NIO Inc. (NYSE:NIO) Q1 2023 Earnings Call Transcript

NIO Inc. (NYSE:NIO) Q1 2023 Earnings Call Transcript June 9, 2023

NIO Inc. beats earnings expectations. Reported EPS is $-0.18, expectations were $-0.33.

Operator: Hello, ladies and gentlemen, thank you for standing by, and welcome to the NIO Incorporated First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. Today’s conference call is being recorded. I would now like to hand the conference over to your host, Ms. Eve Tang from Capital Markets. Please go ahead.

Eve Tang: Good morning and good evening, everyone. Welcome to NIO’s first quarter 2023 earnings conference call. The company’s financial and operating results were published in the press release earlier today and are posted at the company’s IR website. On today’s call, we have Mr. William Li, Founder, Chairman of the Board and Chief Executive Officer; Mr. Steven Feng, Chief Financial Officer; Mr. Stanley Qu, Senior VP of Finance; and Ms. Jade Wei, VP of Capital Markets. 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, 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. 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 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.

William Li: [Foreign Language] [Interpreted] Hello, everyone. Thank you for joining NIO’s 2023 first quarter earnings call. In the first quarter of 2023, NIO delivered a total of 31,041 smart electric vehicles, up 20.5% year-over-year. In April and May, NIO delivered 6,658 and 6,155 vehicles, respectively. We expect the total deliveries in the second quarter of this year to be between 23,000 and 25,000 units. As we ramp up the production of the All-New ES6 and other new models, we are confident in continuously driving up our delivery volume. Next, I would like to share with you the recent highlights of our products, R&D, and operations. On May 24, we launched the All-New ES6, an all-around midsize smart electric SUV, and started its delivery the next day.

The product quality of the All-New ES6 has been widely acclaimed by the first batch of users. In May, we also started the user delivery of the 2023 NIO ET7, and the flagship coupe SUV EC7, coming with more than 15 new features and enhancements. The 2023 NIO ET7 continues to lead the change in the premium smart electric mid-large sedan market. As a flagship coupe SUV, EC7 inherent NIO’s high-performance DNA and both ultimate riding and handling experience. NIO’s product quality and the safety also recognized by authoritative institutions. On April 24, NIO ET5 was rated good, the highest safety level by China Insurance Automobile Safety Index, or C-IASI. In J.D. Power’s 2023 China New Energy Vehicle Initial Quality Study released on June 1, NIO ES6 won first place in the premium BEV segment for the fourth consecutive year.

Also in J.D. Power’s 2023 NEV-APEAL Study, which evaluates new energy vehicles’ performance, execution and layout, NIO ET7 ranked number one among premium BEVs. We plan to launch the NIO ET5 Touring on June 15 and start the delivery in the same month. As the world’s first smart electric tourer, the ET5 Touring is designed to cover diversified scenarios for both individual and family users, significantly improving our competitiveness in the premium family vehicle market. Besides, NIO’s flagship SUV, the All-New ES8 will also commence delivery in the [indiscernible]. The new EC6, our second generation midsize smart coupe SUV, will be launched and delivered in the third quarter. As we proceed with the product platform transition, NIO’s complete NT2.0 line up featuring eight different products will form a combined force to better cater to the diverse needs in the premium smart EV market, and provide users with more experiences beyond expectations.

In June, NIO’s smart system Banyan will be upgraded to version 2.0. This release includes over 120 new features and enhancements. By connecting NIO’s products, services and the community in a more seamless way, Banyan 2.0 will deliver a one-of-a-kind digital experience. It’s particularly worth mentioning that Banyan 2.0 provides a new feature that is automatic planning of charging and swapping routes. Enabled by new Power Cloud and the comprehensive power infrastructure, it can let users plan for charging and swapping along the navigation route for long-distance trips with just one tap. In terms of intelligent driving, NIO has released Navigate on Pilot Plus Beta, or NOP Plus Beta, to all NT2.0 users. Based on in-house-developed NIO intelligent driving technologies and closed-loop data management, NOP Plus Beta has made significant improvements in making users’ journeys more reassuring, comfortable and efficient.

In Banyan 2.0, NOP Plus will be using NIO’s proprietary BEV model and occupancy network perception and the large language model trained with the large-scale data sets for planning and control. The experience of NOP Plus will be further enhanced. In the meantime, we have started to test our Power Swap Pilot for Highway at scale and we’ll make it available for 40 Power Swap stations on highways starting from the third quarter this year. This feature will be gradually rolled out to more Power Swap stations with users of — with which users can enjoy more seamless and navigate on pilot experience from Point A to Point B on highways. With respect to the sales and service network, we now have 365 NIO Houses and the NIO Spaces in 136 cities, and 359 NIO service centers and NIO delivery centers in 196 cities.

In terms of the charging and swapping network, on April 13, the first batch of NIO Power Swap Station 3.0 started operation. The Power Swap Station 3.0 features the synchronization of three operating positions, making it faster than the previous generation with higher service capacity and more intelligent experiences. So far, NIO has installed 1,474 Swap stations worldwide, including 119 third-generation Power Swap stations, and has completed over 23 million Swaps for users. NIO has also installed 7,000 Power Chargers and 8,800 destination chargers. In fact, our Power Map has also been connected to over 1.1 million third-party chargers globally. On April 17, NIO’s first 500-kilowatt power chargers went online, completing the new generation of Power Up station, which is an integrated station featuring 500-kilowatt power chargers and the Power Swap station 3.0. Through efficient coordination between chargers and the Swap stations and flexible capacity distribution, the Power Chargers can operate more stably and efficiently.

On April 22, the fourth NIO User Council was established after the NIO User Council member election, which was actively participated by NIO users worldwide. This year NIO Users Trust will continue their work, centering on public welfare, user care and common growth. On March 26, further deepening our partnership with World Wide Fund for Nature, WWF, NIO announced to join the Science Based Targets initiative and plan to set a science-based target within the next two years with the goal of contributing to global sustainable development and leading up to the Blue Sky commitment. In the face of the changing market situation, we will timely adjust our sales and the marketing priorities to ensure the market competitiveness of our products and services.

In the second half of 2023, with the entire NT2.0 product line up entering the premium battery electric vehicle market and 1,000 new Power Swap stations have put into operation. NIO’s product competitiveness powered by our decisive efforts into developing full stack R&D capabilities and core technologies of smart EVs will be gradually unleashed, which in turn can better prepare us for the increasingly intensifying competition at the next-stage. As always, thank you for your support. With that, I will now turn the call over to Steven to provide the financial details for the first quarter. Over to you, Steven.

Steven Feng: Thank you, William. I will now go over our key financial results for the first quarter of 2023. And to be mindful of the length of this call, I’ll reference to RMB only in my discussion today. I encourage listeners to refer to our earnings press release, which is posted online for additional details. Our total revenues in the first quarter were RBM10.7 billion, representing an increase of 7.7% year-over-year and a decrease of 33.5% quarter-over-quarter. Our total revenues are made of two parts: vehicle sales and other sales. Vehicle sales in the first quarter were RMB9.2 billion, representing a decrease of 0.2% year-over-year and a decrease of 37.5% quarter-over-quarter. The decrease in vehicle sales year-over-year was mainly due to lower average selling price as a result of higher proportion of ET5 and 75 kilowatt standard-range battery pack deliveries, partially offset by an increase in delivery volume.

The decrease in vehicle sales quarter-over-quarter was mainly due to a decrease in delivery volume, and lower average selling price as a result of higher proportion of ET5 and 75 kilowatt standard-range battery pack deliveries. Other sales in the first quarter were RMB1.5 billion, representing an increase of 117.8% year-over-year and increase of 11.3% quarter-over-quarter. The increase in other sales year-over-year was mainly due to the increase in sales of accessories, provision of repair and maintenance services, provision of auto financing services, sales of used cars and provision of power solutions, as a result of continued growth of our users. The increase in other sales quarter-over-quarter was mainly due to the increase in provision of auto financing services, sales of accessories, provision of repair and maintenance services, provision of power solutions and sales of used cars, as a result of continued growth of our users, and partially offset by a decrease in revenue from rendering of research and development services.

Gross margin in the first quarter of 2023 was 1.5% compared with 14.6% in the first quarter of 2022 and 3.9% in the fourth quarter of 2022. The decrease in gross margin year-over-year and quarter-over-quarter was mainly attributed to decreased vehicle margin. More specifically, vehicle margin in the first quarter was 5.1% compared with 18.1% in the first quarter of 2022 and 6.8% in the fourth quarter of 2022. The decrease in vehicle margin year-over-year was mainly attributed to changes in product mix and increased battery cost per unit. The decrease in vehicle margin quarter-over-quarter was mainly due to changes in product mix and increased promotion discounts for the previous generation of ES8, ES6 and EC6, which were partially offset by the inventory provisions, accelerated depreciation on production facilities and losses on purchase commitments for the previous generation of ES8, ES6 and EC6 in the fourth quarter of 2022.

R&D expenses in the first quarter were RMB3.1 billion, representing an increase of 74.6% year-over-year, a decrease of 22.7% quarter-over-quarter. The increase in research and development expenses year-over-year was mainly attributed to increased personnel costs in research and development functions and the increased share-based compensation expenses recognized in the first quarter of 2023. The decrease in research and development expenses quarter-over-quarter reflected fluctuations due to different designs and development stages of new products and technologies. SG&A expenses in the first quarter were RMB2.4 billion, representing an increase of 21.4% year-over-year and a decrease of 30.7% quarter-over-quarter. The increase in SG&A expenses year-over-year was primarily due to the increase in personnel costs related to sales and general corporate functions and increase in expenses related to the company’s sales and service network expansion.

The decrease in SG&A expenses quarter-to-quarter was mainly due to the decrease in sales and marketing activities and professional services. Loss from operations in the first quarter was RMB5.1 billion, representing an increase of 133.6% year-over-year and a decrease of 24.1% quarter-over-quarter. Net loss in the first quarter was RMB4.7 billion, representing an increase of 165.9% year-over-year and a decrease of 18.1% quarter-to-quarter. Net loss attributable to NIO’s ordinary shareholders in the first quarter was RMB4.8 billion, representing increase of 163.2% year-over-year and a decrease of 17.8% quarter-over-quarter. Our balance of cash and cash equivalents, restricted cash, short-term investments and long-term deposits was RMB37.8 billion as of March 31, 2023.

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

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Q&A Session

Operator: Thank you. [Operator Instructions] Your first question comes from Tim Hsiao from Morgan Stanley. Please go ahead.

Tim Hsiao: [Foreign Language] So my first question is about volume and cost control, because NIO has been investing more aggressively since 2021 on new models, sales and marketing and energy replenishment network. So in light of the challenging industry and macro outlook, would NIO consider streamlining the model portfolio and cutting back on investment in some projects like smartphone, battery, chipset and refocus resource on a few flagship models? And separately, does NIO still stick to its original schedule to launch our mass market brand ALPS next year? So that’s my first question. Thank you.

William Li: [Foreign Language] [Interpreted] Thank you, Tim, for your question. As we have mentioned, the market competition is intensifying and we do face a lot of changes in the market dynamics. For the NIO technology platform 2.0, we are about to show the whole lineup of the eight products based on the NT2.0, and these eight products will enter the market in the near term, gradually. The current focus of us is to make sure we have the new organization structure to have a more targeted sales strategy and the marketing strategy for all the eight products to reach its own target user groups. Because when we design those products, we do have a specific positioning of different products in their specific segment and target groups.

So the kind of challenge for us is to make sure our marketing and the sales team can be more dedicated on these eight products in terms of showroom layout and the product reach and the marketing reach and the distribution of the resources at the sales and marketing teams. We want to make sure for each product, we have dedicated teams to take responsibilities in terms of sales and marketing efforts. Of course, for those key products, we will put more resources to make sure we can reach much better sales performance. But just like I mentioned, the focus for us now is to make sure we can have more dedicated resources for the eight products separately and to make sure they can achieve good market share in terms of their specific segment. Yes, of course, we need to be more agile in terms of face the challenges of the changing market situation to ensure our competitiveness in terms of the products and services.

Regarding the topics of the R&D projects, overall speaking we would like to insist on our big directions in terms of the R&D projects. In the short-term, yes, we do have some pressures, but we think it’s really important and necessary for us to focus on those R&D capability building to build of our long-term competitiveness. But at the same time, based on our resources and the priorities of the company, we can adjust the pace of the investment for all those different R&D projects. For the question regarding ALPS project, our timing for ALPS brand is still the same, that is the second half of 2024, where we plan to launch the ALPS products at that time, and we would choose the specific timings for those different products. However, at the same time, we want to make sure for the ALPS products we can have a much faster pace in terms of the go-to-market because these can help us to improve the efficiency and have a much better planning of the resources, especially at the marketing and sales front.