Hello, ladies and gentlemen. Thank you for standing by for NIO Incorporated's First Quarter 2019 Earnings Conference Call. At this time, all participants are in listen-only mode. Today's conference call is being recorded. I will now turn the call over to your host, Ms. Jade Wei, Senior Director of Investor Relations of the Company. Please go ahead, Jade.

Thank you, Annie. Good evening, and good morning, everyone. Welcome to NIO's first quarter 2019 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 Web site. On today's call, we have Mr. William Li, Founder, Chairman of the Board, and Chief Executive Officer, Mr. Louis Hsieh, our Chief Financial Officer, and Mr. Nick Wang, our Vice President of FINANCE. Louis is joining us by telephone from the United States. 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 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 CFO, Louis Hsieh. Louis, please go ahead.

Thank you, Jade. Hello everyone, and thank you for joining our call today. In the first quarter 2019, NIO delivered 3,989 ES8s, our high-performance premium electric SUV, exceeding the company's prior delivery targets between 3,500 to 3,800. This was followed by 1,124 ES8 deliveries in April, bringing total aggregate deliveries to 16,461 vehicles as of April 30, 2019. Compared to the fourth quarter of 2018, we experienced softer demand in the first quarter due to accelerated deliveries made at the end of last year in anticipation of electric vehicle subsidy reductions, as well as seasonal factors surrounding the Chinese New Year holidays. Further, we have seen the slowdown in ES8 orders, which became noticeable after Chinese New Year, and has worsened into the current quarter. We anticipate a sequential decrease in deliveries when second quarter closes, primarily due to (1) macro-economic concerns over the lingering US-China trade war, (2) overall continued sluggishness in the Chinese auto market which saw year-to-date wholesale vehicle sales drop 15% year-over-year, and retail vehicle sales drop 12% year-over year, and (3) larger-than-anticipated electric vehicle subsidy cuts, which lower ES8 subsidies by 40% to RMB 40,500 from RMB 67,500 in 2018. Subsidies will further be reduced to RMB 11,520 beginning June 26, 2019. Additionally, we believe there is some cannibalization of ES8 orders in the current quarter caused by ES6, which became available in NIO Houses this quarter. ES6 is a sportier, less expensive SUV by approximately RMB 90,000. We anticipate this more challenging and uncertain sales environment to dampen sequential demand and reflect continued weakness in ES8 sales in the current quarter. In light of these challenging sales backdrop and macro-economic environment, the Company has already begun taking steps to control costs and optimize operational efficiencies. Nick will elaborate more later on the call, but…

Thank you, Louis. I will now go over some of our financial results for the first quarter of 2019. To be mindful of the length of this call, I will address financial highlights here and encourage listeners to refer to our earnings press release which is posted online for additional details. Our total revenues in the first quarter of 2019 were RMB 1.6 billion, or US$243.1 million, representing a decrease of 52.5% from the fourth quarter of 2018. Our total revenues are made of two parts; vehicle sales and other sales. Vehicle sales in the first quarter of 2019 were RMB 1.5 billion, or US$228.8 million, representing a decrease of 54.6% from the fourth quarter of 2018. The decrease in vehicle sales over the fourth quarter of 2018 was attributed to accelerated deliveries of the ES8 in the fourth quarter of 2018 in anticipation of EV subsidy reductions in China in 2019, as well as the seasonal slowdowns surrounding the Chinese New Year holidays in the first quarter of 2019. Other sales in the first quarter of 2019 were RMB 96.0 million, or USD14.3 million, representing an increase of 76.4% from the fourth quarter of 2018. The increase in other sales over the fourth quarter of 2018 was mainly attributed to increased revenues derived from NIO life merchandise and services provided in the first quarter of 2019. Cost of sales in the first quarter of 2019 was RMB 1.9 billion, or USD275.7 million, representing a decrease of 45.9% from the fourth quarter of 2018. The decrease in cost of sales over the fourth quarter of 2018 was mainly driven by the decrease of delivery volume of the ES8 in the quarter. Gross margin in the first quarter of 2019 was negative 13.4%, compared with positive 0.4% in the fourth quarter…

Operator: Thank you. Ladies and gentlemen, we'll now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Bin Wang of Credit Suisse. Please go ahead.

Hi. Thank you so much for taking my questions. I have three ones. The first one is about ES6 order. Actually you said that in the past 5.5 weeks ago around 5,000 orders. What we call in the conference call in the year 2018 result, you mentioned already have 7,000 orders by around March -- early March, so around 12 months in between, it seems that [indiscernible] not much order received, can you explain why in that [indiscernible] not much order for ES6? That's number one question. Number two question is about your recent announcement about your NIO China. Can I know what's the specific arrangement assuming under less call will be another joint venture between NIO Inc. and E-Town, and what will be the asset ingestion into this NIO China asset detail, please? And number three, can you confirm whether your full-year volume guidance changed or not, and remember your full-year year bottom guidance is 40,000 units is more than 20,000 ES6, can you remind us your full-year overall guidance? Thank you.

Hey. Wang Bin, this is Louis. I'll take one and three, and I'll let William and Nick answer two. For one, we had about -- we had 7,000 something orders, pre-orders for ES6, but don't forget those orders are refundable. So, during May -- margin, I mean during that month before the Shanghai Auto Show, there wasn't a thousand or so plus, I can't remember the exact number, who also got a refund on their order. So what we're talking about is new orders from April, I guess, 17th or 18th when the Shanghai Auto Show started until yesterday. So, those five weeks, but don't forget there's also cancellations in orders. So it's a moving target. But it's very encouraging to see 5,000 new pre-orders in only 5.5 weeks since ES6 was launched. It has gotten obviously very good accolades and very good reviews from the press and from driving magazines. On question three, regarding the guidance, we had targeted for the year -- you know I've been telling people recently about 35,000 to 40,000 as of in March or so a few months ago. The slowdown has hit us with the subsidy reduction. Remember, ES8 subsidies went from 67,000 down to under 40,000 and going to 11,000 ES8 soon. And then with the trade war and the softening environment, I think at this time we are not prepared to give any kind of target number for the full-year, what I'd like to do is wait until ES6 is launched and see how that ramps up. So, we'll be in a better position to give full-year sort of targeted numbers -- it's unofficial, but targeted numbers in a couple of months once ES6 is launched. And then William and Nick, you want to take the E-Town question?

[Foreign Language] Wang Bin, thank you for your question. So, regarding our recent announcement about our framework agreement with the E-Town International Investment and Development Company, which is E-Town Capital, actually E-Town Capital while being helping us through a third-party partners and also its affiliated entities to inject about RMB 10 billion in exchange for the minority equity stake for the NIO, and at the same time, NIO will be establishing NIO China in the BDA E-Town. So we will be relocating part of our major business to this NIO China, but still our NIO, Inc. will be holding most of its control over the NIO China and also NIO China will be part of our consolidated statements. So, NIO China will be important channel and a tool for our RMB fundraising, because it's through our public in the NYSE we have a very diverse fundraising channel for the U.S. owners. With the NIO China, we can diversify our fundraising channel for the RMB. With both fundraising channels, I think it will help us to sustain our future development for the second generation platform, and the team is now working with E-Town on the details of these definitive agreements, and there will be a lot of details that need to be refined, and we will keep you guys updated on this news.

Thank you. Our next question comes from the line of Lei Wang of CICC. Please go ahead. Your line is open.

Okay. Thank you for taking my questions. So my first question is also about NIO China. So if E-Town becomes a minority shareholder of NIO China decides the term bid in fresh capital, what can NIO expect from E-Town and will NIO still have manufacturing facility in Beijing? So would you prefer they also think or turn to the in-house manufacturing in the future? That's a first question. The second question is about how to stimulate the sales, if the demand continues to remain weak, do you have any other plans to stimulate the sales is the second question? And the second question is about NIO, [indiscernible] JV in the future generate any cash flow to NIO and what is the synergy between NIO and the JAC NIO? Thank you.

Okay. William, you want to take these three questions, after Eve translates?

Okay. [Foreign Language] So, regarding your first question, the framework agreement that we entered with the E-Town Capital is mainly -- has many mentioned that the E-Town Capital will be helping or will be helping us to find the third-party partners to build a manufacturing facilities for the next-generation platform product. But for the near-term, we will be upholding the joint manufacturer model as we are having right now with the JAC, because this manufacturing co-operation has a very high efficiency in terms of the management and investment. Of course, we will not exclude any opportunities that we may be establishing our own manufacturing facilities, but for this RMB 10 billion fundraising or asset raising, it is more of a development research and also the user network requirements. [Foreign Language] Regarding your second question about the sales volume of ES6, actually we've kicked of the global media test drive and also the nationwide user test drive and we've getting a lot of feedback, a positive feedback and a review from these people and participants. So for the next following months, we will be taking active market campaigns both online and online, so that more people can appreciate and understand our product. We will organize more test drives for our potential users and we will also seek to expand our sales channels, of course direct selling will still be one of our top priorities, but at the same time, we will try to find opportunities, so that we can present our products from our partner sites and more people will get to know our brand. And for ES6, we believe it is a very powerful and strong product compared with the Q5 from Audi, GLC from Mercedes Benz and X3 from BMW actually ES6 on par with these. If you look…

Okay. Thank you very much.

Thank you. Our next question comes from the line of Dan Galves of Wolfe Research. Please go ahead.

Thanks for taking my questions. The first question is related to the competitive dynamic for ES8. What is expected with the subsidy ready to come down even further in June that you might have a pre-buy of this product? Maybe if you could just talk about what vehicles the ES8 is competing with, and how it's doing competitively and in terms of market share. The second question is just about if you could help us to understand the cash burn in Q1 if you could give us any detail on what the CapEx was working capital and more importantly what is the outlook for the cash burn in future quarters once the ES6 launches, should we be expecting a significant lower cash burn in the future? Thank you.

William, do you want to take the ES8 competitive landscape question; and Nick, you can take the cash burn question for -- in R&D and CapEx spent. William?

Okay. [Foreign Language] Regarding the question about the competitiveness of ES6 -- sorry -- ES8 actually ES6, sorry ES8 not only targets at the premium electric SUV. It also aims at the segments of all the premium six and seven-seater SUV including EV and also the gasoline cars. So our competitors in this segment include [indiscernible] from Volvo and Model X from Tesla. So for the short-term the subsidy reduction may affect our competitiveness a little bit, but we do have other advantages including our high performance, our use of friction, our user network and our users they get to enjoy 10% purchasing tax discount for buying an EV. And they also enjoy the preferential policies for the license plate application and usage in cities like Beijing or Shanghai. So in with other advantages will help us to offset the impact of the subsidy reduction. And we believe that ES8 will strong -- will still be a very strong and powerful product in this segment. Thank you.

I think to answer your questions about the cash burn. I think in Q1 we, I won't call it burn, we actually have a cash outflow of over RMB 4 billion, but the special note will be paid because in December we delivered more than 7,000 units but in Q1 when we delivered like roughly a half of it. So there is a huge working capital gap. A lot of the payment occurs in the months of January and February as well. So working capital will take a significant portion of it. And also, if you look at our expenses item like R&D as well as C&A that actually take us some large portion as well. So overall in moving forward we think that this cash burn rate is going to go down quarter by quarter for a couple of reasons. Number one, it's actually with the launch ES6 we're going to bring more volume into the picture. Accordingly and the as a result working capital is going to help our cash flow. Number two with the launch of our LOP or Lean Operation Program, essentially you can call it internal organizational optimization program. We're going to cut down our cost, cut down unnecessary spending in both strategic spending of RMB by rebalancing our product portfolio and also balancing our self-network spending versus seek some, strategic alliance in the channels, so we can cut down significantly. And also in terms of people's and the daily operation we issued a new policy and put the stringent mindset into people's minds. So and that makes the - makes the lean operation concept not only reflected in the numbers but also reflect in every minds of our employees.

Hey Dan, it's Louis. We expect Q2 cash burn to be a little bit high. But then Q3 and Q4 once ES6 starts delivery and we expect the cash burn to come down relatively quickly.

Okay. Thank you.

Thank you. Our next question comes from the line of Fei Fang of Goldman Sachs. Please go ahead.

Hi, William, Louis, Nick, Jade. Thanks for taking my question. Can you give us an update on the content and specs of the ES6, are we still on track to install 811 NCM batteries and also will level 2.5 be ready upon the launch and also in light of the current environment, do you see opportunities to reduce component prices from suppliers. And if so where do you see most of that, whether it's a battery motor, inverter or others? Thank you.

Thank you, Fei. William, do you want to talk about ES6 specs and current reduction in price possibilities?

Yes. [Foreign Language] About the 811 NCM battery pack, actually it is proceeding as our schedule. So it will be available to our users in July and actually in our validation and it passed, the 811 NCM battery pack showed strong performance. So we're quite confident about it. As for our corporation and partnership with CATL, our battery solid supplier, actually we have a long-term cost reduction framework with CATL. So we will be witnessing significant cost reduction in terms of the battery pack from the third and the fourth quarter of this year. Based on our volume assumption, in this framework, you will witness this cost reduction by this one. Thank you.

Thank you.

That's very helpful.

Thank you.

Our next question comes from the line…

Dan, it's Louis. Sorry. It's Louis Hsieh. Some of the specs just for your -- what you asked about the ES6 is very competitive with the likes of Mercedes EQC I-Pace Model 3 and Model X and Model S from Tesla. So it's very fast zero to 60 in 4.7 seconds. It has a longer range 500 plus kilometers with an 84 kilowatt battery. And so its performance, its communication, it's service everything should be very competitive if not better and its price below all those models including the Model 3. So we think it's a very price competitive car. It looks sporty, it's sharp and it is full of amenities.

Thank you. Our last question comes from the line of Yen Min [ph] of Deutsche Bank. Please go ahead.

Hi, [indiscernible]. Thanks for taking my questions. I've got two quick questions here. My first question is on the future new products. As Louis has just mentioned, it seems like we will be launching another model in 2020 before the ET series. Just could you please share with us your source behind this decision and also would this be another SUV model and what sort of market seminar are we targeting at. And my second question is as mentioned just now that the demand was negatively impacted by the annually subsidy cuts. So wondering if there's any chance of -- if there's any chance that you would be adding lower price streams for the ES6 and ES8 models to drive the demand? Thank you.

William, you want to answer these two?

Okay. [Foreign Language] So about the ET7 and also our new product, we launched our ET preview during Shanghai Auto Show this year and we have received a lot of positive feedback and review about this ET preview, but actually earlier this year, we decided that we would like to launch our ET7, our second generation platform NP2 because the -- recently, we decided to launch this ET7 on our second generation platform, NP2 because the next several years will be very important for the transformation of ADUS, AD and the smartness technologies. So you will be seeing the transformation for the sensors, for the computing unit and also for the E architecture of the vehicle and we want to see this ongoing transformation that's why we decided to put the ET7 on the second generation platform. So, in terms of the launching time of ET7, it is postponed a little bit. I think this is also the best decision - it is postponed for the next generation. I believe this is a positive decision for the company, for our investors as well as our users, but at the same time, we understand that the market is expecting a new product or a new model from NIO. So earlier this year, we decided that we - on top of the current generation platform, we would like to leverage our existing technologies to launch a new model next year and right - at the moment, we may not share sufficient information with you, but you understand that NIO can be quite efficient and agile in terms of our [indiscernible] development. So you can expect the launch of this new model next year. [Foreign Language] As for the demand after the subsidy cuts, actually for our ES6 and ES8, we target at the premium SUV segment for both electric cars and also the combustion car. For ES6 and ES8 their competitors including a lot of premium SUVs from luxury brands, and even with this competition we still believe that we have a strong competitiveness. We have the tax discount with purchasing tax, consumption tax and also duty. We also have a strong performance. We have good user services. We also have the preferential policies for the licensed plate, application and usage. So we believe that maybe in the short-term, the subsidy cost may affect us a little bit, but in the long run we do have the strong market performance in this segment. And as more and more people starting appreciate - start appreciating and adopting EVs, we believe in the long run ES6 and ES8 will be very powerful.

Thank you.

Thank you.

Thank you.

Our next question comes from the line of Paul Gong of UBS. Please go ahead.

Yes. Thank you. I have two questions. The first one is regarding this deal subsidiary, NIO China, since E-Town, wherein E-Town has committed RMB 10 billion just for minority interest in this NIO entity. Does that mean, NIO Incorporation is also committed for more than RMB 10 billion investment into this NIO China entity? If so, is this a NIO investment into the NIO China in the form of cash or in the form of technology or whatever, or maybe I think, can you give us a little bit color on this? This is my first question. My second question is, I noticed on the balance sheet, there is some item within the equity got additional paid in capital that has declined from RMB 41.9 billion to RMB 40 billion, declined by RMB 1.9 billion during this quarter. Can you please give us a little bit color, what was the reason for that? Thank you.

William, you want to talk about E-Town, NIO China?

Okay. [Foreign Language] Regarding this NIO China with E-Town, actually it doesn't mean that we will be investing more than RMB 10 billion into this NIO China in exchange for more equity stocks. Is that easier to cut our NIO Inc. current business, actually most of our business including our employee, including ours sales network are based in China. Over 90% of our employees are based in China. So for this asset, for this existing asset we already have a high end goods evaluation. So this is how we work with this NIO China, we'll be leveraging this existing asset and the business for the equity fundraising. Thank you.

So, could you factor them more briefly to understanding it in the way you give some minority shares at your Beijing E-Town and they paid in RMB 10 billion as an investment into this entity, so it's kind of in the form of portfolio finance through equity?

Yes.

That's correct. That's actually from E-Town and it's affiliated. Yes.

Okay.

I'm going to address your second question, Paul. Essentially this reduction on the equity portion RMB 1.9 billion reflected and it was strictly related to the convertible bond that we issued back in around the end of January, early February. So in this bond I can explain a little bit more detail. There is a two derivative product; one is called a prepaid -- prepaid forward. The other one is called additional call option. If you understand the fundamental structure, initial structure of a convertible bond, it's actually a face value plus 30%, 30% the price over the stock price at the time of issuance. So, on top of it, we actually put additional call option which raised the stock price to call, the strike price from 30% to 100%, because that's take roughly $80 million. The other one is the prepaid forward capital. Essentially, we use the part of the proceeds from this debt issuance to buy back some of the stock and to sweeten the deal essentially. So make this transaction completely completed. So overall, this has actually resulted in the reduction in our equity positions of RMB 1.9 billion as you compare in our balance sheet.

Thank you, Paul.

Okay. Thank you.

Thank you. As there are no further questions, now I'd like to turn the call back over to the company for closing remarks.

Thank you, everybody, for joining us today.

Thank you, and see you next quarter.

Thank you everyone.

Thank you. This concludes this conference call. You may now disconnect your line. Thank you.