NIO Q4 2024 Earnings Call Transcript

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Provided by Quartr
March 21, 2025

There are 9 speakers on the call.

Operator

Hello, ladies and gentlemen. Thank you for standing by for Nio Incorporated Fourth Quarter and Full Year twenty twenty four Earnings Conference Call. At this time, all participants are in listen only mode. Today's conference call is being recorded. I will now turn the call over to your host, Mr.

Operator

Ray Chen, Head of Investor Relations of the company. Please go ahead, Ray.

Speaker 1

Good morning and good evening, everyone. Welcome to NIO's Fourth Quarter and Full Year twenty twenty four 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. On today's call, we have Mr. William Li, Founder, Chairman of the Board and Chief Executive Officer and Mr.

Speaker 1

Danny Chu, Chief Financial Officer. Before we continue, please be kindly reminded that today's discussion will contain forward looking statements made under the safe harbor provisions of The U. S. Private Securities Litigation Reform Act of 1995. Forward looking statements involve inherent risks and uncertainties.

Speaker 1

As such, the company's actual results may be materially different from the views expressed today. Further information regarding risks and uncertainties is included in certain filings of the company with the U. S. Securities and Exchange Commission, the Stock Exchange of Hong Kong Limited and the Singapore Exchange Securities Trading Limited. The company does not assume any obligation to update any forward looking statements, except as required under applicable law.

Speaker 1

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 unaudited non GAAP measures to comparable GAAP measures. With that, I will now turn the call over to our CEO, Mr. William Li. William, please go ahead.

Speaker 1

Hello, everyone. Thank you for joining NIO's twenty twenty four Q4 and the

Speaker 2

full year earnings call. In Q4, the company delivered a total of 72,689 smart EVs, setting a new quarterly record. In December, our monthly deliveries surpassed 30,000 for the first time. For 2024, the company's total deliveries reached 221,970, marking a 38.7% increase year over year. The new brand continued to lead the premium segment, delivering 201,209 vehicles, securing a 40% market share in China's BV segment priced above R300,000.

Speaker 2

The Envoy brand delivered 20,761 vehicles in the mainstream family market. The market share of the onboard L60 has been steadily increasing since its launch, ranking among the top three in China's BV SUV market price between RMB200000 and RMB300000. In general and February, due to seasonality and the Chinese New Year holiday, the company delivered 27,055 vehicles. We expect total deliveries in Q1 to reach 41,000 to 43,000 units, reflecting a year over year growth of 36% to 43%. On the financial side, our efforts in supply chain optimization and cost control have delivered strong results.

Speaker 2

Nios vehicle margin improved to 14.9% in Q4, while Envoy achieved a positive vehicle margin in the early stage of production run up. As a result, the company's overall vehicle margin reached 13.1 in Q4. At the same time, the profitability of our after sales services continued to improve along with growth in technology service revenue, leading to a positive gross margin in other sales in Q4. Now, I'd like to share some updates on our products and operations. Starting this year, our three smart EV brands have entered a new product cycle.

Speaker 2

For the premium brand Nio, at NIO Day on December 21, we launched NIO ET9, a flagship smart executive sedan. As the result of NIO's ten year tech innovation, ATNINE set a new benchmark for premium smart executive EVs. With industry leading technology and a distinctive experience, it has been well received by users in the segment. The fourth edition in a limited offering of nine ninety nine units, sold out within hours and the signature version continued to see strong demand. 89 delivery will begin at the end of this month.

Speaker 2

Besides, NIO's version products, ET5, ET5T, ES6 and EC6 will launch their twenty twenty five models in Q2, featuring upgrades in design, cutting experience and smart driving chip. Moreover, with another major product launch in the second half of this year, the enhanced product lineup will further solidified NIO's leadership in the premium BEV market, while driving its overall profitability. For the mainstream mass market brand angle, the first product, L60, gained a strong recognition among family users for its safety, space, class leading energy efficiency and a convenient recharging experience. Envol's second product, L90, is positioned as a flagship large family SUV. It will be introduced in Q2 and delivered in Q3.

Speaker 2

Onward's third product will be launched in Q4, forming a well rounded SUV lineup to cater to a broader range of mass market users. For the high end small car brand Five Line since its debut in December 2024, Firefly has received broad attention, particularly from young buyers and family looking for a second car. The brand is set to launch and begin delivery in April, leveraging new staff network for rapid market expansion. With these three brands, the company is building a comprehensive product metric spending RMB150000 to RMB800000. Catering are a device user group.

Speaker 2

As we expand our sales and service networks, we are set to reach more users and drive sustainable growth. In terms of smart driving technology and experience, AI technology continue to drive us towards our vision of relieving stress and reducing accidents. Prior authorizing AI based safety enhancements, Nio released the industry best automatic emergency steering feature. It leads the market in big wins, object detection and use case coverage. To date, Nios SmartSafety has presented over three point four million potential accidents for users, and the release of AES has further improved driving safety.

Speaker 2

Meanwhile, we've made good suits in switching to our next generation architecture based on the NIO World model, MBM. We'll provide driving, parking and safety assistance across all scenarios. The early bird program will begin in early April with mass release gradually rolled out. Globally, NIO has 183 NIO houses and four sixty two NIO spaces, while Envoy has four forty nine stores in China, ensuring a well balanced sales copy. On the service side, the company operates three eighty eight service centers and six four delivery centers.

Speaker 2

We are putting more efforts improving operational efficiency so as to better support our new product cycle and deliver on its best exceptional user experience. As of now, the company has deployed 3,245 postal workstations worldwide, including nine seventy stations on highway in China, having provided over 69,000,000 swaps for NIO and onboard users. In addition, NIO has built over 25,000 power chargers and destination chargers. BatterySwap remains the preferred recharging solution for NIO users on long trips. During the tenth New Year holiday, we set a new record with over 137,000 battery swaps in a single day, with top stations handling over 180 swaps.

Speaker 2

With unmatched speed and convenience, BatterySwap is the optimal recharging solution for long distance and holiday travel. It's a strategic advantage where we reinforce our competitive edge of the BB market, laying a strong foundation for the sales growth of our three brands during the upcoming product cycle. We were actively engaging with partners in more countries and regions to expand our global footprint. As we grow our global sales channels and start Fireflies deliveries, the company is accelerating its global expansion, while delivering best in class EV solutions to users worldwide. The company remains committed to social responsibility and sustainability.

Speaker 2

In December, MCSI upgraded Nio's e SUV ratings from A to AA. In general, Corporate Knights ranked Nio as the number one car company in its list of twenty twenty five Global 100 Most Sustainable Companies. The competition landscape in the smart EV industry is evolving rapidly, making 2025 a critical year for the market reshaping. This year, with nine new models across three brands, the company is forming a comprehensive product line up, while the tax driven cost optimization is further enhanced profitability with global expansion picking up speed, the company will be able to unlock new revenue opportunities. In the meantime, the company is enhancing operational capabilities and the business awareness of core teams, ensuring greater value creation and efficiency.

Speaker 2

With this action in place, we are confident in navigating fair competition and achieving our full year operating targets. Thank you for your support. With that, I will now turn the call over to Sandy for Q4's financial details. Over to Sandy.

Speaker 3

Thank you, William. Let's now review our key financial results for the fourth quarter of twenty twenty four. Our total revenues reached RMB19.7 billion, increased 15.2% year over year and 5.5% quarter over quarter. Vehicle sales were RMB17.5 billion, up 13.2% year over year and 4.7 quarter over quarter, primarily driven by higher deliveries, partially offset by a lower average selling price due to changes in product mix. Our other business segments also delivered solid performance.

Speaker 3

Other sales were RMB2.2 billion grew by 33.8% year over year and 12.7 quarter over quarter. The annual growth was from increased sales of parts, accessories, after sales of vehicle services and provision of power solutions along with a rise in sales of technical R and D services. The increase quarter over quarter was driven by higher sales in technical R and D services, used cars and our parts, accessories and after sales vehicle services. Looking at margins, vehicle margin was 13.1% in this quarter compared with 11.9% in the Q4 last year and unchanged from last quarter. The year over year change increase was mainly due to lower material cost per unit as margin turned positively this quarter, mainly due to the increase in the provision of technical R and D services as well as the sales of parts, accessories and after sales vehicle services with relatively higher margins.

Speaker 3

Overall, gross margin was 11.7%, up from 7.5% in Q4 last year and 10.7% last quarter. Turning to OpEx. R and D expenses were RMB3.6 billion, decreased 8.5% year over year and increased 9.6% quarter over quarter. The year over year decrease was mainly driven by reduced personnel costs and design and development costs, while the quarter over quarter rise reflects additional investments in design and development, partially offset by the decreased personnel costs. SG and A expenses were RMB 4,900,000,000.0, up 22.8 year over year and 18.7% quarter over quarter.

Speaker 3

The year over year increase was mainly driven by increased sales and marketing for new brands and products and higher personnel costs from sales and service network expansion. The quarter over quarter increase was mainly due to the same enhanced sales and marketing efforts and higher professional services costs for general corporate functions. Loss from operations was RMB6 billion, down 8.9% year over year and up 15.2% quarter over quarter. Interest and investment loss was RMB0.2 billion compared with investment income of RMB1.4 billion in twenty twenty three Q4 and RMB0.3 billion in twenty twenty four Q3, primarily due to the fair value change of XT investment. Other loss net in Q4 was RMB0.5 billion, primarily due to the loss from the revaluation of overseas RMB related assets caused by the depreciation of RMB against U.

Speaker 3

S. Dollars this quarter. Net loss was RMB7.1 billion, showing an increase of 32.5% year over year and 40.6% quarter over quarter. Lastly, we ended the quarter with total cash and cash equivalents, restricted cash, short term investments and long term time deposits amounting to RMB41.9 billion. That wraps up our prepared remarks.

Speaker 3

For more information and details of our unaudited fourth quarter and full year twenty twenty four financial results, please refer to our earnings press release. Now, I will turn the call over to the operator to start our Q and A session. Thank you.

Operator

Your first question is from Tim Sy from Morgan Stanley. Please go ahead.

Speaker 4

Hi, this is Tian from Morgan Stanley. Thanks for taking my question. I have two questions. The first question is about cost reduction effort, because a lot of market focus has put on NIO's latest round of restructuring. So just want to know that how much of cost saving would management expect to achieve and when are we going to see the contribution emerging in upcoming quarters?

Speaker 4

That's my first question. Thank you.

Speaker 5

Thank you for the question. Regarding the cost reductions, actually, since last year, we have already started the cost mining initiatives. And for the 2024 full year, we were also on track for the cost reduction initiatives. As you can see in our vehicle margin for Q4, it has fulfilled our expectation. And we will continue such cost reduction actions this year from multiple aspects, including supply chain, R and D.

Speaker 5

And in that case, we foresee that our vehicle margin will also continue to grow starting Q2. And in terms of expenses, actually in Q4 last year as we have launched the new brand Enroll together with its product, we have started to make investments and expenses in developing sales and service networks as well as in the brand related activities. And such activities and expenses will continue in Q1 this year, including up the new brand and also the sales and service networks. But in the meantime, starting Q1 this year, we have started a all employee comprehensive cost reduction initiative covering R and D, sub matching, sales and also service teams. We call it CBU or sales business unit.

Speaker 5

Basically, we ask all the teams and employees to take the ownership and accountabilities of the company's operational targets. We already have seen some good results and actions taken voluntarily by the R and D teams, by the sales and service teams in reducing the cost and improving the efficiency. And the results of such actions will be reflected in our balance sheet in the coming quarters starting Q2 as we continue to strengthen our cost control and also expenses management in the second half of this year together with improvements in the sales volume, in the vehicle margin as well as in the expense control, we are confident that we are going to achieve our breakeven target in Q4.

Speaker 2

Kelly, please.

Speaker 4

Thank you. My second question is about Enviro. Just want to know that what actions could Enviro take to regain the growth momentum? Will NIO stick to the Vauti brand strategy or could potentially change Envot to a sub brand on the NIO to save costs and enhance efficiency? So that's my second question.

Speaker 4

Thank you.

Speaker 5

Thank you for the question. Regarding Envoy, its sales performance starting this year didn't meet our expectation and we have also reviewed the comprehensive reasons and causes for its performance. The first reason is because of the brand awareness and the brand awareness and the exposure. As Anmol is still a new brand. In terms of its brand awareness and awareness, it is actually far below its competitors.

Speaker 5

We have also done some study and research on the influence of the brand awareness of Anmol. And in terms of the brand awareness, it is only one third of that of NIO. In that case, as we consumed all the existing order backlogs, we are facing larger pressures regarding the fresh orders. Starting this year, especially during and after the spring festival holidays, we have also taken a series of actions to help Johnson and improve the brand awareness and exposure. We have rolled out some offline advertisements in the train stations and also in the elevators of the apartment buildings.

Speaker 5

We have also doubled down on the social media campaigns to help improve the exposures and we are seeing some good effects in helping Anmol being more famous and well known. And the second reason is regarding the coverage of the point of sales. We have been ramping up the sales store coverage of the Angou brand. Last year, when we just launched the brand, we have around 105 stores in China. And by the end of last year, we have opened up another 100 stores.

Speaker 5

And so far, we have more than 400 stores in China. Yet most of the stores are still quite new in terms of their efficiencies and the productivities, they are not yet to a mature level. So it will take some time for these new stores to start yield real results. We have also done a comparison between a mature store being in operations for more than three months in comparison to a newly established store. The productivity can be different can be as different as three times.

Speaker 5

As this new store is getting more mature and skillful, we believe that they will also start to play a bigger role. So as you can see, we have made some investments in our sales and service networks in Q4 last year and also Q1 this year, and we've been under the pressure for this investment and expenses. Yet, we also believe that these stores and the network will soon start to yield results and kicking with effects. And the third reason is also relevant to the maturity that is regarding the maturity level of our sales force. For the fellow teams of the Angou brand, 60% of them have been in the company for less than three months.

Speaker 5

And it will take some time to train the team and for the soft teams to polish their soft skills to be able to yield good results and make deals. As the team is getting more mature day after day, we also see that more and more fellows are now able to making deals. And we also encourage these fellows to do more proactive outreach by going out of the stores to actively reach out to the potential users and help expand the funnels. And this will also help us to improve the order performance. And for this year, we if we look at the month over month trend for the number of fresh orders, it has been increasing steadily.

Speaker 5

And in terms of the number of test drives that we've been receiving and doing month over month, it is also breaking the record. And we believe that this fresh orders and the test drives will also soon be converted into orders and the sales volume. And the fourth reason is regarding the PowerSlave station availability for the onboard users. As in the past several months, we've been making more progressive modifications on the Power Swap stations to make sure that they are compatible with the Envoy products and also providing more batteries for the swap stations. Now more than 1,500 Power Swap stations in China are available for Onvo users.

Speaker 5

And also at the early stage of the product launch, we had the short supply of batteries. In that case, there was only one battery for the available Power Swap stations, not enough for the Onvo users to experience the full Power Swap service. But now we are supplying more batteries for the Power Swap. In that case, the experience for the Power Swap among onboard users are also improving, also enhancing a better work for mouth for the brand. And also in many regions where we see more Power Swap stations available for Envoy users, we also see actually more sales volume for the Envoy products.

Speaker 5

Together with our Power Up County initiative, we believe that with more Power Swap stations available in the lower tier cities, this will also help improve the penetration rate of Envoy in those lower tier cities. And a very interesting number to share with you is that in actually in 12 regions in China, the sales volume of annual has already outnumbered the volume of new. This is also a good effect or result of our dual brand synergy and also strategy. And also another compound factor is that our recent sales volume is majorly affected by the fierce competition as well as the negative public opinions on the brand and also PR attacks that has affected our volume by around 30% to 40%. But still even against this difficult environment, we still see a very high user satisfaction on the product L60.

Speaker 5

Actually, L60 has the highest product user satisfaction among all the products launched by the new company. And we also see a pretty good referral rate on the L60. This has gave us confidence on the product going forward. As we pick up speed with our orders and also test drives as we further enhance the brand awareness, expanding our sales and service network, growing our team and their maturity level and also enhance the coverage and availability of the core substations for the onboard users, we believe that the sales volume of L60 will pick up and also fulfill our expectations. And regarding your question on the efficiency improvement and also the synergies can be leveraged between two brands, actually in terms of the after sales services, power swap stations and as well as the supporting functions such as finance, human resources and some regional functions, this has been shared across two brands from the beginning.

Speaker 5

And recently, we are also making further adjustments. In some regions, for the supporting and the management roles, we are also trying to have one team to oversee both brands. And we see some good effects by having one team overseeing two brands in terms of the sales and the service management. And in terms of the point of sales of Ambo or the sales network of Ambo, we will keep it separated and independent of the new brand as these two brands targeting different user groups and also are from different brand segments. Recently, we are also having some pilot programs where we have the incentives and the policies to encourage the sales team to also sell the product from the other brands.

Speaker 5

We already have seen some good results by rolling out the pilot program.

Speaker 2

Thank you, Tim.

Operator

Thank you. The next question is from Binwang from Deutsche Bank. Please go ahead.

Speaker 1

My first question is about your guidance about gross margin, including the vehicle gross margin and overall gross margin. Meanwhile, you mentioned that you were even in the number four quarter this year. So what's your assumption in terms of gross margin and volume? And my second and last question is that, previously you guided your 2025 volume will be double year over year. After the first quarter.

Speaker 1

Can you provide update the volume guidance? Thank you.

Speaker 5

Thank you for the question. Regarding your questions on the vehicle margin, normally Q1 is the off season in the sales of the vehicle products. And also in Q1, we are in between generations for our five and the six series as they will soon be upgraded to the model year 2025 to clean up the inventories for the existing generation. We are also under pressure regarding the vehicle margin for the new brand. And in terms of the Onward brand, as William has mentioned, the sales performance of the Envoy product didn't meet our expectation in this year.

Speaker 5

Considering the amortizations and other factors, we are also under pressure and a challenging situation managing the Envoy product and its vehicle margin. So overall speaking, the company's vehicle margin in Q1 will not be as good as you would expect it based on our margin performance in Q4 last year. But still, our full year target is to achieve breakeven in Q4. In that case, we have also mapped out a roadmap of our product margin. For the new brand, we would like to achieve a margin a vehicle margin of 20% and for the Anubo brand, it will be 15%.

Speaker 5

Regarding the actual actions that we have taken to control the cost and also improve the vehicle margin, there are several actions. The first is to implement a more systematic cost reduction initiative by making our products more platform based and improving the commonalities across different products and also across brands. There are several examples. For example, we have implemented a overall platform strategy for the seats. Now the products from the Neo brand and Envoy brand share the same seat structure.

Speaker 5

With that, we are able to reduce the total BOM cost for the system by 10%. And the second example is regarding the smart hardware. We have standardized the interfaces of most of the smart hardwares in the vehicles. In that case, we can further reduce the cost on the cables and connectors. The piece price per vehicle is reduced from RMB2000 to only RMB1000.

Speaker 5

And the third example is regarding the in house developed parts and also components as we've been making efforts in doing in house development in the past two to three years and we also see a very helpful cost reduction result over the past two years. For example, ET9 will soon be delivered with the NX9031, our chip for the smart driving and this chip will also be available on the model year '25 for the five and the six series product, our volume product. In that case, the piece price will be decreased by around RMB10000 in comparison to the four hour ring solution. And in addition to this cost reduction measures, we are also taking some systematic measures. For example, we have a very capable team doing cost management analysis and engineering.

Speaker 5

And starting 2023, we have been enabling and empowering the team. And now the team directly reports to me for any quotation we're nominating prices surpassing the cost estimation results by 7.5%, such nomination decisions will need to be escalated to the EC level for the joint approval. With all these measures taken together, in 2024, we managed to reduce our bomb cost by 10% and we will continue such efforts in 2025. And the second major action or the second major contributor of improved vehicle margin will be contributed by the launch of our new models. As mentioned by William, this year we are going to introduce and launch nine new models, including completely new models as well as the model year face lifts.

Speaker 5

For the model year face lifts, they will help improve the overall cost for these existing models. And in terms of the new models, in the second half of this year, the new brand is going to unveil and introduce a major product with better or with actually higher margin as well as more elevated brand and product positioning. This will help improve the overall vehicle margin of the new brand. And for the Envoy brand in Q2 actually in April, they will unveil their second brand, L90 and then start to deliver this product in Q3. And in the meantime, in Q4, Envoy is going to introduce another product.

Speaker 5

Both products from the Envoy brand will target higher margin and also higher priced segments. This will also help improve the overall product margin for the Onward brand. So together with the cost reduction actions that we've been taking as well as the margin increase driven by the new products, we will gradually achieve our margin target in Q4 and also for the full year. And regarding your questions on the sales volume and the guidance for this year, in Q1, our sales guidance is to achieve a year over year growth of 36% to 43%, so around the 40% year over year growth for the deliveries in Q1. And as for the full year, our target is still the same, just to double the sales volume from last year.

Speaker 5

And there are several drivers behind this. The first is the new car effect. As we've mentioned that this year, we are going to introduce nine new products under three brands. Starting next week, we are going to deliver ET9. And with the launch and the delivery of these nine new models, we will be able to fill up our sales volume for this year.

Speaker 5

And the second key driver is regarding the Anvo brand. As we are improving the overall network sales network and service network of Anvo, enhancing the maturity level of the team and also strengthening its brand awareness, it will also gradually yield better results even if it didn't fulfill the sales target we set for Q1, yet we are confident in the continuous improvement in the Onvo brand.

Speaker 2

Brand.

Speaker 5

And also a further comment on the key driver behind the sales volume is the network effect of our Power Swap network and the recharging network in general. If you look at the cumulative sales volume of the NIO brand and the distribution of the sales, actually half of this volume is contributed by the sales in the Yangtze River Delta area. For the Jiangsu province, we have already achieved the power up county plan, which means that in every county in Jiangsu province, there is at least one power substation. And for the Zhejiang province, we aim to achieve also a county level coverage by end of this month, except for two islands where they will not have the power swap stations. And also for the power swap strategy in general, as you may know, our recent strategic partnership with CATL, this will further help us to expand our reach in the country levels with our Power Swap facilities.

Speaker 5

In the first half of this year, our Power Swap network will cover the counties of more than 10 provinces in China and by the end of this year, cumulatively 27 provincial level divisions will have Power Swap stations available at the county level and the network effect of this swap station will play a very important role because we have already proved that last year we doubled our efforts on the Power Swap network in bigger provinces like Hubei and Anhui provinces. And we already see some good results. Before the swap stations were merely available in big cities, but then we find that the county level coverage is more important in promoting the sales. And for the sales volume in these two provinces after we achieve the county level coverage, their sales volume is far above the average. And this year, we will continue such efforts to cover more counties in more provinces, especially big provinces like Henan, Shandong and Sichuan.

Speaker 5

With that, we will help improve the overall market share and the market reach of not only the new brand, but also the Ambu brand. Especially

Speaker 2

the Ambu brand.

Operator

Thank you. The next question is from Paul Gong from UBS. Please go ahead.

Speaker 6

Hi, William. Thanks for taking my question. The AI and robotics has been the very hot topic in this early season. In one of your peers' earnings call, the AI has been mentioned by 49 times during the whole call, but I guess it hasn't been mentioned here. Can you please remind us your latest thoughts on the AI, automobile driving, robotics, etcetera?

Speaker 5

Thank you for the question. Regarding the application of AI technologies, Nio is the first car company to introduce AI companion in the car. It's Nomi and it's loved and well received by many users. For Nomi, it has its own large language model capabilities, Nomi GPT, but on top of that, it is also supporting third party large language models. With that, the satisfaction and also the interaction rate of Knowmee is growing.

Speaker 5

Knowmee is also a quite profit making IP with a lot of the well popular merchandise and also high take rate. And in addition to the AI application on Nomi, we also have AI applied to our smart driving technologies and experience. As last year, we have introduced the new world model, NWM, and the latest AD version with smart driving release will be based on the new world model. And actually, I have participated in some internal beta version tryout, and I can say that I really look forward to that version. It has quite good performance in terms of the active safety and the experience in general.

Speaker 5

And of course, AI is a very important basic capabilities in terms of AGI, in terms of robots, in terms of the fundamental capabilities for AI. But for the foreseeable future, for us, we will mainly focus on our core business, that is the automotive product. And in that case, AI will be more of an enabler to achieve better product experience as well as better business and management as AI itself is one of our top food stack capabilities and it is ever present in every aspect of our business. And as many people are talking about how the automotive product is becoming an AI agent, and I believe that the company itself is also turning into an AI agent. But still for the short term, our primary focus is still our core business as well as our operating targets.

Speaker 5

But a slight note here is that Neo Capital has invested in a lot of AI companies, especially industry leading AI companies. And in that case, we're in close contact with the cutting edge technologies and also the outstanding funding teams in the AI arena. And in house, we also have capable AI talent working on the relevant field.

Speaker 2

Thank you, Paul.

Speaker 6

Yes. Sorry, my second question is regarding the number of models. I think the company has eight models at the same time right now and after this year's new model launch, it would move into some big teams. Given the cannibalization between each other and also one of the peer has demonstrated with even only one single model, the volume could still be achieved. Shall we consider to concentrate more into some blockbuster models and eliminate some of the less popular models to be more focused, what do you think is the most optimal number of models for each of the brands?

Speaker 5

Thank you for the question. As we now have three brands, NIO, Envoy and the Firefly, our overall product strategy and portfolio for these three brands will also be quite different as it is also dependent on their respective segments and also brand positioning. For the new brand, we will basically keep the existing lineup spanning from RMB 300,000 all the way to RMB 800,000 and each will covering for me, for family and for business segments. With ETI being delivered, we are completing this price coverage from 300,000 all the way to 800,000 plus segments in the premium market. And for the premium market users, they actually care more on the personalization and also the unique identity of the vehicle products.

Speaker 5

If you look at other premium brands like BMW and Mercedes, they actually offer forty, fifty products in their lineup. So for this segment, users care more about the differentiation and also the personality of their products. As for the Ambo brand, we will be more careful with the number of products in the lineup. This year, we are going to introduce two new products under the Envoy brand together with L60. There will be three products in the lineup by end of this year, and we will not drastically increase or expand the existing portfolio, but to control that within a reasonable range.

Speaker 5

As for the Firefly brand, it is a high end small car brand. In that case, it's not necessary to really offer too many different products. So our overall strategy is to have a differentiated product portfolio and line up for different brands, but overall maintaining a rather stable and reasonable product lineup across three brands. But for each model, there will be also emphasized the highlights and also targeted user groups. Thank you.

Operator

Thank you. The next question is from Youkuin Ding from HSBC. Please go ahead.

Speaker 7

The first question is about cash position, supply chain perspective against that and also potential financing. So we see our net cash position at above $25,000,000,000 but given the volatility between quarters, the supply chain coming from a more conservative perspective and how sustained with that? Would that require additional financing? No matter if it's debt or equity, can we have a little bit more clarification on that? Second question is about the CapEx guidance.

Speaker 7

Can we see a little bit breakdown into a refreshed CapEx guidance? This year, we talked about a commitment into SWAB network, but since we signed up the collaboration with CATL, can we leverage partnership to do some CapEx building? Can we expect the CapEx to taper off this year? Thank you.

Speaker 5

Thank you for the question. Regarding your first question on the cash reserves, by the end of twenty twenty four, our cash position was RMB49.1 billion. And in Q1, as we see the decrease in the sales volume quarter over quarter, we did experienced a operating cash outflow. Yet as we have introduced that this year will be a pivotal year for our product launch as we witness the rebound starting Q2, we will also see major improvement in the operating cash flow. And also as we have previously introduced, starting Q1 this year, we have conducted a series of adjustments and also streamlining activities.

Speaker 5

This was also reflected in our financial performance starting Q2. Overall speaking, we will be prudent with our cash flow management to make sure that our resources can sustain our continuous growth and development. And regarding your second question on the fundraising, we have a various options we have a various fundraising channels for the capital market for The U. S. Capital market, R and B capital market, public or private.

Speaker 5

We will be planning our fundraising requirements and activities according to the operations of the company as well as the changes in the market. And regarding the question on the CapEx, as we have mentioned that this year we will launch major products. In that case, we have made the CapEx spending in the toolings and also the production equipment together with our supply chain partners. And in the meantime, as we are launching new products, our third factory is also going to be put in operations depending on the raw production plan. So our CapEx this year will be higher than in last year, but still we will have a very prudent measure and manner in managing our investment pacing and also our cash position to make sure that we have a very good control over the spending.

Speaker 5

In terms of the CapEx for the Power Swap Station, starting last year, in terms of the Power Swap network expansion, we have already started to adopt one principle that is to leverage the resources of our Power Swap partners as much as possible. As last year, we have announced the Power Up Partner plan where we invite the partners to jointly build the swap stations and the network. For the Power Up County plan this year, most of the stations will actually be sponsored or built by our partners than by ourselves. In that case, the CapEx utilization or the power substations will also be relatively limited.

Operator

Thank you. The next question is from Ming Sun Li from Bank of America. Please go ahead.

Speaker 8

William, So first question is regarding your autonomous driving technology plan. When do you plan to roll out your end to end model? And in the future, do you consider to use the Thor chips in your car? Or you will use your Sanji chips in all of your NIO branded model? Thank you.

Speaker 8

That's my first question.

Speaker 5

Thank you for the question. Actually, last year, we have already implemented the end to end solution to our active safety features as different companies may have a different priority or force ranking on the technology applications and for us we believe that safety matters the most. That's why we have implemented the end to end model firstly in our active safety features and we did see major improvement regarding the safety level week over week by 40%. So it is playing a very important role in providing a safer trip for our users. And in terms of the end to end solution based Navigate on Pilot plus for the city roads, we have also started small scale testing and internal testing, and we plan to release that to our users by the April after a series of preparations and also approval applications.

Speaker 5

And regarding the use of the chip for smart driving, ETI is going to premiere our in house developed chip for the smart driving. It is made with advanced manufacturing process, NX 9,031. And after '89, our 2025 model year, the five and the six series will also be launched and equipped with the in house developed chip for the smart driving. So all the future new models will be equipped with this in house chip. As for the Onboard brand, currently it is using the Owing X chip for the smart driving functionalities and it does not have plan to use DOR.

Speaker 8

Thank you. My next question is regarding the OpEx because in the past few quarters, we continue to see your gross margin continue to improve Q on Q. But for the operating expense, do you have the latest guidance and new plan? For example, in the past, William mentioned that the stabilized R and D will be RMB13 billion every year. And could you give any new updates for this number?

Speaker 8

And also for the sales and marketing expense, do you have any target ratio OpEx ratio for this number? Thank you.

Speaker 5

Thank you for the question. Regarding OpEx, in terms of the R and D spending and expenses, for this year, we will continue to have the same intensity level for the R and D expenses, around RMB3 billion every quarter on the non GAAP basis. Of course, as mentioned by William, this year, we have rolled out the CBU mechanism where we emphasize more on the project with high return and also high yield. In that case, we will also optimize our project initiation and approval process to make sure that our R and D expenses are reasonable and also efficient. And regarding the SG and A expenses, we did have bigger challenges to manage in the first quarter of this year as Q1 is normally the off peak season for the sales.

Speaker 5

The overall volume in Q1 is not so high. In that case, the SG and A expenses account for a bigger part to the sales revenue. And also in the coming in this quarter, we are still building up and expanding the sales and service network as well as growing the sales force capabilities for the Envoy brand. In that case, Envoy's SG and A expenses is also higher. But as we have introduced, we are going to take a series of actions to improve the efficiency and the productivity of the teams and also to streamline the non frontline cell functions to consolidate some of the cell functions between the NIO and the Humble brand and also to leverage NIO's network for the sales of Firefly.

Speaker 5

With all these actions taken, we expect the better results to be reflected in our financial performance in the coming quarters. As we grow our sales volume and also gradually achieve the breakeven target in Q4, you will also see SG and A accounting for smaller portions to the sales revenue. And with that, you will see also the effect reflected by the improvement in both volume and also in the efficiency of people and expenses.

Operator

Thank you. The next question is from Jing Chang from CICC. Please go ahead.

Speaker 5

So my question is regarding to the other sales other revenues. And we can see that in the fourth quarter, the gross profit margin of other sales has already turned positive and reached 1.1%. So could you please break down the reasons for this? Thank you for the question. Regarding the gross margin of other sales, it mainly consists of three things: the revenues from the after sales services, revenues from the power services and also revenues from the technical services we provide to the supply chain partners and also to affiliated parties.

Speaker 5

And in Q4, we have the positive margin on other sales. It's mainly because we have been continuously improving the efficiency of the Aptera soft services. Of course, in terms of the Power Swap or the power service in general, as we are still making advanced deployment of the facilities and infrastructure network, the loss is actually not significantly narrowed from the power perspective. And for the other cells to be with positive gross margin in Q4 last year, it's mainly because of the revenues from our technology services provided to the partners and also the affiliated parties. It's around RMB220 million in Q4 last year.

Speaker 5

Yet such revenues are more project based and also it's relevant to the cadence and the progress of the services we provide to them. In that case, there will be in the future, there will be also similar revenues, but it will not be a recurring regular revenues from that perspective. In 2025, as we continue to increase our vehicle population, we also foresee continuous increase in the efficiency of our after soft services. As for the power networks, as we are still making advanced deployment of the power soft stations, we will still encounter slight loss making with the combined margin of the after soft services and the power services if we exclude the technical services. In terms of the technical services, if we can make major deals or if we can make major progress, probably there will be some good news to disclose.

Speaker 2

Thank you.

Operator

Thank you. The next question is from Tina Hau from Goldman Sachs. Please go ahead.

Speaker 5

Thanks management for taking my question. So I have a quick one just regarding our longer term outlook, say, by 02/1930, do we still maintain our previous, I think, volume and margin outlook? And could you please remind us of your revenue scale sorry, your sales volume scale target as well as your maybe overall gross margin as well as operating margin? Thank you. As right now, the company is still striving to be breakeven in Q4 this year.

Speaker 5

If we set for a longer term outlook for the future, we believe that for the smart EV companies or for the automotive industry in general to maintain a relative competitive edge among the competitions, an annual volume of 2,000,000 units with 20% gross margin, 7% to 8% net margin that will be a baseline for a smart EV company to survive for the longer term.

Speaker 2

Thank you, Tina.

Operator

Thank you. Thank you, William. Thank you. As there are no further questions now, I'd like to turn the call back over to the company for closing remarks.

Speaker 1

Thank you so much for joining us today. If you have further questions, please feel free to contact NIO's IR team through the contact information on our website. This concludes the conference call. You may now disconnect the line. Thank you.

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Earnings Conference Call
NIO Q4 2024
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