and based on how best to make sure that comparison with the already this eight.
In the state specific second my simple Useight, we believe they can actually compete with the other I'd cards and <unk>.
So there's not I don't know why didn't you know you know bias and woman say take a cheap she's a whole new product called on the as to maybe then nobody yesterday that used to that Chen said, what makes him the show them that tends to be made really.
The gallery she okay.
So the also Oh, sorry, yes, the age right. After the top freedom, who does have a theater and the 16 or have you seen lucky if I can.
[laughter]. Thank you.
Yeah.
Thank you for the questions.
Next question comes from the line all been Wong from Credit Suisse. Please go ahead.
Cleaner, how we aren't even chaos teams playing so that's all played out and then when we go now you wish him into the thought what a thing going on so why shouldn't be mismatch and Uh huh.
When do you want them and congenital sure that's Roger someone might actually done I just cannot change out I was wondering if I'm not sure machine, especially on Nick.
Of course, I just wanted to touch on White House, that's what's kind of some of <unk> do you continue to live and get into something I'm in Kansas.
Do you don't units all show them kind on until I took the that's probably not hard to put a needle newbie multi now she wants what cash on the hot launch and kind of them kind of now that you sleeker Chotia I'm kinda onto this year.
Thanks, Phil on South you might know Michel Katie I'm trying to find dealer show two quickies, helping them already do you feel going Oh, my gosh. It can I couldn't do when it hits, which I'll kind of $80. Yet you should not quite hard for you. When you want to alcohol I took another show commodities yanacocha tenant I'm only use all she made such a many ocwen changeover from tobacco commodity away.
Could you guys John Schoen won't cause you know, how which is going extremely well.
Well I think I saw you find yourself.
Actually caf two questions number one is about the comp because originally we seem to come any kind of recall cost limited culturally batteries, the pattern, which has seen a channel but aren't always seen up not palm trees artist items, most opera cost controls deal I'm only half what sort of lead them.
You know such a difference that's for a first one question second wife, Palomar <unk> auto cut because what we've seen the organic margin gross margin in the second quarter actually has the improving compared to first quarter, we see see huntoon due to human abuse number why such a Neal we opened a new house overnight sort of potty patent as she was shot.
<unk> Patel from a profit were stuff on the third party sequencing stats you seem to not to more promotion seems not sort of caught such Einstein Humphrey auto insurance.
Auto finance Farina battery swap so it wasn't that much in guidance because previously we kinda module improving the second half. Thank you.
Oh William Yeah.
And.
Hey, good Bob.
Okay.
But I'd be doing.
<unk>.
Nick a woman they go well take a woman that quickly enough to go back into the going as well, but it would take.
Good to go to take a little mountains uses a bit on T.C. that took over let's say Oh I got the pick a go down because many of them to the codell somehow it looks and do that because nobody that because I'm going to sort of going I'm sure.
I did hear one could take a yeah well you know about this is a bicycle feel uncomfortable and see a woman to take a [noise].
Like the incident I believe.
No. There's when he was asking about the probably the so you don't get into adult at Anfield She's looking at the girls are you a woman. So you'll see does not anticipate lunch is one of the study, though it seemed that in Boston.
I see though can go into position no woman they take a woman seen in global is it a super duty man.
A woman she wasn't literally go well either it'll come down so you'll see that she is a good you love kind of border. So that's what I'm pleased with them because they don't fit.
Okay.
The first Nick you want to do the gross margin question.
Oh, the live learn even from currently the first part by battery recall.
Oh, sorry, not really clear.
Lastly, we incur weighs on battery supply chain honors every pardon me here and there has been made clear in the announcement in the national market.
Terry Euro, but each other than I've ever really friendship with that battery supply chain partner is a longtime one we have agreed how we're going to probably the caused that probably recall, but if I recall, a very significant cost because it it will cover the news.
Battery pack of protection logistic and execution, we believe it does share out of their responsibility is actually quite reasonable and the cost.
Segmentations also quite reasonable.
Conservatism, but there's not really it's quite clear regarding the mildly coins.
Yeah. This is Nick I'm happy to answer your second question about margins I'm going to speak only of English, let's say couple audience.
Actually in Q2, you're right lumping, we accrued I will caution our portion of the battery recall related costs at a roughly a RMB 283 million or in a cost vehicle sales. If you exclude accrued a battery recall costs. The company is overall gross margin was around.
Negative 11% in Q2, but all of the that's really our vehicle margin vehicle sales margin is negative 4%. So better okay. Both margin were better than Q1 margins and essentially.
But we also expect we're going to deliver more vehicles.
In the second habit to the 19, which I believe well certainly helped the gross margin from those skill economy, especially production related.
However, we also expect some mix margin trend coming from the the model makes an option. That's the Oh, you can call it the controllable elements, though but market driven okay.
The gross margin will heavily dependent on the volume of the deliveries a unit price in green options or each vehicles, we sell.
So with our best estimation, so far the gross margin will still be negative for the rest of the your I think conservatively speaking so that's that's the best be your Mylans her for there's a margin related apartment.
[laughter].
Hi, gentlemen, good.
Thank you for the question. So next question comes from July off Ryan Brinkman from JP Morgan. Please go ahead.
Great. Thanks for taking my questions. The first one relates to gross margin in the context of a softer volume environment. So no backing out the higher warranty costs in Twoq, you would the underlying margin of negative 4% or so I have been roughly in line with your expectations and you know how should investors expect being.
Gross margin to trend going forward, given this backdrop of lower industry and Neil volume.
Nick you want to take that I think.
Yeah.
You've got food right Q2 vehicle growth margin negative, 4% again like I said.
The second second half, we probably still going to see a pretty tough market.
But we also see on potential upstate in our volumes I think so overall the corner. The estimation ran for vehicle margin in Q3 is going to be around I would say vehicle margin I mean around the negative 6% and Q4 is between negative 6% to make the 10% conservatively speaking.
Okay, great. Thanks, Brian My question just relate yep.
Right now finished that we're going to start delivering the based model or the S. Six at the end of this month. So it probably next week. So yes. It's based model will have a lower margin. If it doesn't have all the options it'll be counterweight, it's somewhat by the 84 kilowatt battery versions that will start shipping next month for Q4, which will have.
Higher gross margin and then it gets Nick said earlier it depends on to the uptake of the volume of the options. The options are very high margin.
So but volume will also would definitely help a vehicle gross margins.
That's very helpful. Just my last question is on that.
Distribution strategy, our you know if deliveries remain a fewer than anticipated for longer could that caused you to consider potential adjustments to distribution strategy, particularly with regards to the presumably largely fixed cost Neal houses can you talk about the relative cost and capabilities of the neo base compared to an Neal house.
Well, the neo space or sometimes or prepaid by partners and also a the cost would be less than 1 million RMB. If we had to do it all ourselves on average so it's very economical its also in high traffic areas. So that's the direction, we're going to larger new houses we're done initially.
I hope the company build a brand and to get users.
Into the into the Neil branded you a user experience. So those have a three to five year lease terms. So they will as going forward, you'll see our strategy would be to build more smaller neo space type operations and if we do renew new houses they won't be as big a in as luxuries as the ones that.
In the original ones, the Beijing, and Shanghai large cities.
Now we know what Tony.
Well, the new space that take Oh sort of English young woman.
Take a dealer I'm sure Oh, no human put a timeline.
Although they don't put a relationship that's a woman yeah. The please.
I'm willing to supplement it just wanted to do the batteries, there's only so the one oh I hopefully a woman the newspaper.
Yeah, I mean the.
Okay.
So.
David This is Daniel business equal property hits, who did not me well hopefully it'll can go to the one that to the yeah Oh no. So you city now let's be lives isn't something good young you paid sometimes he did when we don't think.
Oh, I see I, just can't point HM.
Oh, good cooperation model Gordon babies is different from the traditional dealership Corporation you guys. That's why we still can cover the touch point any doesn't do that relationship and then you're saying we have on their own follow to directly so on reducing the newspaper I mean that.
<unk> distribution strategy do you have direct itself.
We got to persuade the over time I said, she okay do better security <unk> batsmen everything.
So basically the coffee is going to based Oh you.
In the newspaper.
Yeah, right, we're actually very excited about neo space I'm, just as we begin to roll it out in September or we've seen a significant uptake and orders the last three weeks. So this whole, but the September has been doing much better than July in June July and August . So I was quite slow August a little bit better and that's it.
Remember is a is really picking up and I think it's very important as we reached a touch points now why did this year will be in over 100 cities.
And so and it's a very cost effective way for us to to increase our reach a throughout the Chinese large cities.
Okay.
Next question.
Thank you for the questions next question comes from July or Dan Golf's from Wolfe Research. Please go ahead.
Hi, Thanks for taking my questions.
So you know I think as as a result of the market conditions and kind of the things the way things have played out this year. It seems like you had do you have a lot of plans oh changes to the business.
I I was wondering and probably you know thinking about the business at a lower volumes longer term.
I was wondering if there was any way you could roughly talk to US about you know given kind of changes to cost structure that you're planning and changes to distribution strategy.
You know is there a a volume level that you believe that you can break even.
In the future and how much capital do you think that you need to kind of exit.
And have a.
In a bold balance sheet.
Yes, I mean thats a very good question I think its we don't have enough.
Data, we just started rolling out the new spaces and a as you know on the volume side <unk> at the beginning of this year or when did our forecast for the show we didn't expect the that China's auto market is never shrunk as far as I know and then in the trunk 14 months in a row. So we want to see.
How did you also know we just released a new car, yes, six so we would like to see how are the momentum in the market. The sales pick up we will do our budgeting at the end of this year by then we'll have three or four months with a with a dozens of neos basis to see how the economics work.
This is the traditional model and I think is that you're going to see us cut.
Costs significantly Dan So you will see a much leaner operation from Neil and so I think as the volumes won't be the other the 120 150000.
That we had talked about last with these big new houses and the other thing is we are we have R&D initiatives in place to reduce our battery pack costs significantly, which will come out next year as well. So those will all be calculated together as we do budgets and as we get more trackers up its little bit too early I'm not trying to avoid your question.
That's really to a budget for next year, yet given all these the turmoil and all the changes in the in the markets. This year, so give us about give us until the end of the year.
Thanks, Louis that's fair and then just to follow the follow up if I could is.
You know the cash burn and I was wondering if you could talk to us about them.
Kind of the level of pre launch cost for E. S. Six in terms of marketing and engineering that that that May go away.
In Q3.
But on the other side it seems like most of the cash cost for the recall happens in Q3. So I mean, maybe just talk to US about you know is there a potential to meaningfully reduce the cash burn.
That you saw in Q2 in Q3 in Q4.
The answer is yes.
We cannot Bert we cannot do 3.2 billion and operating loss. So you'll see a significant reduction in Q3 and a further reduction in Q4. There is we have to do it.
Okay. Okay. Thank you very much.
Yeah, I mean don't forget we've already cut we've already cut headcount from 900 down to 700 and this further to calm. We've also we have also I have strict expense controls in place, we're not expanding capital.
Spending capital for Neal spaces, but not for a lot of other things we have not started adding any swap centers were not there's not as much cash usage.
And with a lower headcount and we also plan to spin off some noncore businesses as well.
Which we will we will disclose as as they as the deals get done.
William did you want to add something.
Yes, yes.
A woman.
How is that going to dahomey intensity.
Thank you again.
Yes.
Right.
Mention.
Right now we are.
Uh huh.
The ongoing.
Project to add to the cost reduction.
Hi, Jason.
No.
We believe that the company will have.
Some women.
Yeah, no I won't even though they don't pull me about.
See you on that that would come in.
Hello.
Thanks, Larry I'm sorry, okay.
So.
Cash flow and cash position.
Below the line.
Yes, yes, you have a complete.
Hi, Ashley intuition.
Yeah, Let me tell you who oh.
Good.
Hey, Todd.
Yes, Hi, Holden.
Not at all.
Hey, Paul.
Well we have been.
Creating offsetting the wrong with my 0.7 is doing is not accurate.
No actually I feel this oh, okay.
And the ticker symbol.
So the show.
No. It does not meet the defendant picks up because number one the opinion that does that help you to maybe what he's doing by he's opposed to that on the news. So you mentioned NOLA for him.
That will happen.
Yes, hi, thank him go forgotten cumulative the who will.
Yeah, we are supposed to be hasn't come.
The third is having access.
Yeah.
Our non-GAAP operating loss with its when you get an arm.
Hi.
Please.
Alright.
Reported amount at 22 billion RMB over 10 billion would spend on R&D as well.
By 2002 hundred.
Hello.
Strong brand in the premium sector.
Mhm services, we have.
How are you.
Okay. I think that you will see that there will be some elements of keytruda being either oh user she'll come sort of took away.
Nicole.
Great I didn't get into that.
Well now.
Everyone know that the army for the auto industry. Likewise, we are now let me take that.
I'm used to that.
Yes.
Hi, James.
Autonomous driving technology.
Pardon.
With that we have to raise sufficient capital to support future development.
Oh hi.
Right.
And a very premium global competitiveness.
We are confident that investors will support that.
Yeah, I think I I found the Bloomberg article a very very and so the I mean, the headline was 5 billion loss as William said that that's not that they didn't break out. The fact that a lot of those are preferred shares pre IPO marked up at the IPO. So those.
The real number is closer to 3 billion a U.S. dollars over four years and its Williams and most of that is toward R&D. So I don't I don't.
We weren't very happy with the way Bloomberg.
Got it the headlines.
He is not very accurate.
Okay.
Okay. Next question. Thank you next questions comes from the line all Paul gone from U.P.S. Please go ahead.
Hi, Thanks for taking my question I have two questions. The first one is so regarding the.
The reaching a promotion I mentioned I do is given day. So you've also north of the hotels measures like the battery swap surface and some extra incentive including the financial please.
Helped us to quantify what is a rough four months per vehicle and the risk on the uplift. Both your yes. It's all used mostly apply to yes, six us well are this is the first question regarding the incentive.
My second question is regarding the.
The cost cards on the cost of goods so.
Especially from the procurement or have you read veeco shirts with zero supply or on the cost. After the subsidy cards are you in late June Yes can you helps us a tool.
Given our rough idea or how much has to do.
Outside in second half versus first half.
Especially on the Bachelor of Science. Thank you.
From William do you want to discuss the incentive and then Nick you can discuss the the financial impact of the battery.
Yes.
At the supply chain.
Oh.
Steve Nega <expletive> William translate.
Okay.
Well I.
Hello.
Well yeah.
Hello.
But when you know a woman.
Yes.
No we naturally.
Yeah.
We have alone.
Well.
Thanks, Ryan there.
Thanks.
Hi.
Well.
Right.
So haendel.
Okay got it.
Well that's about right.
Hi.
Hey, good yeah.
Hello.
You know.
But at the bank well they don't do you feel like.
Wow.
Oh, okay.
Okay.
No different than.
Let's see.
Hey, good bye bye bye.
Yeah they woman.
You can't without had no London.
No wonder.
Okay.
Everything we have around the 1000.
So I'm very hard to the college station.
But I know that's how I think.
Good.
[laughter] caused.
Huh.
They tend to be coffee is actually quite well. So one how is well make hopped around the 50 kilowatt hour and this means that the cost will be arises.
HM.
<unk> I believe that everything the additional cost and will be around that.
Alvin.
Please Oh woman home woman the home goods on that.
You know that I've done well well woman has gotten behind them is that.
Yeah I.
Getting back to US I know, we haven't I'll call. It leaves only gets on they've done well minimum way to do I mean, if they find minutes ago.
Uh huh.
Yeah.
Yeah, well me I like to even NOLA urea, but again, probably yeah take a UK SAPIEN Oh, yeah, good because.
Yeah.
Hey women.
[laughter] gosh.
Yeah.
Actually we have been very high.
So we have right, which is close to <unk>.
Oh speaking the brain power as well since everything was not contribute a lot but to a company.
Impact on the cost of very significantly previously we have already promised that she I mean, you said that they can enjoy the <unk>.
Okay, Great how is that I see so they can be considered as a part of the call.
Now some do they still.
Oh.
Well then the young but he has lots of them all.
I'm here with the over competitors.
Right.
Alright.
But again that you'll get a day to bother going into this or they might have palm of you could go find good. Thank you.
[laughter] she finds it without big.
Thank you.
Right now there is a very popular concept a mom and he said that he said they would like to get it how close to that power sports station.
Yeah, I can you break it down.
Correct.
Okay do you want to talk at all but I think a lot of the supply chain costs.
We are renegotiating a lot of suppliers as our volume begins to get larger second is also that either battery pack cost has come down on a year over year basis, and we'll continue to go down we believe.
Each year on a per kilowatt basis by 10% to 15%.
I think is there anything else on.
On the supply.
One more time he's out it gets a woman yeah.
Well my husband Kindled make goods you do to say Oh, my God. So he's yeah, there's a kind of the can get them, yeah, who are many cities I think oh, we only I'm I'm in a member she was a bigger than guy of quite see a woman or someone like kind of level I mean, no oh its mission that dominions as you do.
On a go I appreciate us I don't have come again until she does it go.
You are going up with them to sort of high see what's his own concentration tied up again in should see that's it sometime I saw a window photos. The may go to don't of course, I'd now like Dominion, though 100 downtime Union the absolutely true for male and then going to.
And then one hell of an uncle and that actual analysis.
It has done for the salary costs, we can predict that day culturally salary cost or production businessmen due to the volume increased by the industry I Didnt really takes off for the battery pack.
Now we think that's right now.
Next year.
Well, we need to continuous reduction offer that battery cost if I'm right now I cannot share with you about within specific a percentage because the we have reached agreement with the oversupply take part actually finding the right and we believe that over the next to Q3 out of Q4, we should go back to your kids, we haven't seen.
Well, we should be able to be significant cost reduction.
Yeah.
Thank you Paul Hi, Paul I think Oh.
Okay.
Yeah.
Yeah.
Yeah.
Yeah, you your first part well your first part of course, notably Mobbing on what the financial using actually yes, yes, we actually have a very successful financial easy planned rollout nationwide with southern powder back. So some of the big Big commercial banks I mean, and these are cocky sort of the purpose of attracting a lot of traffic in dollar showed him and we can see a clear trend.
Upward trend in the past two miles.
And also in terms of <unk> per unit cost is a function of the overall percentage on bahama, how many customers don't pay 100% or take their financial products and how much percentage after they pick a big sort of a interest subsidy programs essentially so named namely our we used to have this I'm wondering why resolved the RMB better leasing for right now we report.
The majority in a majority away a third party financial institution.
I think I think financial loans with a similar amount, but we actually have a discount or discount subsidy on this interest somebody on this so overall I think that dollar per unit base its own rough estimate I think it's roughly 10000 RMB per unit probably.
Since I wouldn't be a pretty good it.
Yes, roughly.
Okay. Thank thank you.
Thank you Paul Thanks, Nick.
Operator, we is that concludes the hour.
Yes, certainly.
No further questions at this time and of course on all Righty album, I'll turn the call back to company for closing remarks.
Okay. Thank you once again for joining I found it caught her conference call. We look forward to talking to you next quarter, how good evening well have a good that's.
Good day and dilemma. Thank you.
This concludes todays conference call you May now disconnect you lines. Thank you.