NIO Inc Q2 2021 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Tim Hsiao - Morgan Stanley - Analyst : Hi William, Steven and Team. Congratulations on the results, and thanks for taking my questions. Just a quick question from me. The first question is about the new models. Could you please elaborate a bit more about the two new models scheduled for 2022, other than ET7? Regarding the timing, spec and rough price range, etc.. As market previously anticipate to have just one new model next year, so I think this serves as a surprise. So any colors would be highly appreciated. So there's that first question. My second question is that NIO's total battery consumptions likely reaching 16 gigawatt or 18 gigawatt hours next year, will there be any major changes to NIO's battery sourcing strategy? Will CATL stays as the sole supplier? Or NIO might consider looking for a second source? In light of such a close tied-up with CATL, between CATL and NIO, for both EV and the battery asset management company, can you diversify to other partners to hedge the risk if needed? Those are my two questions, thank you.

Question: Tim Hsiao - Morgan Stanley - Analyst : Thank you. Oh, very clear.

Question: Ming-Hsun Lee - Bank of America Merill Lynch - Analyst : Thank you. Good morning William, Steven and the team. Congrats for a good result. So I have two questions. The first question is regarding the component supply. We know you already have more larger size battery supply starting in June, but right now considering the pandemic in China and also overseas countries such as Malaysia, so what kind of impact do you expect on the production side, so especially for your component supply capacity? So this is my question, the first question, and the second question is regarding your business in overseas markets. So in your third quarter of volume guidance, how many units do you expect to ship in Norway and will you start to provide battery service in overseas markets? Yes, that's my two questions, thank you.

Question: Ming-Hsun Lee - Bank of America Merill Lynch - Analyst : Thank you.

Question: Nick Lai - JP Morgan - Analyst : Yes, thank you William and Steven. A great result indeed. I have two number related questions. The first one is related to gross profit margin. I mean your 2Q against 1Q, roughly margin was flat but still, at the vehicle level or overall GP margin you were still down roughly about one percentage point. Can you help us understand or explain a little bit more on the margin, less margin, (inaudible) for in 2Q? Is that related to BOM or improved material price or other factors? I mean I notice the second quarter ASP is slightly down from 1Q. And how should we think about 3Q? So that's one margin related question. Can you help us understand a bit more or explain a bit more on 2Q margin dynamic against 1Q and how should we think about that as we enter third quarter? Second question also related to number, looking at the cash on balance sheet, altogether cash equivalent and short-term investment, by the end of first half we have RMB48 billion cash, that's roughly about $7.5 billion and that's a lot of cash on balance sheet. If you can help us understand what's your strategy using the cash on balance sheet? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 12, 2021 / 1:00AM, NIO.N - Q2 2021 NIO Inc Earnings Call In terms of CapEx investment, I notice JAC has new capacity for expansion and presumably if we are launching more model in 2022, we will need to invest in R&D, new model tooling altogether. So if you can help us understand a bit more on our CapEx investment in the next one year or so, that would be very useful. Thank you.

Question: Nick Lai - JP Morgan - Analyst : Yes, can you remind what CapEx target for the year? Do we have any number or guidance please?

Question: Nick Lai - JP Morgan - Analyst : Yes, thank you very much.

Question: Bin Wang - Credit Suisse - Analyst : Okay, thank you so much. My first one is more a follow up about gross margin. Because you guided NIO Pilot has been increased quite substantially in the attach rate to 80%. What's the number in the first quarter and what's the margin increase from this increasing NIO Pilot take rate? That is the number one question. Number two is about your long term market share, because your peers, one peer is now 10% and the other one 20%. What's the NIO's plan for 2025 for the market share? Because you have a mass market plan. Can I assume that the mass market plan will start to sell in 2023 because this year three products seem to be all came from NIO brand and because you're already accelerate the R&D since now so it's going to be 2023. That is the second one. The third one is about your offline store station plan. If you see your peers who actually get more strategic cooperation with the big dealer group such as ZhongSheng, your existing pattern for NIO space is to be buy back by NIO. So this would mean in long term maybe NIO don't have any third party partners for NIO Space. Is this true? What's your long term strategy about the offline store expansion plan? Thank you.

Question: Bin Wang - Credit Suisse - Analyst : Thank you. By the way, can you answer the question about whether it will be 2023 for the new mass market brand business? Thank you.

Question: Bin Wang - Credit Suisse - Analyst : Thank you. Operator: Thank you so much. Your next question comes from the line of Chang Liu, from CICC. Chang, your line's now open.

Question: Edison Yu - Deutsche Bank - Analyst : Thank you for taking our questions. I have two follow-ups on Europe. First, it seems there is quite a bit of hiring going on in the Netherlands and a little bit in Germany. Could you maybe discuss the next phase of Europe after Norway? Then second question on Europe, it's very encouraging to see this User Advisory Board. Could you maybe discuss some of the things that you're doing differently in Europe relative to what's been going on in China? Thanks.

Question: Edison Yu - Deutsche Bank - Analyst : Thank you.

Question: Paul Gong - UBS - Analyst : Yes, thanks everyone. I have two questions. The first question is regarding your plan to add the three new models based on the NT2 in 2022. Given most of the NIO Space can't put six models together. Will you try to expand the average size of your NIO Space? Or are you going to gradually phase out the existing first generation of the products? I've just note, you mentioned that you have shortened the depreciation and amortization of the first generation of your products. Does that mean it would be gradually phased out and migrated to the second generation of the platform? This is my first question. My second question is regarding the mass market brand. I understand at this moment you are still pending decision in terms of the timing and how to position itself. But can we have a little bit of color, when you think about the relationship of NIO brand versus your NIO mass market brand. Would it be more similar to, let's say, Mercedes Benz and the Smart? Or BMW and Mini? Or Audi versus, say, Volkswagen brand? How do you think about the relationship of the two brands? I recall in last quarter's result you mentioned that there is only one model in the Shanghai auto show that is Wuling Hongguang MINIEV version. Is that an indication that somehow the recent online discussions say NIO's mass market brand would also announce some tiny, small vehicles? Is it something you are bearing in mind at this moment? Thank you.

Question: Paul Gong - UBS - Analyst : Thank you very much. Very helpful. Thank you.

Question: Jeff Chung - Citi - Analyst : Hi, hello William and Steven. Great results. I have three questions. One is about the ET7. If this price is being set above RMB400,000, can we say that the GP margin should be much higher than the current level, let's say around 30-35% level of GP margin which is a potential. And secondly, it is about the export margin, so let's say if the scale reaches like 2000 to 3000 units a month, can we say that that is GP margin accretive because we heard that exports to overseas ASP could be much higher. Could you give us a little bit of color or do you think the export margins with be similar than the China domestic? That is the first area, and the second question is about the D&A as you just mentioned it is going to accelerate into the second half of the year. I just heard you said that that equivalent to the cost per car to increase by about three percent, right? Can I clarify this a little bit? Will this be mainly reflected in the GP margin or the EBIT margin. And finally, it's about the R&D and SG&A. Previously we expected this year's R&D to be around RMB5.2 billion; SG&A around -- about RMB6 billion. Going forward in the 2022, do you see that there could be still a potential that this cost should be increasing faster than our revenue growth? And when do you think this cost growth will be slower than our revenue growth? Will is start from 2023 or 2024? That's my three questions, thank you.

Question: Jeff Chung - Citi - Analyst : Okay. Thank you. Thank you, Steven, thank you, William. Operator: Thank you so much. There are no further questions. Now, I'd like to turn the call back over to the Company for closing remarks. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 12, 2021 / 1:00AM, NIO.N - Q2 2021 NIO Inc Earnings Call