NIO’s Conference Call: Follow here the LIVE Updates

Written by Cláudio Afonso | info@claudio-afonso.com

NIO reported today its Earnings Results on Wednesday. The company had a total Revenue of $1.55B in Q4 2021 (an increase of 52.0% Year-over-Year) beating Wall Street expectations by $20M. Follow here NIO’s Conference Call with Live Updates:

(LIVE UPDATED)

William Li

09:03 HK— “Hello Everyone! Thank you for joinning the call! In the Q4 we delivered – representing an increase of 44% YoY. 2021 was a year full of challenges for NIO and for the Auto Industry with supply chain volatility, and NIO delivered 91,429 vehicles for the full year, up 109.1% year-on-year.”

“During the hollidays we prepared the production lines for ET7. All the demand an dmomentum remained strong, the production was affected by Covid and we expect the Q1 deliveries to be between 25,000-26,000 units.”

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“We wil start the delivery of ET7 on March 28. In early March we took off the ET7 test drives with great feedback. “

“The all industry is being affected for the cost increase. We’re looking in order to reduce the impoact of the vehicle’s gross margin.”

“On a separate note, by the way of introduction, NIO entered on Hong Kong Stock Exhange enabling to serve more investors in the future.”

“In 2021, we started to gap our investments in R&D, we had new products and new investments and Autonomous Driving and other new technology. Investment in R&D is very important in long-term, we’re going to see the result of the past investment in this area. The ET7 leads the industry in many aspects.”

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“At the NIO Day on December 18, 2021, we unveiled ET5, a mid-size smart electric sedan. As a perfect combination of NIO’s supercar DNA and the concept of design for AD, ET5 is equipped with NAD NIO autonomous driving and PanoCinema, panoramic digital cockpit enabled by AR and the VR technologies.”

“It comes as standard with 100 configurations for comfort, safety and smart technology. After the launch, ET5 has attracted a wider and more diversified user base and received more orders than our expectations. The delivery of ET5 is expected to start in September this year. Soon we also launch ES7 our first SUV model on NT2 which is positioned as a mid-large premium five-seater SUV and expected to start delivery from the third-quarter of this year.”

“ET5 received more pre-orders than we expected, the deliveries in China will start in September of this year. NIO ET5 pilot car was rolled off the production line at the pilot production center on March 16. In the coming years, we will continue to invest in R&D, battery technology and Autonomous Driving.”

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NIO will unveil the ES7, the first SUV on the NT2.0 platform, in the near future. The deliveries are scheduled to begin in Q3 2022.

NEO Park is set to put in operation in Q3 20222. We are still facing volatility on the raw materials, Covid and chip shortage issues.

In terms of the network, we have 46 NIO Houses in China. We have been continuously upgrading the network delivering high quality services for users. In terms of Battery Swap Stations we have 866 stations in more than 100 cities in China. In 2022, NIO will reach 1,300 Battery Swap stations providing better quality to NIO users.

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This year, they have ranked at the 7-seater market. The successful experience in Norway help us to understand and prepare better for the next markets. In 2022, NIO will bring its services to Germany, Denmark, Switzerland and The Netherlands.

The mass market brand has been advancing according to the plan with critical research. The development of NIO would not be possible without our users. We have thousands of volunteers on our events like NIO Day and others.

NIO Day 2021 we announced the program to help NIO users establish experiences with other users. In addition, NIO launched the Green Park that help us contribute to the Green cause and to achieve low carbon goals.

This year, NIO will be in full speed launching 3 new products and entering new countries and regions. The cimpany will always put users at first priority.

09:29 HK— Thank you for your support. Time to the Financial details now.

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09:32 HK— NIO Financial Director is currently dictating the numbers revelead on the statement.

Vehicle sales were US$5,205.1 million for the full year of 2021, representing an increase of 118.5% from the previous year. Vehicle margin was 20.1% for the full year of 2021, compared with 12.7% for the previous year.

Total revenues were US$5,670.6 million) for the full year of 2021, representing an increase of 122.3% from the previous year. Gross profit was US$1,070.4 million for the full year of 2021, representing an increase of 264.1% from the previous year.

Analyts Questions

Tim Hsiao: NIO is in a better position to lead with higher prices of raw materials used in EV batteries. Currently, is NIO adjusting prices of the ES8 and ES6 models with the entrance of the ES7 model?

William: “Thank you, Tim. Regarding the question, we delivered the 75kWh battery pack to the users which contributed to our vehicle margin. We’ve been seeing some raw materials prices increasing which is affecting all the industry. At this moment, we do not have any plans on increasing prices yet. In the future, will evaluate the costs of the new battery packs but for now we’re not increasing our prices. The copper and aluminium are also being higly affected, not just the materials used on the batteries.”

“ES7 will be the 3rd SUV in this specific segment, we’ve been some increasing on the demand. We believe NIO ES7 will be complementing ES6 and ES8 in the SUV segment. We’re going to launch the ES7 in Q2. At this moment, we can see that the segment has a market of 200,00 units confirming the potential.

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Analyst from Credit Suisse: (ET7 receiving a great feedback and also a question regarding Margin)

09:55 HK—William: “Naturally, we cannot disclose the specific orders number at this moment but its much more than the media reported. BMW 5 series and Audi A6, Et7 has a similar price. Right now, in the premium SUV market, the market share in China is 23%. It has space to growth but customers will need time to take the best outcome of it.”

09:58 HK— NIO: “We accelerate the pace of the Power Stations in 2021.We believe that the upfront of the Battery Swap stations can contribute to our Branding and also our sales. Other revenues and margins of NIO Life and other services will keep growing”

Question: (Regarding NIO production capacity)

10:02 HK—NIO: “Regarding the production capacity, the new factory will need some time to ramp up the production gradually. NEO Park will reach the 300,00 units of capacity.For the battery capacity production, we believe that should be able to cover the demand. Actually, I believe that the chip shortage will be a bigger problem. Our vehicles have around 1,000 chips each one. Plus, also cheap cost is increasing. The main challenging about the chips are the supply. We can find other chip makers to avoid those risks, we believe that in the second half we may see some vehicles and battery production ramping.”

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10:09 HK— Jeff Chung, Citi: I’ve got three questions. So number one is should we consider any MSRP hike in the near term to offset potential battery and aluminum cost hike? If yes, how and if no, why not? The second question is about the existing EC6 product sales volume visibility over the next few months. Any confidence we can maintain 10,000 units a month as well as the — could you give us more color on the ET7 ramp-up pace in the second quarter? Last but not least is the lithium spot price in China. Do you think it has already peaked due to the recent government intervention? Thank you.

William LI: “For the current ES8, ES6 and EC6 of course if we look at the digital [indiscernible] this is actually based on the NIO Technology Platform 1.0 which was developed in 2018. So for this chip the efficiency may be impaired if we run some complicated software.

So that’s why starting from this year we think this year we are going to upgrade to the smart hardware of our existing products. We are also going to provide after-sales upgrade services for users regarding the smart hardware upgrades. We are going to launch this program at an appropriate time. For the existing ES8, ES6 and EC6 we believe we do not need to adjust the pricing at this moment.

But of course based on the smart hardware upgrade of the existing products and also we are going to launch some model year product, then at that time we believe probably we can re-evaluate our pricing strategy based on the cost increase in the supply chain.

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You have also asked about the performance of our current product, whether it should be able to still maintain the 10,000 units per month. According to our order momentum in March we believe that this can meet our expectations and we believe that user demand is not a problem for us because if we compare over current years ADS6 and EC6 with other ED products and ICE products in the market, we believe we still have a lot of competitive advantages so the overall demand momentum stays quite strong.

For the ET7 product ramp-up, because the ET7 is going to be manufactured in the first factory we called F1 and they’re going to share the production line with the current product ES8, ES6 and EC6, at the same time we will also introduce some new manufacturing technologies and techniques in the production of ET7. So that’s why, starting from last year, we started to adjust the production lines in the F1 to support the new product production.

In the meantime, I have also mentioned about the ES7 which is going to start delivery in the third quarter of this year. This product is also going to be manufactured in the F1. So, the situation in F1 is quite complicated as you can see because we need to make sure we have sufficient production capacities to support the current ES8, ES6 and EC6 but at the same time, we also need to produce the ET7 and also prepare for the production of the ES7.

So that’s why we believe the ramp-up progress of the ET7 is probably going to be a little bit slower compared with that of the ET5. So, it seems ET5 is going to be manufactured in a separate new plant called F2. So, we believe that probably around the third quarter of this year, we should be able to reach a normal production cadence for the ET7.

Regarding the lithium carbonate cost increase, we have done very in-depth research regarding the overall industry chain especially the upstream. We believe the cost increase or the price hikes is mainly due to the opportunistic price hikes and there is no specific big gaps in terms of the demand and the supply of the lithium carbonate materials.

Of course, right now, we can see some Chinese authorities like MIIT have already started to set up some mechanisms to manage the situation. At the same time, we also like to urge the companies in the upstream of the industry chain that they should think more from the long-term benefit of the overall development of the whole industry instead of manipulate or take the opportunity of the cost increases to increase their price.

The ET7 production will be at Hefei Factory (F1), and it’s going to share the production line with the other models. Last year, we started to adjust the production line to support the new products. Hefei situation is quite complicated because we have to make sure with all this models on the same factory. The situation will not occur with NIO ET5 because the model will be produced at F2, NEO Park.”

NIO: “We will continue to invest in infrastructure and in R&D in the coming years and will more than double in 2022 when compared to 2021. In terms of strategical direction for the company, we want to achieve breakeven in Q4 2023 and the first profitable profit year in 2024.”

NIO: “We complete around 30,000 battery swaps per day in China. The target is that the ratio between user and Battery Swap Stations should be 1 to 1,000.”

Edison Yu, Deutsche Bank: “First one, can you give us some sense of the feature rollout cadence in the autonomous driving? What kind of features do you think the LiDAR will enable and when can we expect those to arrive on the car? And then the second question is about the NIO ecosystem more broadly speaking. There are reports that you’re working on a smartphone. How do we think about what’s going on beyond the car? I know there’s – VR could be a big part. Any [indiscernible] would be appreciated. Thank you.”

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NIO: “Thank you for your question. Of course, and the timing of the delivery of the ET7 we are going to start to provide the enhanced ADMS features first to the users.

But on top of that, we have already queued up the full stack of autonomous driving capabilities from the perception to the controlling strategy. We target to start providing the AD as a service probably in the fourth quarter of this year with our NAD technology.

Of course we have always been actively — explore the possible connections and the synergies between the vehicle and smart phones and other mobile terminals because we believe there are lots of synergies between these two products in terms of the fundamental technologies, the supply chain and the software.

At the launch of the ET5 at the NIO Day, we have also introduced some AR and VR technologies as well and we believe there should be lots of room for innovation and we can also think about some innovative applications in the vehicles.”

10:37 HK— NIO: We will also use the cash on hand for service network, charging Infrastructure and investments. We will further open 100 new Houses this year. We will also build a new park located in NEO Park in 2022.

Paul Gong: Glad I still have a chance to ask how you went at this late moment. Let me just limit my question to one.

I want to know more about your thoughts about the mass market brands. Obviously, you have to compromise some of the features that NIO has for more attractive pricing points or some cost comparatives. So, the amount of the features for the new offering including say the exterior, the interior, the advanced driving features, the acceleration, the driving range, the battery swap stations, as well as let’s say the digital experience and also the service.

So, what do you think is the things that you are waiting to compromise on your mass market brands that would be reserved exclusively for the NIO brands and you’re not expecting from the mass market brands? Just this question. Thank you.

William Li: Thank you for your question. Of course, if we want to increase our volume and expand our user base, different companies will have very different strategies. For example, some peers like Tesla, they have adopted very different strategies compared with ours. For Tesla, they basically differentiated the Model 3 and Model Y from the Model X and Model S with a very big price gap.

So, by doing this they entered the mass market with the Model 3 and Model Y. So far this has been quite successful, but at the same time we have also seen some downside. For example, the sales of the Model X and Model Y have decreased significantly despite the product cycle. So, we believe there are some underlying fundamental rules of the auto industry.

That is, there is a limited bandwidth of a specific brand. It’s very difficult to imagine a single brand can actually support the pricing range from RMB100,000 to RMB1 million. It’s not feasible and I believe this is against the common sense. So, for NIO right now, we target the market segment that is around $50,000 to $100,000 and if we want to reach down to the mainstream market, that is priced around $30,000 to $50,000.

We believe this is a much bigger market and there is reasonable market size for us to grow and we can also achieve reasonable growth margin.

We also need to take some lessons learnt from the Model 3 and Model Y. We understand of course, for this mass market, we will also need to rethink the fundamental architecture of our product and also need to think about using different kind of materials and also different manufacturing technologies for our products.

In terms of the mass market of course there also needs to be efficiency driven. For this specific market segment, priced from $30,000 to $50,000 we believe a more sensible approach versus to use a new brand to enter this new market segment. We believe this is a better strategy for us. We can also see some successful examples in the market with this strategy. For example, Audi and Volkswagen and the Lexus and Toyota.

We believe this can also be a strategy for us to disrupt the market as well. Of course, for the mass market brands, the prerequisite for this is to make sure we can achieve high efficiency and also achieve reasonable vehicle gross margin.

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End of the conference.

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On Wednesday, the company announced that the first batch of NIO ET7 production vehicles was officially rolled off the production line at Hefei. “The car that everyone has been waiting for for a long time is coming soon” — NIO said. On March 18, our site revealed the photos of the first ET7 rolling off production being expected to have a 6 months delivery time, according to our local source. NIO started ET7 test drives on March 5th and will deliver the first units on March 28th.

On March 23, NIO’s Europe Vice-President was among the keynote speakers at the SMMT Electrified 2022 conference held in London, United Kingdom. Hui Zhang, that works for NIO since January 2016, enhanced the advantages of the Battery-as-a-Service.

Written by Cláudio Afonso | info@claudio-afonso.com