NIO Inc. (NYSE:NIO) Q3 2022 Earnings Call Transcript November 10, 2022
NIO Inc. misses on earnings expectations. Reported EPS is $-2.11 EPS, expectations were $-1.14.
Operator: Hello, ladies and gentlemen, thank you for standing by NIO Inc. Third Quarter 2022 Earnings Conference Call. Today’s conference call is being recorded. I will now turn the call over to your host Ms. Eve Tang from Capital Markets. Please go ahead, Eve.
Photo by Steven Binotto on Unsplash
Eve Tang: Good morning, and good evening, everyone. Welcome to NIO’s third 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 Vice President of Finance. 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 rules. Please also note that NIO’s press release and this conference call includes 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 third quarter 2022 earnings call. In the third quarter 2022 NIO delivered a total of 31,607 smart electrical vehicles, up 29.3% year-over-year setting a new quarterly high. Based on our latest technology platform, NT2.0, we have launched and delivered three new products, which has improved the competitiveness of our product line-up in all aspects and enabled NIO to enter more premium segments, catalyzing continuous demand growth. In October, overcoming the production and supply chain volatility, we delivered 10,059 vehicles, representing a 174.3% increase year-over-year. We will continue to collaborate closely with our supply chain partners to stabilize components supply and further accelerate the vehicle production and the delivery.
We expect the total number of deliveries in the fourth quarter of 2022 to be between 43,000 to 48,000. Next, I would like to share some recent highlights of our R&D and operations. In September as the show cars of ET5, a smart electric midsize sedan began to be on display in our stores. Store traffic reached a record high and order intake witnessed its strong growth momentum. On September 30, we officially kicked off the delivery of ET5 and the preliminary user satisfaction rate exceeded our expectations. Over the past couple of months, Banyan, the digital system of NT2 has iterated and upgraded multiple times with continuous user experience improvement. We have strong confidence in the market competitiveness of the new models based on the NT2 platform.
With respect to the sales and service network, we now have 399 new houses and the new spaces in 149 cities and 280 service centers and delivery centers in 163 cities. In terms of the charging and swapping network, NIO has installed a total of 1,210 power swap stations and provided 14 million battery swaps for users. NIO has installed 2,055 charging stations with 5,765 for power chargers and 6,077 destination chargers in place. In the meantime, our power map has connected to over 590,000 third party chargers in China and more than 380,000 chargers in Europe. Since we entered the Norwegian market last September, our products and services have been well received by local users and the user community has been growing rapidly, which has laid a solid foundation for and boosted our competency in entering more markets in Europe.
On October 7 this year, we held NIO Berlin 2022 while we comprehensively introduced our products and services to users in Europe, marking of our official market entry in Germany, the Netherlands, Denmark and Sweden. NIO Berlin drew a lot of attention and recommendation from users and the auto industry in Europe. We are now organizing larger scale test drives and kicked off user delivery in Europe. Yesterday, NIO ET7 won the 2022 Golden Steering Wheel award granted by the prestigious German Magazine Auto Bild, as ET7 was voted the best car in the median and upper class category. Both of our products and innovative technology have been highly recognized by the users, industry experts and professional media in Europe. To better serve user communities in Europe, we plan to open new houses and new spaces in 10 major European cities such as Berlin, Frankfurt, Rotterdam, Copenhagen and Stockholm.
We also plan to install 20 power swap stations in Europe by the end – by the year end and another 100 by the end of 2023. So that more users can experience new chargeable, swappable and upgradable power system in Europe. In addition, we have established an R&D center in Berlin for localized development and deployment of digital cockpit and ADAS to continuously improve for the intelligent digital experience of local users. On September 27, NIO announced the cooperation with the Danish Society for Natural Conservation and Danish Nature Foundation under Clean Parks initiative. NIO hopes to actively engage with the local communities, share their responsibilities and jointly make contributions to a more sustainable future. On September 30, upholding news aspiration of Blue Sky Coming, NIO released the first NIO Environment, Social and Governance report 2021, where NIO shared its ESG management practices and performance in 2021.
In 2022, NIO has further advanced in product core technologies, charging and swapping network, as well as sales and service network which have laid a solid foundation for us to compete in the global market for the long run. In spite of the operation challenges brought forward by the changing micro environment, we believe that NIO is fully capable of staying focused on product and technology innovations, as well as its service capability improvement, while further optimizing the cost structure and improving operational efficiency to do more beyond the experience products and services to users worldwide. As always, thank you for your support. With that, I will now turn the call over to Steven to provide you the financial details for the third quarter 2022.
Over to you Steven.
Steven Feng: Thank you. I will now go over our key for the third 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 third quarter were RMB 13.0 billion, representing an increase of 32.6% year-over-year, and 26.3% quarter-over-quarter. Our total revenues are made of two parts: vehicle sales and other sales. Vehicle sales in the third quarter were RMB 11.9 billion, representing increase of 38.2% year-over-year and 24.7% quarter-over-quarter. The increase in vehicle sales year-over-year and quarter-over-quarter was mainly attributed to higher deliveries, as a result of more diversified product mix offered to our users.
Other sales in the third quarter were RMB1.1 billion, representing a decrease of 8.5% year-over-year and an increase of 48.2% quarter-over-quarter. The decrease in other sales year-over-year was mainly due to the decreased revenue derived from sales of automotive regulatory credits, offset by the increase in other revenues in line with the incremental vehicle sales. The increase in other sales quarter-over-quarter was mainly attributed to the increased revenue derived from sales of automotive regulatory credits and increase in other revenues in line with the incremental vehicle sales. Gross margin in the third quarter of 2022 was 13.3%, compared with 20.3% in the third quarter of 2021 and 13.0% in the second quarter of 2022. The decrease of gross margin year-over-year was mainly attributed to first, the decreased revenue derived from sales of automotive regulatory credits with high sales margin, second, the decrease of vehicle margin, and third the reduction in other sales margin resulting from expanding investment in power and service network.
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The increase of gross margin quarter-over-quarter was mainly attributed to the sales of automotive regulatory credits with high sales margin. More specifically, vehicle margin in the third quarter was 16.4%, compared with 18.0% in the third quarter of 2021 and 16.7% in the second quarter of 2022. The decrease of vehicle margin year-over-year was mainly attributed to the increased battery cost per unit, which was partially offset by the decrease in subsidization in user vehicle financing arrangements. Vehicle margin remained stable quarter-over-quarter. R&D expenses in the third quarter were RMB2.9 billion, representing an increase of 146.8% year-over-year and 37% quarter-over-quarter. The increase in R&D expenses year-over-year and quarter-over-quarter was mainly attributed to the increased personnel costs in research and development functions as well as the incremental design and development costs for new products and technologies.
SG&A expenses in the third quarter were RMB2.7 billion, representing an increase of 48.6% year-over-year and 18.8% quarter-over-quarter. The increase in SG&A year-over-year and quarter-over-quarter was primarily due to, first, the increase in personnel costs related to sales and general corporate functions, second, increased expenses related to the Company’s sales and service network expansion, third, increase in marketing and promotional activities to promote our vehicles in China and Europe. Loss from operations in the third quarter was RMB3.9 billion, representing an increase of 290.2% year-over-year and 36.0% quarter-over-quarter. Other losses, net in the third quarter of 2022 was RMB495.6 million, representing an increase of RMB528.2 million from other income of RMB32.6 million in the third quarter of 2021 and an increase of RMB305.6 million from the second quarter of 2022.
The increase of other losses over the third quarter of 2021 and second quarter of 2022 was mainly due to the loss from the revaluation of our overseas RMB-related assets as a result of the depreciation of RMB against U.S. dollars in the third quarter of 2022. Net loss in the third quarter was RMB4.1 billion, representing an increase of 392.1% year-over-year and 49.1% quarter-over-quarter. Net loss attributable to NIO’s ordinary shareholders in the third quarter was RMB 4.1 billion, representing an increase of 44.9% year-over-year 50.9% quarter-over-quarter. Our balance of cash and cash equivalents, restricted cash, short-term investment and long-term time deposits were RMB51.4 billion as of September 30, 2022. Now, this concludes our prepared remarks.
I will now turn the call over to the operator to facilitate our Q&A session.
Q – Ming Lee: William, Steven, hi. Previously your capped by component supply, especially the welding part, as well as the chips. So could you also update your latest capacity component capacity? If there is no COVID control, impact. Thank you.
William Li:
