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NIO Q3 2022 earning report & conference call highlights & summaries

NIO Q3 2022 earning report & conference call highlights & summaries

On November 10, NIO released its third quarter 2022 financial report. After the financial report was released, Li Bin, the founder, chairman and CEO of NIO attended the subsequent conference call and explained the financial report.


Q3 Revenues

Vehicle sales were RMB11,932.7 million (US$1,677.5 million) in the third quarter of 2022, representing an increase of 38.2% from the third quarter of 2021 and an increase of 24.7% from the second quarter of 2022.

Q3 Delivery
In the third quarter 2022 NIO delivered a total of 31,607 smart electrical vehicles, up 29.3% year-over-year setting a new quarterly high. Based on our latest technology platform, NT2.0, we have launched and delivered three new products, which has improved the competitiveness of our product line-up in all aspects and enabled NIO to enter more premium segments, catalyzing continuous demand growth.

Q4 Delivery Projection
We expect the total number of deliveries in the fourth quarter of 2022 to be between 43,000 to 48,000.

Sales and Service Network
With respect to the sales and service network, we now have 399 new houses and the new spaces in 149 cities and 280 service centers and delivery centers in 163 cities. In terms of the charging and swapping network, NIO has installed a total of 1,210 power swap stations and provided 14 million battery swaps for users. NIO has installed 2,055 charging stations with 5,765 for power chargers and 6,077 destination chargers in place. In the meantime, our power map has connected to over 590,000 third party chargers in China and more than 380,000 chargers in Europe.

NT2 platform
Over the past couple of months, Banyan, the digital system of NT2 has iterated and upgraded multiple times with continuous user experience improvement. We have strong confidence in the market competitiveness of the new models based on the NT2 platform.

NIO ET7 won the 2022 Golden Steering Wheel award
Yesterday, NIO ET7 won the 2022 Golden Steering Wheel award granted by the prestigious German Magazine Auto Bild, as ET7 was voted the best car in the median and upper class category. Both of our products and innovative technology have been highly recognized by the users, industry experts and professional media in Europe.

From Q&A Session

October Production
Regarding the production in October, there has been some impact due to several reasons and the impact is around several thousand. One the factor is because of the subframe just like you mentioned, but we expect that this will be resolved in November.
And then the second reason is the new EDS for ET5, we actually have a new EDS plant next to our factor II and the automation level of the new EDS plant is very high. We only need to have around 30,000 people to support the overall operation of these new EDS plants.
Due to the ramp-up volatilities of the EDS overproduction is affected by around 2,000 to 3,000. And the third reason is the COVID-19 situation. I believe this has impacted the production for around one week. So overall speaking, all those factors have affected the production in October, but we have resumed normal production now, and we expect to have a new production line for the new EDS next week and probably by the end of this month this new EDS line will be ready and we can ramp up the production. We will – we have already solved the subframe issue. And I believe probably in December, ET5 production will not be a issue. And as of now, I don’t believe there is any production issue for the ET7 and the ES7.

Chip Act
Regarding the Chip Act. I believe this many affected the chip used for cloud training. Right now, I believe that we have a sufficient chips like the A100 to satisfy the need for the AD training in the long run.
But at the same time, we are also exploring different opportunities. For example, we’re considering working together with some cloud service providers, and we are also evaluating some long-term solutions to support the integration of our AD solutions. As of now, I don’t actually see any impact on overall operations.

Regarding the ramp-up of ET5 because this is still at a relatively early stages, so we would like to pay more attention to the quality improvement and make sure we can stabilize the quality of the ET5. The demand for ET5 is very strong as we expected. Of course, it’s a strong – if the order can be even stronger, the stronger the better. But if – but at the same time, we don’t want the user to wait for a really long time.

Supply Chain and Production
It’s quite difficult for us to make estimation regarding the impact of the corporate control and prevention measures on the operation of the company. But if we talk about the supply chain and the vehicle production, I believe the vehicle production capabilities should be able to meet the delivery target we set for next year.
And if we speak of the supply chain, we do see some challenges, for example, in December, we will face some constraints regarding the supply of the silicon top line. But if we look at 2023, I believe the supply chain and the production capacity has the capability to meet the demand and the target that we set up for ourselves.
For 2023, I believe for the vehicle production, we will have a relatively sufficient production capacity to meet the demand. And if we can achieve a 150,000 production capacity on one shift, I believe the production of the vehicle will be carried out in a very smooth manner.

Terminal Gross Margins
So if we think about the technology platforms and vehicle platform strategy, I think 20% to 25% vehicle gross margin is not a very big challenge for us. But if we look at 2022, specifically, the cost of the battery sky rocketed. So of course, at the same time, we have increased the price of our products. And even against this backdrop, we have, I believe, achieved a relatively reasonable vehicle gross margin.
Previously, we have also achieved a 20% vehicle gross margin in the past. Like in the past, we didn’t have the battery cost increases. So this is a relatively reasonable vehicle gross margin for – our products. In the future, if the battery cost can come down to a reasonable level, I think it’s possible for us to regain the 20% to 25% vehicle gross margin with our products.
In addition to that, with our vehicle technology, vertical integration, including the battery, the chipset, I believe we will have more room to improve for the vehicle gross margin, and it’s possible for us to achieve 25% to 30% vehicle gross margin.
If we look at the mass market, I believe the challenge is much bigger because if we combine all the companies in the mass market right now, I think the overall gross margin is actually negative. Of course, BYD is an exception because they have the vertical integration of the batteries and other technologies.
So if we do not have the vertical integration capabilities in the mass market, it will be quite challenging to provide in the mass market. But if we have this capabilities in place, I think it’s possible for us to also achieve 20% to 25% with other mass market products.

20,000 production run rate in December
In November, we will still need some time to ramp up the production, including ET5, considering the factors I just mentioned like the EDS.
In December, except the silicon carbine I just mentioned, I believe we will have more production compared with the production of November. Of course, in December, we hope that we can still achieve over 20,000 production run rate.

Cash Burn Rate
We understand there are still many uncertainties in the market. But I believe with our current cash reserves and also the bank facilities, we should be able to support the company’s operation until we breakeven. So we don’t think this is going to be a huge challenge for the company.

Self-Made Chipset
Regarding the chipset, previously, we have already addressed the AI training chipset that is the NVIDIA A100. And now I would like to probably elaborate more on the onboard chipset.
We are the first company in the world to launch a products that is equipped with NVIDIA already, which is actually 6 months earlier than other companies. We also have a very close collaboration with NVIDIA. But at the same time, last year, we have already kicked off the R&D of our AD chipsets. Right now, we have around 500 people working on the AD chipset.
I believe it is commonly acknowledged that AD chipset is closely coupled with the AD algorithm. If we can use the AD algorithm to define the design of the AD chipset, the overall efficiency can be significantly improved, which can also contribute to our vehicle gross margin. The overall progress of the AD chipset R&D is on track and we have seen some positive achievement from the team.

Factory I & II Production Capacity
For the Factory II, we are still working together with JSE. I believe our joint manufacturing corporation has been quite positive. Regarding the vehicle production, I believe the vehicle production capacity can support the company’s delivery target in the short term. Previously, I’ve already mentioned that for one plant we should be able to achieve 150,000 units under one shift and if we combine the two plants together, the Factory I and Factor II, then you need that under one shift, so we should be able to achieve a production capacity of 300,000 units. If we double this to two shifts, then the production capacity can also be doubled.
When it comes to the supply chain, of course, there are some volatilities for the whole industry, not just for NIO. But as we ramp up our production capacity and delivery, I believe we have the capability to mitigate the risk of the supply chain.