[Abrupt Start] and are posted at the company's IR website. On today's call, we have Mr. William Li, Founder, Chairman of the Board and Chief Executive Officer; Mr. Steven Feng, Chief Financial Officer; Mr. Stanley Qu, VP of Finance; and Jade Wei, AVP of Capital Markets and Investor Relations. 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 news 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.

[Foreign Language] Hello, everyone. Thank you for joining NIO's second quarter 2021 earnings call. [Foreign Language] In the second quarter of 2021, NIO delivered 21,896 ES8s, ES6s and EC6s. A new quarterly record, representing a strong increase of 111.9% year-over-year. In July, NIO delivered 7,931 vehicles representing a strong 124.5% growth from last year. All three models have achieved a solid performance in the premium SUV market. [Foreign Language] According to the data published by China Passenger Car Association, in the first half of 2021, the penetration rate of battery electric vehicles has reached 8.4% in China. NIO's penetration in the Tier 1 and the Tier 2 cities in China has been growing at a much faster pace. In Shanghai, the first half of this year has witnessed our penetration in the premium SUV segment, reaching 13.7% among all ICE and the electric vehicles. Our monthly order intake keeps it growing, but the delivery volume will be determined by the overall capacity of the supply chain. We expect the total delivery in the third quarter to be between 23,000 and 25,000 vehicles. [Foreign Language] In terms of our gross margins, we have achieved a steady performance with vehicle gross margin and overall gross margin standing at 20.3% and 18.6%, respectively. [Foreign Language] Next, I would like to share with you some recent operational highlights of the company. [Foreign Language] Since the first validation build of ET7 rolled off the production line in May, a series of rigorous test of vehicle functionality, performance and homologation have been kicked off. We are very confident with the on-time delivery of ET7 next year. Meanwhile, the development of NAD, next new generation autonomous driving system is also advancing smoothly. We believe that NAD will deliver the best experience of autonomous driving and lead the…

Thank you, William. I will now go over our key financial results for the second quarter of 2020. And to be mindful of the lens of school or encourage business to refer to our earnings press release, which is posted online for additional details. Our total revenues in the second quarter were RMB 8.45 billion or $1.31 billion, representing an increase of 127.2% year-over-year, an increase of 5.8% quarter-over-quarter. Our total revenues are made of two parts: vehicle sales and other sales. Vehicle sales in the second quarter were RMB 7.91 billion or $1.23 billion, accounting for 94% of total revenues in this quarter. It represented an increase of 110% year-over-year, an increase of 6.8% quarter-over-quarter. The increase in vehicle sales year-over-year was mainly attributed to higher delivery achieved from more product mix offered to our users. The increase in vehicle sales quarter-over-quarter was mainly due to higher deliveries. Other sales in the second quarter were RMB 536.2 million or $83.1 million, representing an increase of 103.3% year-over-year and a decrease of 7% quarter-over-quarter. The increase in other sales year-over-year was in line with the incremental vehicle sales in the second quarter of 2021. The decrease in other sales quarter-over-quarter was mainly due to the net revenues derived from 1 hour battery upgrade service. Cost of sales in the second quarter was RMB 6.87 billion or $1.6 billion representing increase of 11.8% year-over-year, an increase of 6.9% quarter-over-quarter. The increase in cost of sales was in line with revenue growth, which was mainly driven by the increase of vehicle delivered volume in the second quarter of 2021. Gross profit in the second quarter was RMB 1.57 billion or $0.24 billion, representing an increase of 42.7% from the same quarter of 2020, an increase of 1.2% from the first quarter of…

Thank you so much. [Operator Instructions] And our first question comes from the line of Tim Hsiao from Morgan Stanley. Tim, your line is now open.

Hi William, Steven and team. Congratulations on the result and thanks for taking my questions. Just two quick questions for me. First question is about the new models. Could you please elaborate a little more about the two new models scheduled for 2022? About the ET7 regarding the timing, spec, rough price, a rough price range et cetera. As mostly previously anticipated to have just one new model next year. So I think this service is upside surprise. So any colors would be highly appreciated. So that's the first question. And my second question is - with NIO's total battery consumption is likely reaching 16 gigawatt or 18-gigawatt hour next year will there be any major changes to NIO's battery sourcing strategy. Will CATL stay as the sole supplier or NIO might consider looking for a second source. And in light of such a close tied up with CATL between NIO for both EV and the battery asset management company, can NIO diversify to other partners to hedge their risk if needed. Those are my two questions. Thank you. [Foreign Language]

I believe everybody knows that the NIO Technology 2.0 is going to be first applied to ET7. The current development progress of ET7 and [ph] 80 is on track and we are quite confident about the on-time delivery of ET7 next year, although the challenges is quite significant. For the other two products, I believe probably it's better for me to share more information at a more appropriate time. Regarding the pricing of course in recent years the battery cars has declined a little bit. And as our volume goes up our BOM cost will also have some opportunity to go down. So, for the next year's product, we probably will have one of the lowest pricing products under the NIO brand, but as I explained before we are going to have a NIO brand for the mass market, so under the NIO brand we're not going to have many no-pricing products. [Foreign Language] Next year we believe the demand for the battery capacity is going to go up significantly especially considering the new product lineup. We believe the batter production capacity demand is going to jump significantly compared with this year we are having intense discussions with [ph] CATL regarding the battery capacity supply. Currently we believe [ph] CATL is a very good and important partner for us and we also have a very good relationship with [ph] CATL we have very in-depth discussions regarding the battery technology as well as the battery production assurance. as well as the battery production assurance. So we believe that this current strategy can serve the best interest of the company at the current stage of development.

Feng, William, thank you. All right, very clear. [Foreign Language]

Thank you so much. And your next question comes from the line of Ming Hsun Lee from BofA Securities. Ming, your line is now open.

Thank you. Good morning, William. Stephen and the team, congrats for the good results. So I have a two questions. The first question is regarding the component supply. We know you already have more large-size battery supply starting in June. But right now, consider the pandemic in China and also overseas countries such as Malaysia, so what kind of impact do you expect on the productions that especially for your component supply capacity? So it my question, first question. And the second question is - is regarding your business in overseas markets. So in your third quarter of voting guidance, how many units do you expect to - to ship in Norway? And will you start to provide better service in overseas markets? Yeah, that's my two question. Thank you.

[Foreign Language] Yes. The pandemic situation is affecting the global supply chain. Last year I believe the other supply chain partners and NIO have been trained significantly to cope with these kind of challenges. In my prepared remarks I have also mentioned over the recent COVID situations in certain regions in China have affected other production. Specifically is a just-in-time component partner located in Nanjing's high-risk area. This partner has already suspended their production. And we have seen some good news is coming out of Nanjing. Things that the COVID cases in Nanjing has already dropped to zero. So we hope this partner can resume their production as soon as possible. The third quarter delivery volume will mainly be determined by the overall capacity of the supply chain. So there will be a lot of challenges that we need to deal with. For example you also mentioned about the pandemic situation in Malaysia. This has also affected the semiconductor supply to the global market, not just for NIO but also many other companies. But the pandemic situation in Malaysia basically we believe that the impact of for us is not that big and that it should be under control. Another situation is the flood in Germany. Our partner is also affected in the flooding because one factory is flooded during the extreme weather event in Germany and other partners have been working with us to identify the solution. Right now we believe that the situation is under control. So of our - about speaking the - the delivery volume in the third quarter will - meaning to be restrained by the overall capacity of the supply chain. [Foreign Language] Regarding the delivery in Norway, we believe for this year, the contribution is not going to be that significant because all…

Thank you.

[Foreign Language]

Thank you so much. [Operator Instructions] And your next question comes from the line of Nick Lai from JPMorgan. Nick, your line is now open.

Yes. Thank you, William and Steven. Indeed I have two number-related questions, the first one is related to gross profit margin. Yeah, I mean 2Q against 1Q roughly margin was flat but still at the vehicle level [indiscernible] margin, it was still down roughly above 1 percentage point, yeah, can you help us understand or explain a little bit more on the margin - let's say margin [indiscernible] in 2Q, it's not related to bond or implement in material price or other fact. I mean I noted in the second quarter ASP is slightly down from 1Q, I mean yeah and how should we think about 3Q, so that one is of 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? And the second question related - also related to number is look at the cash on balance sheet altogether cash equivalent and short investment by the end of first half we have RMB 48 billion cash that's profit about $7.5 billion and that's a lot of cash on balance sheet. If you can help us understand what our cash [indiscernible] our strategy using the cash on balance sheet in terms of CapEx investment. I notice [indiscernible] has new capacity expansion and presumably we are launching more model in 2022. We'll need to invest in R&D new model tooling altogether. So if you can help us understand a bit more on our capital investment in the next one year or so that'll be very useful. Thank you.

Hi, Nick.

Hi, Nick. This is Stanley. Regarding your first quick question about the gross profit margin, there are two reasons that we put brick on into details. The first is average selling price decreased about RMB 8,000 per vehicle in Q2. The main reason is more. ES6 were sold in Q2 compared with Q1. Since yes this - it's is a little bit lower gross profit margin and selling price. But due to our continued efforts in Q2 the average vehicle cost also decreased about RMB 3,000 per vehicles. So combine the two factors together our like net gross profit margin per vehicle decreased about RMB 5,000. Okay. That's a reason for the weaker margin. And you know we announced - today we announced like three new brand-new products we will deliver in 2022. And we also refreshed our product plan and for the because relative perspective, we like to shorten our like the depreciation and amortization period for our existing products. So that will lead to the increase. So, for the second half year of 2021 the - this impact to gross profit margin will be like 2% per vehicle. So yeah, that's the first question. And the second one is regarding the cash balance. As you mentioned we - the cash balance at the end of Q2 is RMB 48 billion. As we mentioned we will still focus on the research and development of our new product technology. So and about the other usage we will like also increase our CapEx investments including our new plant and new sales and marketing network infrastructure in the coming years. So the - it will be in line with our business plan in the next years. Yeah. Okay.

Yeah. Can you remind us what our CapEx target for the year? Do you have any number or guidance please?

Yeah. We expect the total CapEx in this year will be RMB 5 billion. Including like the new plants and also the service and sales network and also a power substation. Yeah.

Yes. Thank you very much.

Thank you so much.

Thank you, Nick.

Thank you, Nick. Yeah.

Thank you so much. And your next question comes from the line of Bin Wang from Credit Suisse. Bin your line is now open.

Okay. Thank you so much. My first one is more a follow-up about our gross margin because you actually 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 increasing NIO pilot take rate? That is the number one question. Number two is about your long-term market share because, you know, your peers actually want - peers actually have now 10% market share and the other one 20%. And what's the NIO's plan for 2025 for the market share, because you - we have a - a mass market brand. Can we assume that the mass market brand will start to sell in 2023, because with your three products since that the oath came from NIO brand and is - because you are looking stead right in the R&D, this is not going to be 2023. That is the second one. And the third one is about your data of - of lifestyle expansion brand. If you see your peers, who actually get involved in strategic operation with the big data groups such as [indiscernible] existing part on the phone dealer space, this will be buyback by NIOs. So using this in the long term, may be NIO will [indiscernible] party patterns for NIO space. [indiscernible] what's your long-term strategy about offline store expansion plan. Thank you.

[Foreign Language] Yeah. Since - yeah. So regarding the margin contribution for the NIO Pilot, as we mentioned, the take rate of NIO Pilot has reached 80%. For this 80%, it includes both the selected pack and the full pack for the NIO Pilot. So we believe that of all contributions from the NIO Pilot is around 3% to 4%. Yeah, these NIO Pilots - the price of NIO Pilots included in the selling price of vehicles. So we have like no like the separate gross profit margin calculation for - for the NIO pilots, yeah. [Foreign Language] For the NAD, because we are going to use the AD as a service model to provide the NAD services to our users. Long term speaking, we long-term speaking, we believe the AD as a Service contribution is going to be included in the other margin and the long-term plan for that margin also the NT 2.0 is going to be much better than the margin of the NT. 1.0. For the vehicle gross margin we believe the target was in the long run is 25% excluding the carbon credits because of the carbon credits that should be included in other margins. And we believe with the logic of other margin is about the install base or the install base of users. For the long run, it will get better considering the future possibilities and opportunities including AD as a Service, Battery as a Service upgrade in your life carbon credit. So we believe of all speaking of all gross margin and the vehicle gross margin will improve. [Foreign Language]

Regarding the long-term target of the market share for us, of course we pay - meaning we pay attention to our specific market share order penetration in the corresponding segment of our products. For example, the ES8 in the large and midsize SUV market segment and the ES6 in the midsize SUV segment. Internally of course we have a very aggressive market share target by 2025. But we don't actually want to disclose this target. For us so we believe four of our targeted as a company should be to build a company with the highest user satisfaction rate. So that is why our focus is on the product and service. We believe if we can achieve the highest user satisfaction rate with other product and services then it should be then a natural thing for us to achieve a satisfactory market share. In the China market so I would like to talk a little bit about the battery electric SUV premium market segment. For this segment I would like to emphasize a little bit about the pricing because when we compare the specific sales volume of one brand or one product, I think it does not make sense to compare those kind of metrics without thinking about the specific pricing segment. For example, it does not make sense for us to compare the sales volume of mainly EV with the sales volume of NIO because we don't have the same pricing and we don't actually compete in the same segment. In our specific pricing segment, we have companies like Audi, BMW and Mercedes and for Tesla they also have a Model S and Model X and Model Y. So in this specific pricing segment of our market share has already exceeded the 50%. So we are quite confident to…

Thank you [indiscernible].

Thank you. A better way can you answer the question about what would be 2023 for the NIO mass market brand business? Thank you.

[Foreign Language]

Thank you.

Yeah. Regarding the launch of the mass market products of course our R&D efficiency is quite high and I believe this is the common standing of everyone. NIO has been able to launch products one after another in a very fast manner. So for the mass market brand this is part of a long-term thinking and we believe the efficiency and the speed of the product launch is going to be probably even faster build on top of the abilities that we have already accumulated under the new brand. But regarding the specific timing under the launch cadence of those products under the mass market brand we can still have time to decide based on the market conditions and the R&D progress of those products. So we believe it's still too early for us to share those information for now.

Thank you.

Thank you.

Thank you so much. And your next question comes from the line of Chang Liu from CICC. Chang, your line is now open.

Yeah. Thank you for taking my questions. My first question is about R&D. We know that there is a fierce competition in acquiring temporary [indiscernible] autonomous driving development. So could you [indiscernible] share with us NIO's advantages - advantages in acquiring them? And - and more in details, could you share with us our current team size of AD development and our targeted team size? And is there an update on our R&D expenditure for this year? And my second question is that, could you update the tech [indiscernible] BaaS and the NIO Pilots for us? Thank you.

[Foreign Language] Thank you for your questions. AD is a very important R&D metric. AD [indiscernible] and we are quite decisive to make investment in the autonomous driving technology and organization. Our autonomous driving organization is quite different from other companies that probably because, so we have full VPs report directly to me personally. So as you can see that is the autonomous driving is not just one department it's actually a new initiative for the - of our company. We have teams focusing on hardware, autonomous driving system, autonomous driving algorithm and the autonomous driving operation. So we believe this is not just the efforts of one IT department. We will need to leverage all the capabilities that we have across the company. Right now for over AD department we have around 500 people. By the end of this year we have around 500 people. By the end of this year we expect it to have additional 300 to 800 for the AD team. We will continue to make a decisive investment in autonomous driving technology and the challenge acquisition starting from 2016. We have already viewed over ADaaS team and autonomous driving team and NIO is the first company to have a mass production of the EyeQ4 chipset and we have built our domain controller, the autonomous driving assistant in-house right from day one. So we have already accumulated many experiences and capabilities in this regard. Coming from last year the main focus of ours is to build up the capabilities in terms of the autonomous driving algorithm into the computer vision we believe that right now we have already built a very strong team. [Foreign Language] Regarding the R&D expenses, starting from the second quarter, we have accelerated to offer research and development in the company. As…

Okay. Thank you.

Thank you, Chang.

Thank you so much. And your next question comes from the line of Edison Yu from DB or Deutsche Bank. Edison, your line is now open.

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? And then the second question on Europe it's very encouraging to see this user advisory board. Can you maybe discuss some of the things that you're doing differently in Europe relative to what's been going on in China?

I think for [indiscernible], I would like to share some numbers with our investors. First, in Norway, our team size has already increased to 40 employees in Norway. And of course Norway is only our first off to go overseas. So in the 40 years we've also entered other European countries and also other regions. So that's why we continue to hire more people in Amsterdam. [Foreign Language] Another point is starting actually in the second quarter of this year, we have a pointed the CEO of Europe. He is already on board and he has been building up the team for NIO Europe. Of course, we're going into enter more markets in Europe including Germany. For most of the products, we are going to deliver to Europe is going to be based on the NIO Technology platform 2.0 except the ES8. So this is our current strategy for the European market. [Foreign Language] So for NIO as a user enterprise when we enter the markets or different regions, we have always believed the user participation and the support is a very important principle that we should uphold. Of course, for different markets they have different cultures, different environment, different use cases we will need to adapt to those different situations. But so, we believe the user community and the user enterprise concept should apply to overall markets in the world because our vision is to make sure that we can put the user experience and their user interest first. This is a general principle for us. A very interesting factor that I would like to share with you is that in Norway when we initiated their user advisory board, we thought that probably we should have around 200 people but in the end 700 to 800 people signed up for the user advisory board. So from this example, we can see that actually the Norwegian people are quite willing to participate in those community events because previously through the media report and other literature, they think that the Norwegian people are more cautious towards socializing with other people's. But this example has proven this is the wrong interpretation or the wrong stereotype of the Norwegian people and we believe that the user community concept should apply to all the people in the world.

Thank you, Edison.

Thank you.

Thank you so much. And your next question comes from the line of Paul Gong from UBS. Paul your line is now open.

Yeah. Thanks, everyone. I have two questions. The first question is regarding your plan to address new models based on the MP2 in 2022. Given most of the NIO space although they cannot put six models of together, will you try to expand the average the size of your deal space. Or are you going to gradually resource via the existing first generation of the products? As just now you mentioned that you'll have a shorthand the differentiation and amortization of the first generation of your products. Does that mean it would be a gradually fizz out and migrate into 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 decisions in terms of the timing and how to position itself. But can we have a little bit 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 method Mercedes Benz and Smart or BMW MEV or Audi versus say Volkswagen brand. How do you think about the relationship of the two brands? I recall in last quarter's results you mentioned that there is only one more thing that somehow assured that is, would income from EVT reversion. Is that an indication that somehow the recent online discussion say on NIO's mass market brand which also announced some tiny small vehicles. Is it something you are bearing in mind at this moment? Thank you.

Yeah. [Foreign Language] Overall speaking we understand the different campaigns will have different strategies regarding their product offering. We would like to offer more diversified choices to our users but we also need to strike a balance because we're not going to like the traditional OEMs to launch a CF product for the users to choose from and we are also not going to like other companies to just offer two to three products for the users to choose. We believe the different users will have a different preference and taste regarding the body sizes, body type the design. So that is why we would like to offer limited but diversified product offerings to our users. We understand the era of Model T happened 100 years ago and right now the timing and ages are quite different for us. So that is why they say [indiscernible] strategy regarding the product and the NIO houses and NIO spaces of course we are going to adopt the digital technologies or properly use the rotation mechanism to make sure users can still experience our products in the NIO houses and the NIO spaces. But according to the current data we have right now it seems that the majority of our users actually place their orders online. So we believe that this is not going to pose a significant issue for us. Regarding the NIO Technology Platform 1.0, we understand all of our current product are based on the NT 1.0. It's actually quite competitive. If we compare with Audi, BMW, for example, their EV products, I believe all of our products are still quite competitive, and when it comes to their ICE product, I think our product actually does not belong to the same generation with their ICE products. So for the NIO…

Best services, much better service.

…and have better products and the much better services compared with Tesla.

Thank you very much. Very helpful. Thank you.

Thank you so much. And your next question comes from the line of Jeff Chung from Citi. Jeff your line is now open.

Hey. Hi. Hello, William and Steven. Great results. And I have three questions. One is the about the ET7. If this pricing is being set above RMB 400,000 - can we say that the 2Q margin should be much higher than the current level say - let's say around 30% to 35% level 2Q margin which is a potential. And secondly is about the export margin so let's say if the scale reached like 2,000 units to 3,000 units a month, can we say that that is 2Q margin accretive because we heard that exports to overseas ASP could be much higher. So could you give us a little bit color or do you think the export margin will be similar than the China domestic. Yeah, that is the first area. And the second question is about the G&A and as you just mentioned is going to accelerate into the second half of the year and I just heard you said that equivalent to the cost per car to increase by about 3%, right. So can I clarify this a little bit whether this was mainly reflected in the 2Q margin or that EBIT margin? And finally it's about the R&D and SG&A. So previously we expect this year's R&D to be about RMB 5.2 billion, SG&A around - above RMB 6 billion. So going forward in the 2Q do you see that there could be still a potential that this [indiscernible] should be increasing faster than our revenue growth. And when do you think this [indiscernible] growth will be slower than our revenue growth if we start from two to three or two to four yeah, that's my three question. Thank you. [Foreign Language]

Thank you for your question, Jeff. About overall speaking for the gross margin targets, previously I have also mentioned that on the NIO Technology Platform 2.0, the vehicle gross margin target should be at the level of 25%. So on the current data we gathered it seems that the ET7 should be able to each this target. But the actual additional gross margins of ET7 will need to be validated until the mass production and the delivery of ET7 to our users. So for the other product or for the product on the NIO Technology Platform 2.0 including ET7 it will probably meet the 25% zero gross margin level and this is our target first and for the other margins just like I explained that we have ADS service, NIO Life battery as a service upgrade and the swapping services. All this is included in the other margins. So this will also contribute to the improvement of other margins. For the export of business over current strategy, that we'd like to have global pricing. But for the specific pricing in different markets it will vary a little bit considering the tax and the tariffs in different countries.

We accelerated our depreciation and amortization for the fixed assets for end-to-end products, that will be booked in the cost per vehicle. So gross profit margin starting from Q3 will decrease by 2% as I mentioned in the prior questions. Yeah.

Okay. And also Jeff with regard to the [ph] fixed ratio we believe for now the next 12 months is a very decisive window for us to accelerate our product development and also service and track infrastructure deployment. However, in front the second half contributed to our economy of scale will gradually manifest and our expense ratio will start to decline again.

Okay. Thank you. Thank you, Stephen. Thank you, William.

Thank you so much.

[Foreign Language]

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 once again for joining us today. If you have further questions, please feel free to contact NIO's Investor Relations team through the contact information provided on our website. This concludes the conference call. You may now disconnect your lines. Thank you.

This concludes the conference for today. Thank you for participating. You may all now disconnect.