U.S. Markets closed

Edited Transcript of NIO.N earnings conference call or presentation 6-Nov-18 1:00pm GMT

Q3 2018 Nio Inc Earnings Call

Nov 7, 2018 (Thomson StreetEvents) -- Edited Transcript of Nio Inc earnings conference call or presentation Tuesday, November 6, 2018 at 1:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Jade Wei

NIO Inc. - IR

* Louis Hsieh

NIO Inc. - CFO

* Nick Wang

NIO Inc. - VP Finance

* William Li

NIO Inc. - CEO

================================================================================

Conference Call Participants

================================================================================

* Dan Galves

Wolfe Research - Analyst

* Vincent Ha

Deutsche Bank - Analyst

* Paul Gong

UBS - Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Thank you for standing by for NIO Incorporated's Earnings Conference Call for the Third Quarter of 2018.

(Operator Instructions)

Today's conference call is being recorded.

I will now turn the call over to your host, Ms. Jade Wei, Senior Director of Investment Relations of the Company.

--------------------------------------------------------------------------------

Jade Wei, NIO Inc. - IR [2]

--------------------------------------------------------------------------------

Good evening and good morning everyone! Welcome to NIO's third quarter 2018 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.

In today's call, we have Mr. William Li, NIO's founder, Chairman and Chief Executive Officer; Mr. Louis Hsieh, our Chief Financial Officer and Mr. Nick Wang, our Vice President of Finance. Mr. Nick will begin with prepared remarks and William will join for the Q&A session.

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 Security 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 the filings of the Company with the U.S. Securities and Exchange Commission. The Company does not assume any obligation to update any forward-looking statements except as required under applicable law.

Please also note that NIO's earnings press release and this conference call include discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. Please refer to NIO's press release, which contains a reconciliation of the audited non-GAAP measures to comparable GAAP measures.

With that, I will now turn this call over to our CFO, Mr. Louis Hsieh.

--------------------------------------------------------------------------------

Louis Hsieh, NIO Inc. - CFO [3]

--------------------------------------------------------------------------------

Thank you for joining our inaugural earnings conference call today. On behalf of William and the entire NIO team, we are excited to report our first quarter as a public company following the listing on the New York Stock Exchange on September 12. We would like to thank our employees, investors, and particularly our users, whose support has allowed us to continue our journey to fulfill our vision and to execute on our strategies.

We are pleased to report a solid set of financial results for the quarter. The smooth ramp of our JAC/NIO manufacturing facility led to the production of over 4,200 ES8s and the brand new direct delivery system and procedures that we've created successfully delivered 3,268 vehicles in the third quarter. That generated revenues of over RMB1.4 billion, up substantially from the second quarter.

Delivery of the ES8 in October reached 1,573, slightly below September number, due to the anticipated slow deliveries in early October when vehicle registration offices were closed for the seven-day golden week national holiday in China.

We utilized the time during the slower holiday period to modify our production line in our JAC/NIO plant to prepare for the future launch of our ES6. We remain confident that our Q4 deliveries will be in the range of 6,700 to 7,000 vehicles, which leads to our reaffirmed guidance that the number of ES8 deliveries will reach 10,000 in the second half of 2018.

We expect to finish production of all founders' edition ES8s within the next few weeks and plan to deliver the vast majority of them by the end of the year, as vehicle registration procedures allow. We plan to start to deliver a small number of base-edition ES8s in the production order pool in early December. In the future, as our production continues to ramp, our target is to deliver ES8s to our users within two to three months after the production order deposits are received.

Our ES8s have been delivered to over 170 cities in China. With over 5,000 vehicles in operation, we have received valuable feedback from our users. Users have lauded the powerful, solid acceleration while also providing reliable braking and other safety features. Users have also noted that the spacious and comfortable interiors are with a well-thought-out design for families. Users that compare the driving performance of the ES8 to well-known, established premium brands such as Mercedes, BMW and Audi, or to Tesla's Model S and Model X, the only premium EV brand in China, and find the ES8 very competitive, or even better, in a variety of performance specifications while providing a much more luxurious and spacious interior and comfortable ride with customized entertainment system and applications for an enjoyable driving experience.

NOMI, the first voice-enabled deep learning AI digital system installed in a Chinese premium cars, has won the hearts of ES8 users. Users tell us NOMI acts as an intelligent and human-like companion that makes driving much more fun.

Starting from this month, we are rolling out an upgrade to the ES8 software, version 1.1.0, the first over-the-air software upgrade in our history. Version 1.1.0 turns on a 360 degree camera view around the vehicle to assist in parking and provides a positive safety assistance functions such as Forward Collision Warning, FCW, and Lane Departure Warning, LDW, as well as improving many other functions to make driving safer and more pleasant.

Thinking beyond the delivery of our vehicles, we continue to expand our service network and enhance our service capabilities.

As of today, we have 12 NIO house open in 10 cities, including Shanghai, Beijing, Guangzhou, Nanjing, Hangzhou, Shenzhen, Suzhou, Chengdu, Xi'an, and Hefei. We also have another nine pop-up NIO Houses open in large cities where we see increasing demand for the ES8 and brand recognition of NIO.

We currently have 38 service centers across 20 cities, mainly in authorized service centers. Our "worry-free" services are highly praised by our users with over 90% of the ES8 users purchasing the worry-free service packages. Our service teams are working diligently to make great service a hallmark of NIO's brand and users' experience.

The third quarter was also critical to monitor our users utilize our full range of power solutions, including NIO Home Chargers, NIO APP power maps, power trucks, power swaps and one-click power services. More than 70% of the ES8 owners thus far have installed home chargers in their own parking spaces, which gives them the most convenient and cost-effective charging solution. We have 295 power trucks covering 21 cities and swap stations within 16 cities at the end of September. That is in addition to a growing infrastructure of public chargers across the country and the NIO APP has the location information for more than 130,000 public charging piles.

All of these resources are accessible using the NIO APP, which provides users with one-click service to these charging solutions. The total number of one-click services just exceeded 10,000 last week, demonstrating that our charging capabilities are well-supported by flexible infrastructure, investment, data-driven optimization and solid execution.

Speaking of growing user community, we engaged with our growing user community through offline and online platforms.

Our NIO APP has over 626,000 active users in total and more than 170,000 active daily users by the end of October.

We are pleased with the way our brand and our vision of a joyful lifestyle have been received by our users, and we're excited to continue to grow the NIO community.

We have built a strong team to support our future growth. Our focus remains to deliver vehicles of the highest quality, to further improve the user experience and to prepare a successful launch of our ES6.

I will now turn the call over to our vice president of finance, Mr. Nick Wang, to provide the financial details for the quarter.

--------------------------------------------------------------------------------

Nick Wang, NIO Inc. - VP Finance [4]

--------------------------------------------------------------------------------

Thank you, Louis. Speaking as one member of the NIO family, I echo Louis's sentiments and am very excited about our prospects for the future. Our solid third quarter results get us off to a strong start following the first full quarter of production and deliveries.

I will now go over some of our financial results for the third quarter of 2018. 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 third quarter were RMB 1.47 billion or $214 million, representing an increase of 3,095.3% from the second quarter of 2018.

Our total revenues are made of two parts; vehicle sales and other sales.

Vehicle sales were RMB 1.43 billion or $207.8 million, representing an increase of 3,113.8% from the second quarter of 2018. The increase over the second quarter of 2018 was attributed to an accelerated delivery of the ES8 in the third quarter.

Remember that we only started making deliveries of the ES8 in the last three days of June, so our second quarter sales figures reflect the sales from June 28th through June 30th.

Other sales were RMB 42.7 million or $6.2 million, representing an increase of 2,581.8% from the second quarter of 2018. The increase over the second quarter of 2018 was mainly attributed to increased revenues recognized from the home charters installed in the third quarter.

Cost of sales was RMB 1.6 billion or $230.9 million, representing an increase of 696.2% from the second quarter of 2018. The increase over the second quarter of 2018 was mainly driven by the delivery volume of the ES8.

Our gross margin was negative 7.9%, compared with negative of 333.1% in the second quarter of 2018, mainly driven by the larger scale of production and deliveries of the ES8. We expect gross margins to turn positive in the quarters ahead as production and deliveries increase.

Research and development expenses were RMB 1.02 billion or $149 million, representing an increase of 37% from the third quarter of 2017 and an increase of 33.7% from the second quarter of 2018.

The increase was primarily attributed to three items Number one, increased share-based compensation expenses recognized related to stock options granted to the Company's employees. Number two, an increased number of personnel related to product and software development teams and Number three, increased development expenses of the ES6, the five-seater premium electric SUV, which is expected to be launched by the end of 2018.

If we exclude share-based compensation expenses, R&D expenses were RMB 947.3 million or $137.9 million.

Our selling, general, and administrative expenses were RMB 1.7 billion or $243.2 million, representing an increase of 208.9% from the third quarter of 2017 and an increase of 74.6% from the second quarter of 2018.

The increase in SG&A expenses over the second quarter of 2018 was also primarily attributed to three items Number one, increased share-based compensation expenses, Number two, an increased number of personnel related to user development and service related teams. And Number three increased selling expenses for test drives and other promotional events.

Excluding share-based compensation expenses non-GAAP, SG&A expenses were RMB 1.3 billion or $192.5 million.

Loss from operations was RMB 2.8 billion or $409.1 million, representing an increase of 118.2% from the third quarter of 2017, and an increase of 49.9% from the second quarter of 2018. Excluding share-based compensation expenses non-GAAP, adjusted loss from operations was RMB 2.3 billion or $346.2 million.

Operating margin was negative 191.2%, compared with the negative of 4,076.8% in the second quarter of 2018. Excluding the share-based compensation expenses non-GAAP adjusted operating margin was negative 161.8%, compared with a negative of 3,938.9% in the second quarter of 2018.

Share-based compensation expenses were RMB 432.2 million or $62.9 million, representing an increase of 2,380.6% from the third quarter of 2017 and an increase of 581.2% from the second quarter of 2018.

The increase in share-based compensation expenses was primarily attributed to increased share-based compensation expenses recognized because of a successful completion of our IPO. We recognized the SBC expenses related to the stock options granted to the Company's non-US employees whose grants included the condition of an IPO, which was a significant one-time non-cash charge and won't recur in the future at the similar level.

Net loss was RMB 2.8 billion or $409.2 million, representing an increase of 116.1% from the third quarter of 2017 and an increase of 56.6% from the second quarter of 2018. Excluding share-based compensation expenses non-GAAP and adjusted net loss was RMB 2.4 billion or $346.3 million, in the third quarter of 2018.

Net loss attributable to NIO's ordinary shareholders was RMB 9.8 billion or $1.4 billion. Accretion on convertible redeemable preferred shares and accretion on redeemable non-controlling interests to redemption value were RMB 6.9 billion or $1 billion, and RMB 31.4 million or $4.6 million, respectively in the third quarter of 2018.

Accretion on convertible redeemable preferred shares to redemption value was a non-cash event and will no longer recur after the company's IPO. Excluding share-based compensation expenses, accretion on convertible redeemable preferred shares to redemption value and accretion on redeemable non-controlling interests to redemption value, adjusted net loss attributable to NIO's ordinary shareholders non-GAAP was RMB 2.37 million, or $345.1 million.

Basic and diluted net loss per ADS were both RMB 42.59 or $6.20. Excluding share-based compensation expenses non-GAAP, accretion on convertible redeemable preferred shares to redemption value and accretion on redeemable non-controlling interests to redemption value, adjusted basic and diluted net loss per ADS were both RMB 10.35 or $1.51.

Our balance of cash and cash equivalents, restricted cash, and short-term investment was RMB 9.2 billion or $1.3 billion, as of September 30, 2018.

And now for our Business Outlook. For the fourth quarter of 2018, the Company expects deliveries of the ES8 to be in a range of 6,700 to 7,000 vehicles, representing an increase of approximately 105% to 114% from the third quarter of 2018, and total revenue to be between RMB 2.87 to RMB 2.99 billion or from U.S. dollars, $418.5 million to $436 million, an increase of approximately 95.6% to 103.8% from the third quarter of 2018.

This business outlook reflects the Company's current and preliminary view on the current business situation and market condition, which is subject to change.

Now, this concludes our prepared remarks. I will now turn the call over to the operator to facilitate our Q&A session.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions)

Dan Galves of Wolfe Research.

--------------------------------------------------------------------------------

Dan Galves, Wolfe Research - Analyst [2]

--------------------------------------------------------------------------------

Can you talk a little bit about how order flow has progressed over the last couple of months? Also, how do you think things are going in terms of awareness of the product, brand recognition and what are you doing to actively grow awareness?

--------------------------------------------------------------------------------

Louis Hsieh, NIO Inc. - CFO [3]

--------------------------------------------------------------------------------

Great question.

I think for order flow it is remain relatively stable, I know your question relates to backlog, right now we've delivered over 5,300 vehicles and we expect to deliver about 2,500 each in the next two months, so November and December each to reach our 10,000 goal.

Every day we're receiving between 50 and 80, sometimes 100 new orders from the RMB5,000 deposit and our 45,000 production order deposit is healthy with a backlog right now of over 5,000. So order and demand remains solid.

We're not doing that much as far as any kind of direct marketing, but we have opened up more NIO houses. So most of the ones we mentioned earlier, of the 12, were opened in the last couple of months, so they're beginning to get a lot more visitors.

Our APP, currently, is now has 626,000 active users, so we are getting awareness throughout the country, plus we have 5,000 cars on the road. So people are begining to talk about NIO.

--------------------------------------------------------------------------------

William Li, NIO Inc. - CEO [4]

--------------------------------------------------------------------------------

I will speak in Chinese and Eve will help me to translate.

(Speaking in Foreign Language).

--------------------------------------------------------------------------------

Unidentified Company Representative [5]

--------------------------------------------------------------------------------

(Interpreted) Just like Louis mentioned, our community is growing rapidly and aggressively. By the end of October we have around 626,000 users and the DAU is around 170,000. As we can see, the brand awareness is increasing in the market and our delivery status is also going quite smooth.

We are now doing the user referral and the scenario-based test drives. All this helps us to get more new users and we think that this well received among all users.

--------------------------------------------------------------------------------

William Li, NIO Inc. - CEO [6]

--------------------------------------------------------------------------------

(Speaking in Foreign Language).

--------------------------------------------------------------------------------

Unidentified Company Representative [7]

--------------------------------------------------------------------------------

(Interpreted) We think the user referral is a very good approach, because one user in Wenzhou actually gives the recommendation to around 10 users and we are quite confident with the word of mouth reputation building in the market.

--------------------------------------------------------------------------------

Dan Galves, Wolfe Research - Analyst [8]

--------------------------------------------------------------------------------

You said that you plan to have positive gross margin in the quarters ahead. Can you talk about some of the most important items in the plan to improve the gross margin from where it was in Q3? What are the levers, what are the mechanisms to improve gross margin?

--------------------------------------------------------------------------------

Nick Wang, NIO Inc. - VP Finance [9]

--------------------------------------------------------------------------------

Well --

--------------------------------------------------------------------------------

Louis Hsieh, NIO Inc. - CFO [10]

--------------------------------------------------------------------------------

Go ahead, Nick.

--------------------------------------------------------------------------------

Nick Wang, NIO Inc. - VP Finance [11]

--------------------------------------------------------------------------------

Yes, there are two major components in the gross margin. One is the build material and material cost; the other one is the fixed cost. We anticipate improvement on these two areas in Q4 because of our better economy scale and better leverage we have with our supply chain.

--------------------------------------------------------------------------------

Dan Galves, Wolfe Research - Analyst [12]

--------------------------------------------------------------------------------

Okay. Thank you very much.

--------------------------------------------------------------------------------

Louis Hsieh, NIO Inc. - CFO [13]

--------------------------------------------------------------------------------

We expect the gross margin to improve and we expect the vehicle margin, if we hit our deliveries at 7,000 this quarter, the vehicle margin should definitely turn positive if we hit the 7,000.

--------------------------------------------------------------------------------

Operator [14]

--------------------------------------------------------------------------------

Thank you. Our next question comes from the line of Nick Lai from JP Morgan

--------------------------------------------------------------------------------

Unidentified Participant [15]

--------------------------------------------------------------------------------

-- I have two quick questions, one is about the profit margin, can you share with us our view that profit outlook in 2019 and after taking into account of two major factors. One is potential subsidy cut and another one is cost drive on the battery side. Are we expecting batteries cost to come down?

And secondly, can you share with us the number of shipment and production, in the third quarter, production was 4,200 and shipment was 3,200 -- is there any bottleneck that we should be aware?

--------------------------------------------------------------------------------

Louis Hsieh, NIO Inc. - CFO [16]

--------------------------------------------------------------------------------

There's not a bottleneck other than just getting our logistic system setup correctly, this is new to us. And then also there's, you know in China, most of the registration systems have a waiting list. So it takes time to get through the registration of the license plates.

The factory is running relatively smoothly. During the Golden Week Holidays, we basically didn't produce cars but used it to revamp our line, so they can get produced both ES8s and ES6s, and also can custormized them, adjust the specific orders for customers.

What was your other question Nick? I'm sorry, I forgot the first one.

--------------------------------------------------------------------------------

Unidentified Participant [17]

--------------------------------------------------------------------------------

Gross margin.

--------------------------------------------------------------------------------

Louis Hsieh, NIO Inc. - CFO [18]

--------------------------------------------------------------------------------

The gross margin stuff that we don't know, they'll be set at the end of this year.

--------------------------------------------------------------------------------

William Li, NIO Inc. - CEO [19]

--------------------------------------------------------------------------------

(Speaking in Foreign Language).

--------------------------------------------------------------------------------

Unidentified Company Representative [20]

--------------------------------------------------------------------------------

(Interpreted) Of course the subsidy in the next year will decrease [predominantly], you're asking for opinions and we think this is not going to affect of our gross margin that much because the sales price includes the subsidy and these will not affect us that much, but this will affect the money paid from users.

--------------------------------------------------------------------------------

Louis Hsieh, NIO Inc. - CFO [21]

--------------------------------------------------------------------------------

And your earlier question about cost down, I think we expect some reduction in the cost of the battery and also in the bottom as we get the volume orders. Nick and team are working very to get 5% to 10% reduction on the cost of the vehicle production side.

--------------------------------------------------------------------------------

Nick Wang, NIO Inc. - VP Finance [22]

--------------------------------------------------------------------------------

We'll probably be on a fixed cost side, because we're going to have bigger volume next year. Apparently, the fixed cost amortization piece as part of the GM going to become improved as well.

--------------------------------------------------------------------------------

Operator [23]

--------------------------------------------------------------------------------

[Fay Shang], Goldman Sachs.

--------------------------------------------------------------------------------

Unidentified Participant [24]

--------------------------------------------------------------------------------

You mentioned that you have modified production line to accommodate ES6 to be launched at year end. Can you maybe talk a little bit more about the roadmap for launching the new model? Do you also try to build up backlog as well and also what will be the key marketing strategy?

--------------------------------------------------------------------------------

William Li, NIO Inc. - CEO [25]

--------------------------------------------------------------------------------

(Speaking in Foreign Language)

--------------------------------------------------------------------------------

Unidentified Company Representative [26]

--------------------------------------------------------------------------------

(Interpreted) ES8 has already gone offline this May in the [powered] production line in Nanjing advanced manufacturing center and the other plan right now is to do the official launch of the ES6 at the middle of December. The whole company's now preparing for this launch event.

The model of the ES6 will also be made to order and other plan is we'll start the delivery of ES6 in the next year probably around June and July.

--------------------------------------------------------------------------------

Unidentified Participant [27]

--------------------------------------------------------------------------------

It would be very helpful to give us a sense of how you would expect gross margin to progress over time for ES6? For example, what's the break-even volume for gross margin for this smaller model? Is it similar to ES8 or it will be easier for you to turn profitable at a gross margin level?

--------------------------------------------------------------------------------

Nick Wang, NIO Inc. - VP Finance [28]

--------------------------------------------------------------------------------

I think the quick answer for that is it's very similar to ES8. I think on a per-unit basis because the attractive lower price point. On a per-unit basis the contribution margin is a little bit lower. This can be well offset much larger volume provided by ES6, which basically means the fixed cost amortization going to be less. We anticipate in similar level of ES8.

--------------------------------------------------------------------------------

William Li, NIO Inc. - CEO [29]

--------------------------------------------------------------------------------

(Speaking in Foreign Language)

--------------------------------------------------------------------------------

Unidentified Company Representative [30]

--------------------------------------------------------------------------------

(Interpreted) I'd like to mention another point is that ES8 and ES6 share the components at a large extent and we also use many supply chain partners for both the ES6 and ES8 at the same time so it means that ES8 and ES6 volume growth significantly improve their gross margin of both of the models.

--------------------------------------------------------------------------------

Operator [31]

--------------------------------------------------------------------------------

Vincent Ha of Deutsche Bank.

--------------------------------------------------------------------------------

Vincent Ha, Deutsche Bank - Analyst [32]

--------------------------------------------------------------------------------

Earlier Louis mentioned that we currently have 12 new house and also 36 service centers already on the ground. Now just want to get a quick summary or target of how many new houses or service centers in terms of network that we plan to achieve by the end of this year and probably by the end of next year? And what would that be implying to the operating expense trend which is the SG&A trend going forward?

--------------------------------------------------------------------------------

William Li, NIO Inc. - CEO [33]

--------------------------------------------------------------------------------

(Speaking in Foreign Language)

--------------------------------------------------------------------------------

Unidentified Company Representative [34]

--------------------------------------------------------------------------------

(Interpreted) This year we'll have the one addition NIO house, this will open around December in Dongguan and next year we will open more new houses. According to the sales plan, we think currently it will be around 20 to 30 new houses, but we will adjust this plan according to the sales status and to the order of the ES6 where we'll have a detailed plan for the first quarter of the next year.

In terms of the service network, as we mentioned that we have already delivered our ES8 in over 170 cities. We think it's going to more for the ES6 and so we have the authorized services centers, we think we will evaluate the existing market and adopt the most effective way to deploy our servicing network.

We are quite confident this is the efficiency.

--------------------------------------------------------------------------------

Louis Hsieh, NIO Inc. - CFO [35]

--------------------------------------------------------------------------------

And for the last part of your question, the new houses will cost about 1.5 million to set up because these aren't going to be in Beijing and Shanghai. They'll be in little bit smaller cities, 1.5 million to 2 million. That's the cost and operating cost will be a little bit less than that for these city.

--------------------------------------------------------------------------------

Vincent Ha, Deutsche Bank - Analyst [36]

--------------------------------------------------------------------------------

Now the quick second question is could you also update us on the percentage of customer who is opting for the battery leasing option and also the battery swapping coverage service? Because some key question that I've been getting from some investors is that their concern is that if the battery swapping option is getting really, really popular, we may run into a risk of having a big stock of replacement batteries and that could put some pressure on our cash utilization. Could you give us an update on that?

--------------------------------------------------------------------------------

Louis Hsieh, NIO Inc. - CFO [37]

--------------------------------------------------------------------------------

I'll answer the easy part. The flexed figures on a percentage of user to take that on our releasing is 73% by the end of Q3 and I don't have the percentage number for battery swapping but our estimates around 6%.

--------------------------------------------------------------------------------

William Li, NIO Inc. - CEO [38]

--------------------------------------------------------------------------------

(Interpreted) (Speaking in Foreign Language)

--------------------------------------------------------------------------------

Unidentified Company Representative [39]

--------------------------------------------------------------------------------

(Interpreted) Just like Louis mentioned, we have already got over 10,000 one-click power services and the most of the power services is delivered by the power truck.

And in terms of the situation, we are quite unaffected in terms of the home charging installation because we have a [76%] (corrected by company after the call) of users who can install the home chargers and [data] suggest that the average income and the status of the home charging facilities is must better than we expected. This can also help us to reduce the infrastructure investment.

--------------------------------------------------------------------------------

William Li, NIO Inc. - CEO [40]

--------------------------------------------------------------------------------

(Interpreted) (Speaking in Foreign Language)

--------------------------------------------------------------------------------

Unidentified Company Representative [41]

--------------------------------------------------------------------------------

This is a holistic solution because we noticed that in some cities, users do not need to use their car right away when the car is out of power, so it means that we can use the power truck or the [factory charging] facilities to solve the users' issues. But for other highways, we noticed that users would like to have a fast access and they would like to get their cars back very soon.

It's quite different from those cities. So it means that this will affect power swap deployment strategy. In urban areas, we do need to deploy a lot of a power swap stations, but we would like to deploy more power swap stations in the highways. For example, in the Yangtze River Delta and the Pearl Delta, we would like to deploy more power swap stations, but this can also help us to control the cost, because in those highways, we just need to rent three parking spaces to build the power swap stations. And we do not need to do any kind of civil constructions. So we think this can help us to control the cost and we just need to evaluate the growth of users and the scope of users to come up with a detailed plan in terms of the power swap deployment.

--------------------------------------------------------------------------------

Louis Hsieh, NIO Inc. - CFO [42]

--------------------------------------------------------------------------------

We monitor this very closely. As William said, it depends on the demand. As of September 30th, we're in 16 cities with power swap and delivered over 30 swap stations, but it depends on occurring need. We were pleasantly surprised that over 70% of people are installing home chargers, which is the best solution.

And also, the power trucks are quite heavily used, so if that meets their need, then that's fine. So we were basically went and delivered the best service by monitoring consumer and our users' demand and feedback. So we won't overbuild, but we want to make sure we meet their charging needs.

--------------------------------------------------------------------------------

Operator [43]

--------------------------------------------------------------------------------

Paul Gong of UBS.

--------------------------------------------------------------------------------

Paul Gong, UBS - Analyst [44]

--------------------------------------------------------------------------------

I've two questions, the first is regarding the orders, did I recall right that at this moment, you have about 5,000 active backlog after 5,300 of delivery? Does that means some earlier orders who has paid the RMB5,000 have actually cancel the order? Is that the right understanding?

And also, given right now the order intake rate is roughly 50 to 80 per day. Does that mean the intake and the delivery in the next two months is roughly on par to each other? Is that the right understanding?

--------------------------------------------------------------------------------

Louis Hsieh, NIO Inc. - CFO [45]

--------------------------------------------------------------------------------

Yes it depends on obviously how many people do cancel. Do you're right, Paul, that some of the people, the original people who put in the RMB5,000 deposits that cancelled, because they didn't want to wait so long. As you recall, our ES8 was delayed by several months and so some of these orders date back to last December, early January. We do have a number of cancellations.

But as far as the order backlog, we've delivered over 5,300 cars and the 45,000 production order deposit rate is over 5,500. So we're pretty comfortable that we'll be able to deliver between 10,000 and 11,000 cars in the next couple of months.

Our facility is producing very well, so that's the issue. And then every day, we're receiving between 50 and 80 or so new orders for the 5,000 refundable deposits, but that one is subject to cancellation, obviously.

--------------------------------------------------------------------------------

Paul Gong, UBS - Analyst [46]

--------------------------------------------------------------------------------

So if I place an order today, I expect to receive the car within the next two months. Is that the right expectation?

--------------------------------------------------------------------------------

Louis Hsieh, NIO Inc. - CFO [47]

--------------------------------------------------------------------------------

Not currently, because the founder's editions need to be delivered first, the first 10,000. So you can probably get it within three or four months at most.

But once we clear the founder's edition, the first 8,000 or 9,000 cars, then we'll begin to speed it up. And that's why we've put in the new equipment, so we can produce cars as an order by order basis in the Hefei plant. It's a made to order basis.

--------------------------------------------------------------------------------

Paul Gong, UBS - Analyst [48]

--------------------------------------------------------------------------------

My second question is regarding the founder's edition and also the relatively cheaper ones. Do we expect the [Fed] margin derive from these founder's edition and the subsequent models, or do you expect similar profit contributions per units? How do we think about these different margins--

--------------------------------------------------------------------------------

Louis Hsieh, NIO Inc. - CFO [49]

--------------------------------------------------------------------------------

--I think the newer cars, the orders after the founder's edition should have slightly a higher margin, because the founder's edition, we're giving as special. They're sold for RMB 448,000 even though they're really equivalent to 548,000 with low options. So the other ones are made to order; the ones who picked the options will have slightly higher gross margins.

--------------------------------------------------------------------------------

Nick Wang, NIO Inc. - VP Finance [50]

--------------------------------------------------------------------------------

I think one thing I want to add is that the margin for the base model plus the option versus the fully loaded founder's version, their margins is quite similar. But obviously, it's a function of the option take rate.

Maybe for the base model plus options, there are going to be more users who take our high end option like NOMI. Maybe that's going to contribute lot of the margins to our product for sure. But I think we will see as incoming orders from those new users to order base model plus option come in, we're going to see the data. That's going to become more clearer to us.

--------------------------------------------------------------------------------

Paul Gong, UBS - Analyst [51]

--------------------------------------------------------------------------------

So at this moment, you fully expect similar margin now for the base plus options as a blended average versus a founder's edition, is that about the similar margins, that's right?

--------------------------------------------------------------------------------

Nick Wang, NIO Inc. - VP Finance [52]

--------------------------------------------------------------------------------

Similar. I think it may be slight lower, but again, we need to see the incoming order and then we can perform a proper analysis and we will be in a better position to tell.

--------------------------------------------------------------------------------

Operator [53]

--------------------------------------------------------------------------------

(Operator instructions)

There are no further questions. Now, I'd like to turn the call back over to the Company for closing remarks.

--------------------------------------------------------------------------------

Jade Wei, NIO Inc. - IR [54]

--------------------------------------------------------------------------------

Thank you once again for joining us today for the conference call. If you have any further questions, please feel free to contact our IR team and also [TPG], the Company's IR partner. Thank you very much.

--------------------------------------------------------------------------------

Operator [55]

--------------------------------------------------------------------------------

This concludes this conference call. You may now disconnect your line.