Nio Car Call Transcript: 2022 will be a year of full acceleration

Highlights:

1. The conversion rate of ET7 test drive orders exceeded our expectations, and the estimated sales volume was more than the media reports;

2. In the fourth quarter of 2021, the gross profit margin of WEILAI vehicles reached 20.9%. For the whole year of 2021, the gross profit margin of NIO vehicles reached 20.1%. The gross margin target for full-year auto sales in 2022 is 18-20%;

3. This year, there is an annual product upgrade plan, which will adjust the pricing strategy according to the market and raw materials, but there is no idea of price increase at present;

4, 2021 WEILAI's financial strategy is that gross profit can cover SG&A, the loss mainly comes from research and development, hoping to achieve breakeven in Q4 of 2023, and hope to achieve break-even or profitable in 2024.

On March 25, 2022, WEILAI Auto released the fourth quarter report of 2021 after the long bridge US stock market, and Dolphin Jun made an interpretation at the first time, referring to "Weilai: Under Pressure, Is there a dark night or dawn ahead?" Subsequently, Longbridge Dolphin Jun sorted out the minutes of the performance briefing, which involved the core issues of financial indicators such as new model delivery, gross profit margin expense ratio, production capacity, supply chain and other core issues that Longbridge Dolphin Jun was concerned about, as follows:

First, new models and deliveries

At the beginning of March, the ET7 national test drive campaign has been launched, and the users who participated in the test drive have given a high degree of recognition to ET7, and the conversion rate of ET7 test drive orders exceeded our expectations, making us full of confidence in the competitiveness of the second-generation platform.

ET5 has received attention from a more diverse user base, and orders have outperformed our expectations. Et5 is expected to begin deliveries in September this year.

ES7 uses advanced battery technology, intelligent technology, emphasis on high performance and luxury, will not affect our existing models, we believe ES7 will be our market increment, currently planned to release ES7 in Q2 this year.

Q: There are now media reports that ET7 has received 15,000 orders, which means 5,000 units per month. What are the current ET7 sales? How much is ES7 expected to sell per month?

A: We don't publish specific sales data for ET7, but we do have more sales than the media reports. The ET7 will compete directly with models such as the BMW 5 Series and the Audi A6, especially the BMW 5 Series. The BMW 5 Series sells between 12,000 and 15,000 units per month. We can see a good imagination space for this segment. It's hard to say how much you sell in a month, but be confident about future sales performance. For the ES7, we benchmarked it against the BMW X5. There are about 200,000 units in this medium- to large luxury SUV.

Q: Are we considering a markup to offset a potential increase in the cost of batteries and aluminum? Are we confident that we will maintain sales of 10,000 units per month in the coming months from our existing 866 products, and what happens to the ramp-up of et7 capacity? Has the price of lithium carbonate reached its peak under the control of the government?

A: We believe that there is no need to adjust the price of existing products. After the product intelligent hardware upgrade, we will launch another model model, and we may re-evaluate our pricing strategy based on the cost increase in the supply chain.

Whether the 866 sales volume can be maintained at 10,000 units per month, from the March orders will meet this expectation, and the demand will remain at a reasonable level. Because the first plant of ET7 production now has multiple models for production, the situation is relatively complicated, et7 climbing process will be slower than ET5, this year Q3ET7 will reach our expected capacity.

For the lithium carbonate market, we believe that the price increase is more speculative, and the relationship between supply and demand is not so big, and we also hope that upstream manufacturers can not speculate on price increases from long-term considerations.

Second, the gross profit margin

In terms of gross profit, benefiting from the increase in bicycle sales revenue and the cost optimization brought by the 75-degree ternary iron lithium battery pack, the gross profit margin of WEILAI vehicles reached 20.9% in the fourth quarter of 2021. For the whole year of 2021, the gross profit margin of NIO vehicles reached 20.1%.

Full-year automotive sales gross margin target for 2022 is 18-20%

This year, there is an annual product upgrade plan that will adjust the pricing strategy according to the market and raw materials, but there is no idea of raising prices at present.

Third, the R & D cost side

R&D investment is crucial to NIO's long-term competitiveness, and in 2022, we can see some of the results of last year's increased investment in R&D.

We will double our investment in R&D in 2022, and we expect to have 9,000 R&D personnel by the end of 2022, and we will not reduce the investment in R&D expenses.

4. Channels and sales costs

2021 is a year for WEI TOO to actively invest in the construction of charging and replacing infrastructure and the deployment of sales and service networks.

In terms of sales and service network, we currently have 46 NIO centers and 341 NIO spaces, covering 155 cities around the world. We have 60 NIO service centers and 179 authorized service centers in 146 cities in China.

In 2022, we will continue to expand our sales and service network in China, planning to add no less than 100 new sales outlets throughout the year, adding more than 50 WEILAI service centers and authorized service centers.

5. Profit or loss

Our financial strategy for 2021 is for gross profit to cover our SG&A, with losses mainly coming from research and development.

But we want to break even in Q4 2023 and break even or be profitable for the full year of 2024.

Sixth, production capacity

We used the holidays to adjust the factory production line in preparation for the start of the ET7 delivery at the end of March. On March 28, the first model of NIO's second-generation technology platform NT2, the ET7, will begin delivery.

In terms of production capacity, the production line upgrade of JAC Weilai Advanced Manufacturing Base is in a phased manner, and it is expected that the production capacity of the whole production line will be increased to 60JPH around the middle of the year.

(60JPH means working 4,000 hours a year, and production will reach a capacity of 240,000 vehicles.) If the overtime operation is 5,000 hours, the capacity of 300,000 units will be reached. Vehicle production capacity will be fundamentally improved in Q4 this year. ）

The construction and equipment installation of the second production base located in Hefei Xinqiao Intelligent Electric Vehicle Industrial Park have been basically completed, and the commissioning work is progressing smoothly. The second production site, with a planned production capacity of 60JPH, is scheduled to start production in the third quarter of this year, and the first model produced is the ET5. On March 16, the first ET5 prototype rolled off the production center.

7. Supply chain

There is a bottleneck in the capacity of batteries, and we have asked CATL to increase its production line since last year, and this year's battery production should be able to meet our needs.

Chip shortages will be a huge challenge, with more than 1,000 chips needed for a car, 10% of which will be in short supply. Chip price increases have brought gross profit losses in 2021, and we have taken price increases into account when setting margins this year. Compared with the increase in chip prices in 2022, the supply of chips will be a bigger problem. We have signed strategic cooperation agreements with NVIDIA and Qualcomm to provide us with goods; but ordinary chips or cheaper chips, it is difficult for us to control their production. In general, in the second half of the year, the vehicle and battery production capacity is sufficient, and the fluctuations in the supply chain, especially some low-end chips, have a greater impact on us.

8. Construction of charging and replacing networks

In terms of charging and swapping networks, we have built 866 substations covering 190 cities in China and completed more than 7.6 million power exchanges. At the same time, we have deployed more than 711 supercharging stations and 3786 destination charging piles nationwide.

In 2022, NIO will deploy 30 new Power Up Plan destination power-up routes, and the Chinese market will have built more than 1,300 substations, 6,000 overcharge piles, and 10,000 destination charging piles. We will continue to lay out in the charging and replacing network to further enhance the user's power-up experience.

Therefore, the total fixed asset expenditure will increase significantly compared to 2021.

Q Efficiency of substation replacement: I would like to know how the unit economic benefits of infrastructure such as substations and supercharging stations are? What is the difference between a head city and a lower tier city?

A: The substation has provided more than 7.6 million power exchange services, and can complete about 30,000 power exchange services every day. For some areas with a large number of users, a substation can provide 100 battery swaps a day. Of course, on the highway, there are actually 10-20 power exchange services per day. We believe that a single substation can serve 1,000 users.

9. Overseas markets

On the global market side, we've seen the ES8 win over Norwegian users, with monthly deliveries consistently ranking among the top two in the Norwegian six- or seven-seater passenger car market this year, delivering 100 vehicles per month.

In 2022, NIO's products and system-wide services will be officially landed in Germany, the Netherlands, Sweden and Denmark. At present, the team formation and preparations for the relevant market entry are progressing smoothly.

10. Volkswagen brand

Our business work for mass-market brands is progressing smoothly, the core team is completed, the strategic direction and development strategy are clarified, and the first products have entered the critical research and development stage.

11. Market share

In first- and second-tier cities such as Shanghai, the penetration rate of pure electric vehicles has increased more significantly. In 2021, among all fuel and electric SUVs in Shanghai of more than 350,000 yuan, NIO's market share reached 23%, ranking first in overall sales. We believe that this trend will also extend to third- and fourth-tier cities.

12. Other business

We accelerated the construction of electric solar stations in 2021, which resulted in higher costs for other revenue businesses compared to Q3. In 2022, we will continue to deploy rechargeable batteries and charging facilities, and we expect depreciation and operating expenses to continue to rise.