NIO Inc. (NYSE:NIO) Q3 2023 Earnings Call Transcript December 5, 2023
NIO Inc. misses on earnings expectations. Reported EPS is $-2.28 EPS, expectations were $-0.43.
Operator: Hello, ladies and gentlemen, thank you for standing by for NIO Incorporated Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. Today’s conference call is being recorded. I will now turn the call over to your host, Mr. [Indiscernible] Head of Investor Relations of the Company. Please go ahead, [Indiscernible].
Unidentified Company Representative: Good morning and good evening, everyone. Welcome to NIO’s third quarter 2023 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 and the CEO; Mr. Steven Feng, our CFO; and Mr. Stanley Qu, Senior VP 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 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]
Unidentified Company Representative: Hello everyone. Thank you for joining NIO’s 2023 Q3 earnings call.
William Li: [Foreign Language]
Unidentified Company Representative: In the third quarter of 2023 by making the most of a complete product line-up on the NT2 platform, the improvement of over our self-capacity and capability as well as the continuous expansion of self, service and power networks, NIO delivered a total of 55,432 premium smart electric vehicles, up 75.4% year-over-year. The retail stat from Cathart [Ph] showed that in Q3 NIO ranked first in China’s EV segment with an average construction price of over RMB300,000 with market share above 45% in the segment.
William Li: [Foreign Language]
Unidentified Company Representative: In September, NIO launched and it delivered the All-New EC6, a mid-sized coupe SUV upgraded to the second generation. It also marked the completion of NIO’s product line-up on the NT2.0 platform. In Q4, as price war deepens and the competition gets tighter for Smart EVs NIO delivered a total of 32,000 and 33 vehicles in October and November up 32.2% from last year while maintaining our prices stable. In Q4, the total deliveries are expected to be between 47,000 to 49,000.
William Li: [Foreign Language]
Unidentified Company Representative: Going forward, we will stay focused on executing self-strategies and improving operational efficiency. We believe the competitiveness of NIO’s second generation products will be further unleashed next year.
William Li: [Foreign Language]
Unidentified Company Representative: In terms of NIO’s financial performance attributed to the increased sales mix for higher priced models decreased parts costs and improved economies of scale enabled by more deliveries combined with the refined management of sales policies the vehicle margin in the third quarter reached 11%.
William Li: [Foreign Language]
Unidentified Company Representative: Next, I would like to share with you the recent highlights of our products R&D and operations.
William Li: [Foreign Language]
Unidentified Company Representative: On September 21st NIO held NIO Inc. NIO’s innovation and technology day. At the event NIO’s 12 full stack technology capabilities covering the holistic business scenarios for Smart EVs from multiple brands and platforms were introduced to the public for the first time. In the meantime, NIO also unveiled China’s first vehicle operating system SkyOS and the in-house developed LiDAR SoC named Yang Jian demonstrating NIOs systematic R&D capabilities leading the industry.
William Li: [Foreign Language]
Unidentified Company Representative: Regarding assisted and intelligent driving, NIO has been quickly iterating the system capabilities. On November 15th, Power Swap Pilot for Highway beta was released in China. So far, 29 Power Swap stations on highways already support this feature. PSP seamlessly combines NLP+ and Power Swap, bringing NIO users a hustle-free highway driving and battery swapping experience that is automated and intelligent from end to end.
William Li: [Foreign Language]
Unidentified Company Representative: In the meantime, NIO has rolled out the NLP+ for urban traffic, providing users with uninterrupted driving experience from point A to point B both on highways and on city streets. Enabled by NIO’s generalization capability in-house and taking into consideration the high-demand routes on users’ wish lists, we’ve started to roll out NLP+ for cities, route by route, from November, and will gradually realize wider coverage. At present, the NLP+ has been released to early-bird users in several major cities and is quickly becoming available for more routes and in more cities, which has far surpassed the target announced at NIO Inc. At our upcoming NAD Communication event, we will be sharing more information about that.
William Li: [Foreign Language]
Unidentified Company Representative: In terms of the sales and service network, so far we have 468 new house, new space, and pop-up stores in 152 cities, as well as 314 service centers and 62 delivery centers in 217 cities.
William Li: [Foreign Language]
Unidentified Company Representative: As for the charging and the swapping network, to date we have installed 2,226 power swap stations, over 9,400 power chargers, and over 11,000 destination chargers worldwide. More than 1.46 million public chargers have been connected with NIO’s charging map.
William Li: [Foreign Language]
Unidentified Company Representative: NIO’s long-tested and well-proven battery swapping system has offered over 32 million convenient, efficient, and safe battery swaps to new users, making Power Swap the most trusted recharging solution for them. NIO Power Cloud and NIO’s Power Swap Network have been opened to the entire industry. In November, NIO partnered with Changan Automobile and Geely Holdings respectively on battery swapping. In the future, NIO will join hands with more industry partners in such areas as formulation of swappable battery standards, battery swap network, R&D of battery swapping vehicles, and the management of battery assets, so as to provide the holistic, chargeable, swappable, and upgradable solution to more smart EV users and jointly contribute to the development and wider adoption of battery swap.
William Li: [Foreign Language]
Unidentified Company Representative: NIO Day, NIO’s annual gathering with users will be held on December 23 in Xi’an, Shaanxi province. This year we will unveil a brand new flagship model a real epitome of NIO’s innovative technologies. This product will become a technology benchmark for Smart EVs and a trendsetter of the Smart EV technologies worldwide.
William Li: [Foreign Language]
Unidentified Company Representative: On September 26 with contributions to shaping a low-carbon industry where innovative EV battery swapping NIO received the great innovation award of the 2023 Paulson Prize for sustainability. This award is a recognition of the novelty and expandabilities as well as the economic and environmental benefits of NIO’s battery swapping technology and the business model.
William Li: [Foreign Language]
Unidentified Company Representative: The 2023 NIO Cup Formula Student China a racing car design competition for college students was held from November 8 to November 12 in Hefei [Ph] NIO has been sponsoring and supporting the competition since 2015. So far, Formula Student China has cultivated more than 40,000 young professionals for China’s automotive industry becoming one of the most important cradles of young automotive talent in China.
William Li: [Foreign Language]
Unidentified Company Representative: The next two years will see the most intense competition during the transformation of the automotive industry. Faced with massive uncertainty in the external environment recently we’ve sorted through and have adjusted our key objective priorities and action plans to become more focussed on efficient execution and improvement of system capabilities. While ensuring long-term investment in core technologies, strong sales and service capabilities to navigate the intense market competition and on-time release of the NIO core product from the from the three brands. We will continuously optimize internal working processes and the division of roles and responsibilities, stay focused on projects that can contribute to the company’s financial performance, and comprehensively improve organizational efficiency and resource utilization. We are very confident of NIO’s long-term competitiveness in the Smart EV industry.
William Li: [Foreign Language]
Unidentified Company Representative: 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 third quarter. Over to you, Steven.
Steven Feng: Thank you, William. I will now go over our key financial results for the third quarter of 2023. To be mindful of the length of this call, I will reference RMB only in my discussion today. I encourage listeners to refer to our earliest press release, which is posted online for additional details. Our total revenues in the third quarter were RMB19.1 billion, representing an increase of 46.6% year-over-year and an increase of 117.4% quarter-over-quarter. Our total revenues are made up of two parts, vehicle sales and other sales. Vehicle sales in the third quarter were RMB17.4 billion, representing an increase of 45.9% year-over-year and 142.3% quarter-over-quarter. The increase in vehicle sales year-over-year and quarter-over-quarter was mainly attributable to higher vehicle deliveries.
Other sales in the third quarter were RMB1.7 billion, representing an increase of 55% year-over-year and an increase of 4.5% quarter-over-quarter. Gross margin in the third quarter of 2023 was 8%, compared with 13.3% in the third quarter of 2022 and 1% in the second quarter of 2023. The changes of gross margin year-over-year and quarter-over-quarter was mainly attributable to the changes of vehicle margin. More specifically, vehicle margin in the third quarter was 11%, compared with 16.4% in the third quarter of 2022 and 6.2% in the second quarter of 2023. The decrease in vehicle margin year-over-year was mainly attributable to changes in product mix, partially offset by the decreased battery cost per unit. The increase in vehicle margin in quarter-over-quarter was mainly due to changes in product mix, as well as decreased promotion.
R&D expenses in the third quarter were RMB3 billion, representing an increase of 3.2% year-over-year, and a decrease of 9.1% quarter-over-quarter. The slight increase in research and development expenses year-over-year was mainly attributable to increased personnel costs in research and development functions, partially offset by the decreased design and development costs, and deduction of expenses due to support for technology advancement provided by local government authorities during the third quarter of 2023. The decrease in research and development expenses quarter-over-quarter was mainly due to the support for technology advancement provided by local government authorities during the third quarter of 2023. SG&A expenses in the third quarter were RMB3.6 billion, representing an increase of 33.1% year-over-year and an increase of 26.3% quarter-over-quarter.
Loss from operations in the third quarter was RMB4.8 billion, representing an increase of 25.2% year-over-year and a decrease of 23.3% quarter-over-quarter. Loss, in the third quarter was RMB4.6 billion, representing an increase of 10.8% year-over-year and a decrease of 24.8% quarter-over-quarter. Our balance for cash and cash equivalents, restricted cash, short-term investment and long-term time deposits was RMB45.2 billion as of September 30, 2023. Now, this concludes our prepared remarks. I will now turn the call over to the operator to proceed with our Q&A session.
Operator: Thank you. [Operator Instructions] Our first question comes from Tim Hsiao with Morgan Stanley. Please go ahead.
See also 16 Most Advanced Countries in Quantum Computing and 15 Best States to Retire on Social Security.
Q&A Session
Follow Nuveen Municipal Opportunity Fund Inc (NYSE:NIO)
Follow Nuveen Municipal Opportunity Fund Inc (NYSE:NIO)
Tim Hsiao: Thank you very much for taking my questions. I actually have two parts of the questions. The first one is about the battery swapping because a new [Ph] as just mentioned for the expanded strategic alliance in battery swapping from previous partner like Sinopec to Changnan and the Geely. Could you share a little bit more about your plans of how to structure the new alliance of battery swapping and the potential financial impact like your CapEx and operating loss? So in the long term, will you consider to spin off the battery swapping business and operate it independently or even go public as a stand-alone third-party battery swapping or utility operator? So that’s my first question.
William Li: [Foreign Language]
Unidentified Company Representative: Thank you, Tim for your question. Yes, recently we have announced the cooperation agreement with both Changnan and Geely on the battery swapping. And in terms of the battery swap network, the way we look at it is a bit similar to the cloud service or the cloud infrastructure. Both power swap stations and cloud infrastructure require and rely on the network effect. Both can have a pretty long investment cycle. And both actually started with the internal services first. And after sufficient validations and verifying the demands and the fulfillment for our users’ needs, we will then open up the service to the public. So after five years of validation and internal services, we believe that we are ready to provide such a network and a service to the industry. And it’s about time to open up the network to the industry.
William Li: [Foreign Language]
Unidentified Company Representative: And as we all know that there are quite a lot of benefits with power swap. It is faster than charging and also it has better user experience. It also brings values and benefits to users and also the society. Especially in China, many users living in the urban environment or compound and apartments do not have a home charger. In fact, actually, more than 50% of our users cannot install a charger at home. In this case, battery swap becomes even more important and convenient for those users who do not have home chargers. This is also very important for the mass market brand because NIO is, after all, a premium brand and many of our users can still have chargers at home. But for the mass market brand, the percentage of not being able to have home chargers will be higher.
That’s why when we started to share our battery design standards and also specifications for the mass market brand to the industry peers, many of them are very interested in this alliance. We have already announced two agreements and there are several more that are still in negotiation. As they also believe that with NIO’s current battery swap technologies, service standards and also service network, this is what they need for their products as well as for their users.
William Li: [Foreign Language]
Unidentified Company Representative: And also in terms of the business model for the power swap, we believe that it is sustainable both from the business perspective as well as from the finance perspective especially after 5 years of operations and validation we have confidence in the sustainability of battery swap. In terms of our battery swap network as we will continue to expand our power swap network there will be a CapEx also relevant to such networks development. But in the meantime we are also looking for approaches where we may introduce partners into our power swap network. Basically they will buy the battery swap station as a product from us and then they will install stations and hand it over to us for the operations.
In this case, they will be the holding this battery assets for us. There are a thousand of such stations already running based on this business model. For the longer term, we will also be looking for partners holding the battery swap station assets. In terms of NIO Power’s charging service, it is already almost break-even. As you may know, that 80% of our power was charged for the non-NIO users. For the longer term, NIO Power charging will also be a profitable business. Actually, in certain areas and with certain charging stations, the operations with certain swap stations, the operations are already profitable. In terms of spinning of the power swap stations, there are some investors showing their interest into having power swap business as an independent business.
We are also in conversation with them.
William Li: Okay, thank you, Tim. Your next question?
Tim Hsiao: Sure. Thank you, William for sharing all the details. My next question is about car manufacturing. As you just mentioned, NIO announced to acquire the production facility from JAC. First, does that mean NIO has been granted the manufacturing license? In the meantime, I think that means NIO officially shifted from the asset-light business model to asset-happy. In the near term, how should we think about the unique cost of vehicle manufacturing from fourth quarter onwards? I think previously we provided vehicle margin guidance for 50% for December quarter. In the long-term, do you still think that the full step in-house development, production, and direct vehicle sales without relying on dealers would be the most ideal model for both NIO and ALPS mass market brand, or if there would be any major difference? That’s my second question. Thank you.
William Li: Steven will answer this question.
Steven Feng: Okay. So, Tim, you started with your question about manufacturing and car manufacturing. During this acquisition, the manufacturing agreements between NIO and JAC are still performed and stipulated. And the production activities of the models in the corporation are going on normally. Going forward, if there is any change to the manufacturing corporation with regards to the rest of the models between NIO and JAC or other institutions [Ph] that constitute significant information after this acquisition or in the future. NIO will communicate with and disclose the capital market in a timely manner, comply with the right norms and regulations and the rules for listed companies.
William Li: [Foreign Language]
Unidentified Company Representative: And also to add on to Steven’s comment, if we bring the entire manufacturing fully in-house, overall speaking, our manufacturing costs will be reduced by around 10%.
Tim Hsiao: Great. Thanks very much, William and Steven, for details. Thank you. Thanks a lot.
Operator: Our next question comes from Nick Lai with JPMorgan. Please go ahead.
