NIO Inc. (NYSE:NIO) Q4 2022 Earnings Call Transcript

NIO Inc. (NYSE:NIO) Q4 2022 Earnings Call Transcript March 1, 2023

Operator: Hello, ladies and gentlemen. Thank you for standing by, and welcome to the NIO Inc. Fourth Quarter 2022 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 fourth quarter 2022 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 US 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 US 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 news 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: Hello, everyone. Thank you for joining NIO’s 2022 Q4 earnings conference. In Q4, 2022, NIO delivered a total of 40,052 smart electric vehicles, up 60% year-over-year, achieving a new quarterly record. According to the retail data released by CATRC, China Automotive Technology and Research Center, NIO was the best-selling brand in China’s premium EV market, priced over RMB 300,000 with a market share of 54.8%, while over market share in the premium EV market priced over RMB 400,000 reached 75.8%. In 2022, despite the impact posed by COVID and supply chain disruptions, NIO delivered a total of 122,486 smart electric vehicles, up 34% year-over-year. In January and February of 2023, we delivered 20,663 vehicles, representing a 30.89% increase year-over-year.

We expect the total deliveries in the first quarter of this year to be between 31,000 and 33,000 units. As the penetration rate of the premium EV growth and more NIO products is expected to be delivered in the second quarter, we have a strong confidence in the market demand in 2023. Next, I would like to share some recent highlights of our products, R&D and operations. Since we started to deliver ET5 in September 2022, it’s the production and delivery has been ramping up steadily. According to CATARC’s retail data, this January, among all the mid-size sedans priced over RMB 300,000, NIO ET5 outperformed popular internal combustion vehicles from well-established brands and became the top-selling model in Beijing, Shanghai, Guangzhou, Shenzhen and other 15 cities in China and the second best-selling model nationwide in China.

On December 24, 2022, we held NIO Day 2022 in Hefei, where we launched the smart electric flagship coupe SUV EC7 and all-round flagship SUV, the All-New ES8. EC7 is a large-sized coupe SUV that encourage NIO’s high-performance DNA and delivers ultimate handling and the riding experience. The delivery of EC7 is expected to start in May. As NIO’s flagship SUV based on the technology platform 2.0, the six seater All-new ES8 offers two seat layouts, catering to all scenarios including work, family, social, and exploration. The delivery of the All-new ES8 is expected to start in June, both new products have attracted wide attention and received great feedback. In the first half of this year, NIO will gradually launch more new products and shortened the waiting time for our launch to user delivery.

Other supply chain and manufacturing teams have been preparing for new product launches and production ramp-up, making sure that supply and production go hand-in-hand with the growing demand for the new product. For intelligent driving, NIO has gradually rolled out NOP+ Beta to all NT2.0 vehicles. Based on our full stack in-house developed intelligent driving technologies and the closed-loop data management. NOP+ Beta has realized significant improvements in areas of a sense of reassurance, comfort, and efficiency. The utilization rate has doubled with a total engaged mileage of over 1.75 million kilometers in the recent week. We plan to roll out more features and functions to our users and will gradually release power swap pallet for highway in the first half of this year.

With respect to the sales and service network, we now have 375 NIO houses and NIO spaces in 141 cities and 305 NIO service centers and NIO delivery centers in 148 cities. In terms of the charging and swapping network, NIO has installed a total of 1,331 power swap stations and provided over 18 million battery swap for our users. In the meantime, NIO has accumulatively deployed 60,385 power chargers and 7,558 destination chargers sent over power map has been connected to over 1.04 million third-party charges. In 2022, 50% of the power charged by our users is from battery swapping stations, which has become the most convenient and favorite solution among new users. In 2023, NIO will speed up the development of the battery swapping network and plan to install additional 1,000 power swap stations.

By the end of 2023, there will be more than 3,000 — 2,000 to 3,000 power swap stations in total. So far, the mass production of power swap station 3.0 is going forward smoothly with large-scale production expected to start in April, the accelerated deployment of power swap stations can not only provide existing users with experiences beyond expectations, but also significantly boost user demand. In Q4 2022, NIO started to offer NT2.0 products and comprehensive services in Germany, the Netherlands, Denmark and Sweden. NIO products have been highly recognized by professional media in Europe, and the user satisfaction rate has also reached off expectations. After obtaining the prestigious Golden Steering Wheel award, ET7 was honored with multiple awards in Europe, such as the Technological Front-Runner of the Year at the Danish Auto Awards, Car of the Year and The Best in the Luxury segment by Auto Motor Sport, Sweden and the Promise of 2023 by the Association of Business Drivers in Netherlands.

On January 31, 2023, we started to deliver EL7 of mid-large smart electric SUV to the first batch of users in Europe. As we continue to introduce a more diversified product portfolio, expand our sales to service and power network, improve over brand awareness, we are confident in our long-term development in Europe. On the efforts of our strategic NIO business, including batteries, AD chips and mass market brand, are also well on track. The development of NIO wouldn’t have been possible without our users and customers. In 2022, 4,447 users volunteered at auto shows, NIO Day and other events. NIO users have also been actively making contributions to society with the participation of public wealth activities reaching 60,204 people times in 2022.

On January 18, 2023. NIO was recognized in Corporate Knights 2023 Global 100, the world’s most sustainable companies to list, among 333 companies in the car and trucks manufacturing, including parts category, NIO ranked in first. In the meantime, on January 31, 2023, NIO the second advanced manufacturing base with certified 3-star growing building and lead coat marking the first of its kind in China. We attach particular importance to low carbon development, environmental production and ecosystem co-construction and actively practice sustainable philosophy to continuously improve over years to performance. In 2022, to build our long-term competitiveness we made decisive investments and achieved a positive strides in the research and development of core technologies and products, the deployment of charging and swapping infrastructure as well as sales and service network and the global market expansion, laying a solid foundation for the company’s long-term growth.

As of the product portfolio Transition to NT2.0 with more NIO products to be launched and delivered in 2023. We will do our level best to provide users with experiences beyond expectations. At the same time, we aim for all-around execution efficiency improvements so as to compete in the global EV market in the long run in an agile and efficient manner. 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 fourth quarter. Over to you, Steven.

Steven Feng: Thank you, William. I will now go over our key financial results for the fourth quarter of 2022. 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 fourth quarter were RMB 16.1 billion, representing an increase of 62.2% year-over-year, and 23.5% quarter-over-quarter. Our total revenues are made of two parts: vehicle sales and other sales. Vehicle sales in the fourth quarter were RMB 14.8 billion, representing an increase of 16.2% year-over-year and 23.7% quarter-over-quarter. The increase in vehicle sales year-over-year was mainly attributed to higher deliveries, as a result of a more diversified product mix offered to our users.

The increase in vehicle sales quarter-over-quarter was mainly due to volume ramp up of the ET5 and ES7. Other sales in the fourth quarter were RMB 1.3 billion, representing an increase of 90.3% year-over-year, an increase of 22% quarter-over-quarter. The increase in other sales year-over-year was mainly due to the increase of revenue from rendering of research and development services and increase in other revenues in line with the incremental vehicle sales. The increase in other sales quarter-over-quarter was mainly due to increase of revenue from rendering of research and development services and increasing sales for accessories charging piles and used cars in line with the incremental vehicle sales, partially offset by the sales of automotive regulatory credits in the third quarter of 2022.

Gross margin in the fourth quarter of 2022 was 3.9%, compared with 17.2% in the fourth quarter of 2021 and 13.3% in the third quarter of 2022. The decrease of gross margin year-over-year was mainly attributed to decreased vehicle margin. The decrease of gross margin quarter-over-quarter was mainly attributed to decreased vehicle margin and the decrease in other sales margin, mainly resulted from the sales of automotive regulatory credits with high gross margin in the third quarter of 2022. More specifically, vehicle margin in the fourth quarter was 6.8% compared with 20.9% in the fourth quarter of 2021 and 16.4% in the third quarter of 2022. The decrease of vehicle margin year-over-year was mainly attributed to: first, increased inventory provisions, accelerated depreciation on production facilities and the losses on purchase commitments for the existing generation of ES8, ES6, NC6 but are expected to have lower production levels and deliveries due to the transition to new models on the NIO technology platform 2.0, which in totality elected impacted vehicle margin by 6.7%; and second, increased battery cost per unit.

The decrease of vehicle margin from the third quarter of 2022 was mainly due to the increased inventory provisions, accelerated depreciation on production facilities and the losses on purchase commitments for the existing generation of ES8, ES6 and EC6. R&D expenses in the fourth quarter were RMB 4.0 billion, representing an increase of 117.7% year-over-year and 35.2% quarter-over-quarter. The increase in R&D expenses year-over-year and quarter-over-quarter was attributed to the increase personnel costs in research and development functions as well the incremental design and dividend cost of new products and technologies. SG&A expenses in the fourth quarter were RMB 3.5 billion, representing an increase of 49.6% year-over-year and 30% quarter-over-quarter.

The increase in SG&A expenses year-over-year and quarter-over-quarter was primarily due to: first, the increase in percent costs related to sales and general corporate functions; second, the increase in marketing and promotion activities to promote our vehicles in China and Europe. Third, in credit expenses related to the company’s sales and service network expansion. Last, operations in the fourth quarter was RMB 6.7 billion, representing increase of 175.5% year-over-year and 74% quarter-over-quarter. Operating costs net in the fourth quarter of 2022 was RMB 315.7 million, representing an increase of RMB 262.2 million from the fourth quarter of 2021, an increase of RMB 811.3 million for other losses of RMB 495.6 million in the third quarter of 2022.

The increase of adding comps year-over-year and quarter-over-quarter, but mainly due to the gains from the revaluation of our overseas RMB-related assets as the result of appreciation of RMB against US dollars in the fourth quarter of 2022. Net loss in the fourth quarter was RMB 5.8 billion, representing an increase of 169.9% year-over-year and 40.8% quarter-over-quarter. Net loss attributable to NIO’s ordinary shareholders in the fourth quarter was RMB 5.8 billion, representing an increase of 168.3% year-over-year and 41.2% quarter-over-quarter. Our balance of cash and cash equivalents, restricted cash, short-term investment in long-term time deposits was RMB 45.5 billion as of December 31, 2022. Now, this concludes our prepared remarks. I will now turn the call over to the operator to proceed with our Q&A session.

See also 16 High Growth Non-Tech Stocks That Are Profitable and 11 High Growth UK Stocks to Buy.

Q&A Session

Operator: Thank you. Our first question today comes from Tim Hsiao with Morgan Stanley. Please go ahead.

Tim Hsiao: So my first question is about the supply chain and also the automotive, because NIO shipment last year were seriously dragged by the supply bottleneck of aluminum parts, CDS and chips. So, according to the announcement of NIO’s first quarter volume guidance of 31,000 to 33,000 or does it suggest more moderated vehicle sales in March. Is that because component that still suffered from supply constrained? What current vehicle production run rate and how fast you could ramp up on weekly and while we pace into second quarter?

William Li: Thank you, Tim, for your question. In the fourth quarter of last year, the supply of the parts have affected over vehicle deliveries to some extent. But starting from the first quarter of this year, we have seen that the control and prevention measures regarding the COVID have been lifted. So currently, we believe the supply of the parts is not the bottleneck for us. Starting from the second quarter, we believe with over new vehicle deliveries, we will need to have some time to ramp up the production, but we don’t believe that the part supply will be a constraint for us.

Tim Hsiao: So my second question is about the battery cost and those of the gross margin, because the fourth quarter vehicle gross margin dropped more significantly. So we think the 6.7 percentage point margin dropped mentioned in the announcement, how much of that would be one-off? And how much of that would be lasting into first quarter? In the meantime, on the bright side, I think battery prices caught below to the vehicle margin, NIO’s vehicle margin this year. So how should we think about the contribution from the new battery country prices? Because I recall that we mentioned we RMB 100,000 decrease in E. cognate well to about 2 percentage point vehicle gross margin expansion. So could you please share some updates regarding how much more contribution from the lower base cost, should we expect this year or in first half? Thank you.

Stanley Qu : Thank you, Tim. This is Stanley. First, I want to further clarify the Q4’s 2022 gross profit margin. Since our brand new ES8, ES6, EC6 will start user delivery in Q2 23. So we lowered our order forecast for current generation ES8, ES6 and EC6 in Q4 2022. So inventory provision and losses on purchase commitment relate to those products was booked in Q4 with total amount of RMB 985 million, excluding this impact, the vehicle margin in Q4 was 13.5%. So compared with the last quarter, the decrease results from the change of product mix especially more ET5 sold in Q4 with lower gross profit margin. And for the forecast of gross profit margin in 2023, I ask William to help Explain.

William Li: So, for the gross margin for the full year of 2023, we are confident that in the Q4 of 2023, the vehicle gross margin will go back to 18% to 20% due to several factors. The first one is of our product portfolio. Starting from the second quarter of this year, we are going to start the delivery of vehicle models with higher vehicle gross margins. The second factor is just like you mentioned, recently, we have witnessed the cost reductions of the raw materials, including the lithium carbonate, chips and other commodities. So, we believe this will also contribute to our vehicle gross margin improvement in this year, especially when it comes to the lithium carbonate cost, we have witnessed significant cost reductions.