Second-quarter automotive gross profit will be worse, NIO-SW hopes for a turnaround in the second half of the year (conference call minutes)

The following is the content of the Q1 2022 earnings call for$NIO.US automobiles. For an interpretation of the financial report, please refer to "NIO Still Soft, Can Only Rely on New Cars?"

I. Management Report

• Production Capacity

1. Starting from June, while the supply chain and vehicle production have returned to normal, vehicle deliveries in several important markets, including Shanghai, have also resumed normal operations. We expect total deliveries in Q2 2022 to be between 23,000 and 25,000 vehicles.
2. F1 has fully recovered to the level before the recent outbreak. In addition, we will gradually increase production to support the mass production of new products.

• Profit Margin

• New Products & Technologies

1. In the third quarter, we will release NOP Plus based on the high-definition map developed in collaboration with our partners.
2. The team is in the final stage of mass production for ET5, with deliveries expected to begin in September this year.
3. This month, we will launch the all-new mid-to-large-sized 5-seat SUV ES7 based on NT2.0, with deliveries starting at the end of August.
4. We will continue to increase investment in battery-related areas, including battery materials, battery and battery pack design, battery management systems, and manufacturing processes. Our goal is to establish and enhance our comprehensive battery research and industrialization capabilities.

• Operations

1. In terms of sales and service networks, we currently have 381 new showrooms and spaces in 152 cities worldwide, as well as 247 new service and delivery centers in 149 cities globally.
2. In terms of charging and swapping networks, we have installed over 960 battery swap stations in 197 cities. So far, we have 829 supercharging stations and 1,140 destination charging stations.

II. Analyst Q&A

A: Starting from April, we have actually updated our agreement with CATL. Now, our battery costs are linked to the raw material index. In the second quarter, we can expect a significant increase in battery costs compared to the first quarter, which will impact the gross margin performance of our vehicles, but there will be some delay. The increase in battery prices last month will be reflected in the battery costs in the coming months.

Based on current forecasts and market trends, we can see that battery costs will start to decline from May. We have also taken measures such as raising our product prices. This will help improve our performance in the third quarter. Our products with higher gross profit margin will also contribute to the performance of vehicle gross profit margin, such as the ET7 launched in the second quarter. We expect the production of ET7 to gradually increase starting from June. Then, from the third quarter onwards, it will be maintained at a normal level.

Overall, we believe that our automotive gross profit margin will face greater pressure in the second quarter, mainly due to the impact of battery costs.

The automotive gross profit margin in the second quarter will be lower than that in the first quarter, but with price adjustments, we expect to deliver vehicles at higher prices starting from the third quarter, which will help improve our vehicle gross profit margin.

A: With the expansion of F1's production capacity, we expect overall production to improve starting from June. We believe that car production will not be a bottleneck. Demand is also not a problem for us. The main challenge we face now is the supply chain, especially in terms of chipsets and the production capacity of our suppliers. We are very confident in our delivery performance starting from the third quarter.

A: Orders are stable and increasing, and there will be plans for model updates in the near future (related to intelligent software and hardware applications). After the release of the ET5 last year, orders have continued to increase. It is evident from recent auto shows that the ET5 is highly popular and the order situation is very good.

A: We plan to leverage our R&D capabilities in batteries to launch 800-volt high-voltage battery packs in 2024, which will also support battery swapping technology. Our current plan is to start production of these new-generation battery packs in the second half of 2024. Our long-term battery strategy will be a combination of in-house production and outsourcing. We believe that this long-term strategy will enhance NIO's overall competitiveness, vehicle gross profit margin, and product profitability.

A: The price increase of our products will be reflected in our automotive gross profit margin in the third quarter, as we are currently delivering cars without adjusted prices. The battery cost in the second quarter is higher than that in the first quarter, but the impact is still uncertain. Specifically, we believe it will be higher than 10,000 yuan. The current battery cost is actually based on material trends and indices.

This means that in the third quarter, we may see a downward trend in raw material costs. With the improvement of our automotive gross profit margin based on the new 2.0 technology platform, we believe that the automotive gross profit margin will rebound in the third quarter. However, there are still many uncertainties as battery costs are currently difficult to predict and determine.

A: For existing models, including ES8, ES6, and EC6, our plan is to upgrade all these models to the platform next year.

A: The operating loss is mainly due to increased depreciation and operating expenses related to our battery charging and swapping stations. In this year, we will continue to build the battery charging and swapping network, which will provide our users with a unique experience, contribute to further improvement in user satisfaction, and enhance our brand image. Therefore, in the short term, I believe that other losses will increase as the network expands. From a long-term perspective, both the quantity of deliveries and the number of users are growing. We will make our charging and battery swapping services more efficient. The losses from the charging and battery swapping business will gradually decrease. And our innovative business models, including Longbridge Life and ADAS, can also bring additional gross profit.

A: There are many uncertainties in the supply aspect... This depends entirely on the upstream suppliers of NIO's first-tier suppliers. Many chip shortages are actually caused by the basic chipsets used by these first-tier suppliers or their upstream suppliers.

Previously, we planned to expand production capacity starting from the second half of this year. That's why since last year, we have been working closely with all suppliers to ensure sufficient supply of our products.

We have some risks in chip supply, as far as June's capacity is concerned, this is actually unrelated to chip shortages or other supply chain prices, it is just part of the normal acceleration process of capacity expansion.

. We can see that raw material costs rebounded in April, and we are beginning to see some downward trends, especially in resin and carbonates.

We predict a 20% to 30% reduction in the cost of lithium carbonate, and we have similar predictions for nickel materials, so we believe the overall trend is a decrease in battery material costs.

A: Expected delivery in the second half of 2024, equipped with NT3.0 technology.

A: The release of the ES 7 is following the normal release schedule. Due to the original planned release date being earlier, but delayed due to the epidemic, so the delivery time is relatively close.

The ES 7 is equipped with NT 2.0 technology, which is more expensive than the existing 886, and the price is between the ES 6 and ES 8. There are some substitution relationships between the products, but there are obvious differences in product positioning and price gaps . In terms of positioning, the ES 8 is a 6/7-seater, while the ES 7 is a 5-seater, and the ES 6 has a lower price. Therefore, the 866 is competitive, with little substitution relationship and no obvious squeezing effect.

A: The market for key raw materials is very active. Currently, we cannot make accurate estimates of trends in the coming months or quarters.

A:

A: JAC's factory's production capacity will gradually increase to 20,000 units per month in the second half of this year. The new factory is expected to start production in the third quarter, ramping up to 10,000 units in 3-4 months. At the same time, more equipment will be introduced next year to further increase production capacity.

A: We are conducting some research on the US market. The advantage of the European market is that the public has a high acceptance of new energy vehicles, but the challenge is that the cost will be higher and the culture is different.

A: The performance indicators of the advanced driving assistance system have improved several times compared to NIO Pilot. NOP Plus will be released in the third quarter, and we have in-depth, self-developed collaboration with Tencent on high-precision maps.

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