Hello ladies and gentlemen, Thank you for standing by for NIO Incorporated’s Third Quarter 2024 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, Mr. Rui Chen, Head of Investor Relations of the Company. Please go ahead, Rui.

Good morning and good evening, everyone. Welcome to NIO's Third Quarter 2024 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 website. On today's call, we have Mr. William Li, Founder, Chairman of the Board, and CEO, Mr. Stanley Qu, CFO. 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 Exchange Commission, the Stock Exchange of Hong Kong Limited, and the Singapore Exchange Securities Trading Limited. 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 CEO, Mr. William Li. William, please go ahead.

Hello everyone. Thank you for joining NIO's 2024 Q3 earnings call. In Q3, the company achieved a new quarterly record with 61,855 deliveries. The new brand maintained its position as the top selling brand in China's BEV segment, priced above RMB300,000 with its market share reaching 48%. The ONVO brand also started to deliver its first model L60 on September 28, marking its entry into the broader mainstream family market. In October 2024, the company delivered 20,976 vehicles while the ONVO brand continued to ramp up production capacity. The company's total deliveries in Q4 are expected to be between 72,000 and 75,000 units. On the financial side, our Q3 results reflected continued improvement in component cost leading to a vehicle margin of 13.1%. Besides, the gross margin of other sales have improved steadily, supported by sustained growth in revenues and gross margin. The company achieved positive operating cash flow and free cash flow in Q3. Now I would like to share with you some updates on our products, R&D and operations. NIO's Executive Flagship ET9 is in the final testing and preparation before mass production and the delivery is expected to start in March next year. The ET9 brings together NIO's leading innovation. Its delivery will reinforce NIO's premium brand image. With new models to be introduced in the coming year, the NIO brand will be more focused on improving profitability. The ONVO L60, aiming at the mainstream family market, has been a hit with family users thanks to its spacious carbon ultra-low energy consumption, comprehensive safety features and the hassle free charging and swapping experience. Now we are ramping up our supply chain capacity. Near the monthly production capacity is expected to hit 10,000 units in December and 20,000 units by March. Besides, on December 21, NIO's third brand,…

Thank you William. Let's now review our key financial results for the third quarter of 2024. Our total revenues were RMB18.7 billion decreased 2.1% year-over-year and up 7% quarter-over-quarter. Vehicle sales were RMB16.7 billion down 4.1% year-over-year, primarily driven by a lower average selling price due to changes in product mix partially offset by higher deliveries. Vehicle sales increased 6.5% quarter-over-quarter which was mainly due to the increased delivery volume. Moving to the performance of other business. Other sales were RMB2 billion grew by 19.2% year-over-year and 11.9% quarter-over-quarter. The year-over-year increase was mainly due to the increase in sales of parts, accessories and after sales, vehicle services and provision of power solution and partially offset by lower sales of used cars. The increase quarter-over-quarter was mainly attributed to the increase in sales of parts, accessories and after sales, vehicle services and provision of power solutions. Vehicle margin was 13.1% in this quarter compared to 11% in the same period of 2023 and 12.2% last quarter. The year-over-year increase was mainly due to decreased material cost per unit and partially offset by lower average selling price as a result of changes in product mix. The quarter-over-quarter increase was mainly due to decreased material costs per unit. Overall gross margin was 10.7% up from 8% in the same period of last year and 9.7% in the last quarter. Turning to OpEx, R&D expenses were RMB3.3 billion increased 9.2% year-over-year and 3.1% quarter-over-quarter. The year-over-year increase was both mainly driven by the increased personnel cost in R&D functions. SG&A expenses were RMB4.1 billion increased 13.8% year-over-year at 9.3% quarter-over-quarter, which was mainly driven by higher percentile costs related to sales functions and increased sales and marketing activities associated with new product launch. Loss from operations was RMB5.2 billion, up 8.1% year-over-year and relatively flat quarter-over-quarter. Net loss was RMB5.1 billion, showing an increase of 11% year-over-year and remaining relatively stable quarter-over-quarter. Lastly, we ended the quarter with a stronger balance sheet with total cash and cash equivalents, restricted cash, short term investments and long-term time deposits amounting to RMB42.2 billion. That wraps up our prepared remarks. For more information and the details of our unaudited third quarter 2024 financial results, please refer to our earnings press release. Now I will turn the call over to the operator to start our Q&A session. Thank you.

Thank you. [Operator Instructions] Your first question comes from Tim Hsiao with Morgan Stanley. Please go ahead.

Hi, good evening NIO management team and this is Tim from Morgan Stanley. Thanks for taking my questions. I have two questions. The first one is about brand strategy alignment. Because we notice things that L60 onboard. L60 was launched in September. The orders of NIO brands and ONVO brands have been seesawing. That is the older trends of NIO and ONVO appear contrary. Should we be worried about the potential cannibalization between these two brands when it comes to the in-demand brand position and the supply chain management? That's my first question. Thank you.

[Foreign Language] Thank you for the question. Regarding the overall delivery volume of the NIO brand you see a decrease in our delivery volume starting October. That is more of an active adjustment than a passive result. As before October, our monthly delivery volume was about was above 20,000 units for several months consecutively. But in the meantime we also realized that the vehicle margin has been under pressure as we have some promotions and marketing expenses on the product. Then starting October we have [Indiscernible] on our expenses on that part. By reducing around 15,000 RMB per unit on the promotional costs and the marketing costs. With that inevitably you see the impact on the sales volume. But starting November, as we are stabilizing our delivery volume and the demand, we are seeing the recovery from our volume. And regarding our brand strategy overall speaking, we think that using two or three brands to target different user groups is a successful strategy for now. For the ONVO, it is still competing with other competitors in the same price segment. Right now when we are looking at the main source of the ONVO users, the majority of them actually come from the Model 3 users. And internally we're also looking at the potential competition between the ONVO brand and the NIO brand. But the actual overlapping or the impact on the NIO brand is pretty minimum, only around 2%. It is true that few users may choose ONVO over NIO, but the overall impact on the sales and delivery of the NIO brand is limited. In that case, the combined increments of both ONVO and NIO still surpass the volume loss we had on the NIO brand in the past one or two months. [Foreign Language] To clarify that, to look at the source of our ONVO users, the top one source of this ONVO users actually is coming from Model 3.

Thank you very much William. My second question is about the production ramp up because we noticed the production ramp up of L60 so far is still a little bit slow. What is the main reason to a more moderate ramp up pace? Would there be any impact to our current order backlog towards the year end? And in the meantime, in view of the busy model pipeline Fireflies and also the new ET9 in March next year, as William just mentioned, and more upcoming models under ONVO and NIO, how would the group consider solving the bottlenecks into 2025? That's my second question. Thank you.

[Foreign Language] Thank you for the question. For the ONVO L60 it's true that people have high or the market has a higher expectation for its ramp up and the production capacity. However, we also need to understand that L60 comes with a lot of cutting edge technologies. For example, it has the 900 volt high voltage architecture which is also intertwined with the production and the preparation of the battery and powertrain system. It also has a pretty advanced e-architecture. Its operating system and digital system like Coconut also equipped with a lot of new technologies. So such technology preparation will also take time and we also didn't prepare a sufficient launch stock so that we will realize a very high delivery in the first month. We actually believe that ramping up to 10,000 units per month in December, that is our third month of the full month delivery and then ramping up to 20,000 in March next year is a reasonable speed and pace. It's true that this speed may not live up to some of your expectations and we also understand that on the subsidy side by the end of this year some local subsidies and also the national trade in subsidy will be gone. In that case for some users who placed the order later may not have their cars picked up by the end of this year and that will affect their subsidy. In that case we have also looked at the users who eventually turned us off or turned us down and the 50% to 60% of those users eventually rejected us were because of the late delivery and the failure of not getting the subsidy by the end of this year. It's also understandable as after all onboard product is around 200,000 something and 10 or 20,000 subsidy can be a significant amount to them. For ET9 and the Firefly, in general they also have their own ramp up pace and the preparation but for these two products we will prepare the launch store more actively. Thank you Tim.

The next question comes from Nick Lai with JPMorgan. Please go ahead.

Thank you for taking my questions Nick From JPMorgan My first question for Willy is how do strategically how do we find a balance between profitability and volume. And William just mention that in the third quarter in recent months we reduced the incentive by RMB15,000 but obviously has support should support a vehicle margin into year-end but at the same time that's probably at expense of the slower sales volume. So long-term can you share with how should we think about the balance between profit margin and volume or another rule do we have a desired vehicle margin in 4Q in the medium to longer term? I remember in the past talk about longer term vehicle margin between 15%, 18% or even 20%. Can you share with us the medium to longer term volume and profit margin strategy? Thanks.

[Foreign Language] Thank you for the question. This is Stanley speaking. Regarding your question on the balance between the volume and the profitability as also mentioned by William after the launch of the ONVO for the new brand, our primary focus is to keep enhancing our premium brand positioning and improve our product profitability. So this will be our focus from now and beyond. And also starting October we started to dial back on our products, promotions and incentives. For the short term it has affected our sales volume but in the past one month or so with operations we also see a bounce back momentum on our order backlog. And regarding the vehicle margin of the new brand, in the third quarter it's around it's 13.1% and for the fourth quarter we set the target at 15% for the new brand and we are confident to gradually live up to that target in Q4 this year. And as we keep enhancing the premium positioning of this brand for the year of 2025 we will take 15% vehicle margin as a baseline and by improving our marketing strategies and supply chain we target to realize 20% gross margin going forward for the new brand.

Thank you. My second question is related to CapEx and OpEx guidance. We are launching new brand Firefly into 2025 and also higher end ET9 product and so on. So can you give us some guidance regarding OpEx ratio as well as CapEx in 2025? Thanks.

[Foreign Language] Thank you for the question. As mentioned, starting next year we will start to deliver our ET9 and there will also be new models coming from our second and the third brand. So overall speaking, there will be increments with our OpEx. As you can see actually in the third quarter of this year we already see an increment in our SG&A expenses that is mainly because we were preparing the sales network and the sales force for the launch of the ONVO brand. And such expenses will continue in Q4 and will also continue to increase in Q4 as right now we have around 190 ONVO stores in China and by the end of this year we plan to have around 300 stores up and running for the ONVO brand, so we will need to invest in those facilities and stores. And in the meantime, as our target for March next year is to realize the 20,000 monthly targets in that case we will need to keep improving our sales network and also salesforce. But as we are building up the sales capacity and the capability for the ONVO brand and going into Q1 next year when the capability and capacity are well established, our SG&A expenses will also gradually coming down. So at the moment the SG&A is taking the major chunk, is taking a big chunk of our sales revenue but this will gradually come to a reasonable level starting Q1 next year. In that case, our OpEx along with the increase of our sales volume will have an efficiency improvement quarter-over-quarter from next year. Regarding CapEx, this year our overall CapEx actually had the significant decrease from last year. The full year CapEx is around RMB8 billion and for next year we will keep around the same, keep it around the same level so we will keep a very prudent management of our CapEx expenses. Thank you Nick.

Your next question comes from Ming Hsun Lee with Bank of America. Please go ahead.

Hi William, this is Ming from Bank of America. So my first question is related to the situation in Europe. I want to know that after the tariff in EU is increased, do you change your pricing strategy. And currently does this impact demand in Europe? Thank you. That's my first question.

[Foreign Language] Thank you for the question. It's true that with the tariff on the battery electric vehicles from China, it has affected our pricing strategy and also sales volume in Europe. Overall speaking for the overseas market, we still adopt this unified global pricing strategy that is basically a cost with a markup on top. In that case, because of the tariff, our prices in Europe actually has gone up quite significantly. However, our strategy for the European market is always aiming for the long-term. At the moment, we will stay focused on improving our sales and service network, understanding the needs of the local users and to improve our user satisfaction on the services and the products. This is actually where this strategy is not just because of the tariff. Even before the tariff, we've been focusing on the several key targets than simply prioritizing our sales volume. We will need to make sure that we have a reasonable investment into our European business while maintaining a good user satisfaction and also improving our brand awareness. Again, our target for the Europe is for the long-term and also out of the five European countries we have already entered, Norway is not affected by the tariff policy. In that case, our sales volume in the Norwegian market is still pretty good.

Yes, thank you. So my second question is related to the gross margin profile for ONVO brand. Because Stanley just mentioned the NIO brand in 4Q, gross margin will continue to improve to around 15%. But assume you will deliver around 20,000 units ONVO in 2024, what is the rough gross margin profile for this brand? And when your monthly delivery reach 20,000 units for ONVO brand, what is the potential gross margin profile for the brand? Thank you.

[Foreign Language] Thank you for the question. For this year as we have just launched and started to deliver the product at the early stage of the ramp up and also because of the exclusive user rights for the early users, the actual vehicle margin for the ONVO L60 is not very high. It's a positive growth margin but in a single digit. For next year, for the year of 2025, as we ramp up both production capacity and the delivery volume, we expect that for the ONVO brand, its vehicle margin will be around 10% and that will be our baseline for the next year to work on. And with the continuous improvement on the product cost structure, and also with more products joining the overall lineup, we believe that for the next year our overall vehicle margin target for the ONVO brand will be around 15%. Thank you. Min.

Your next question comes from Bin Wang with Deutsche Bank. Please go ahead.

Thank you very much. My product about new products in the second half you just mentioned you will have a robust growth in 2025 and the first half seems to be only some niche products such as the ET9 and a new brand. However, what's the plan for the second half? Did you plan to refresh go to new generation for your evolving products such as the ET5, ET5 Touring and ES6ET6? All these four products will go to new to the generation or not in 2025 second half? Thank you.

[Foreign Language] thank you for the questions. For next year under the new brand, our products will be upgraded to the next generation platform and ET9 will be the first product coming off from the latest generation platform. There are also other products in the pipeline. There will be also facelifts and upgrades. Those will be the facelifts and upgrades of our existing products. So basically in 2025 and 2026 we will complete the upgrades of our existing new products step by step. Regarding the ONVO brand, next year we will continue to deliver and sell our first product L60. But in the meantime we also have another two family SUVs in the pipeline ready to launch into the market next year. The R&D of these two products is in good progress and they are also getting ready for the mass production. Regarding with these two products launched into market, we will have a complete lineup for the family SUVs under the ONVO brand. For these two new products one will be a mid-large size SUV offering with six and seven seater versions and another will be a large five, a large size five seater SUV. And these two products are pretty competitive regarding their cost, structure and the product performance. A proper benchmark to look for will be L8 and L7 of Li Auto. If you look at our L60 with L6 from Li Auto, the price difference is around US$40,000 and you will sorry, RMB40,000 and you will probably understand the rough price range for our next two ONVO SUV's it will be also with the similar pricing strategy and with that the price will be highly competitive. In the meantime we are also completing our charging and swapping network especially with more facilities available in the county level places in China. In that case with more comprehensive shelf network and service network, we are very confident with the overall performance of the ONVO brand next year. Regarding Firefly, we are going to deliver our very first product of the Firefly next year. The product is actually named Firefly. We actually follow the mini strategy where the brand and the first product will share the same name. We are going to share more details on the brand and the product on December 21 this year at our NIO Day. Our brand will be making an official debut and we will also unveil the first product. And overall speaking, we are very confident with this product and the brand lineup. With that for the entire company, our sales volume next year will be doubling on top of this year's results.

Thank you. I got a second question about your service margin because you actually have improving in the service margin in the third quarter to only negative 8.8. Can you explain what's the driver for the margin increase in the third quarter in the service and what's your guidance for the number four quarter this year in 2025 for the service. Is it going to be double single digit of negative gross margin in next year? So what's your guidance? Thank you.

[Foreign Language] Thank you for the question regarding the vehicle margin improvement in the third quarter it is mainly because of two drivers. The first is the improvements and optimization on the cost of the parts and components including batteries and other parts. In the third quarter, such improvement is more significant than the previous quarters. And the second driver is as we are ramping up our sales volume, our production capacity and volume is also leveling up. In that case, we can also leverage the efficiency improvement and the better amortization on the manufacturing side. With that, we have improved our vehicle margin from 12.2% in Q2 to 13.1% in Q3. And going into the fourth quarter for the new brand, as was mentioned, our focus will be enhancing the premium positioning of this brand. In that case, we will keep improving the product profitability by dialing back on the marketing expenses and the promotions and also keep improving our supply chain cost structure. With that, we are confident that we can gradually realize a vehicle margin of 15% in the Q4 this year for the new brand. Going into next year we will also look for several key drivers to continuously improve our vehicle margin, including the improvements on the supply chain and the supply side. Next year there will be several major iterations and upgrades on the smart hardware which can further improve our cost structure. And also, as mentioned by William, next year there will be iterations and face leaps on the new brand and the new products. By introducing more competitive products with more competitive cost structure into our portfolio, we can also improve the overall profitability of the brand. With that, we are also confident to realize a 20% vehicle margin for the new brand in 2025.

Your next question comes from Yuqian Ding with HSBC. Please go ahead.

Thanks. Tim Yuqian here. I got two questions. The first is on the autonomous driving. What's the management would say the key milestone for NIO in the coming 6 months to 12 months on this account? What's the key challenges at the moment? What is the biggest highlight of NIO's capability? Maybe give us a bit of a breakdown in terms of the user adoption, end to end modeling, development, processing power and its cost. Thank you.

[Foreign Language] Thank you for the question. In late July at the NIO in 2024 we have introduced the NIO WorldModel and also the end to end solution based on the NIO WorldModel, NWM. And we have already started to release some functionalities based on the new architecture and the WorldModel and also have invited users for some internal testing and experience of this new architecture. Actually before that we have already released end to end active safety features and in some third party testing and assessments on active safety performance of the electric vehicles, our performance is actually pretty good, better than many of our peers. And for the ONVO brand, it is also the first brand to deliver a vision based navigation guided smart driving for the urban roads. Recently we have also just launched a new release and our users also really appreciated and liked that feature. So overall, speaking with our computing power and sensing capabilities on the vehicles, with our data closed loop and also our end to end word model, we will be leveraging these capabilities. And in the following months there will also be several releases and gradually you will see the effect coming from all this R&D investment. And for the entire industry there are actually different roadmaps and solutions and we have chosen this roadmap and we are confident in the success and the result of that roadmap. [Foreign Language] And regarding our smart driving we always have this principle, that is it should serve the benefits and the interests of our users. In that case we have two principles. The first is that the smart driving should relieve the driving pressure of our users and secondly you should reduce the accidents traffic accidents. And for next year our target is that with the smart driving assisting the driving tasks of the human drivers, the safety level should be 10 times higher than fully driving by the human drivers. And this is actually an achievable target. And safety is always a top priority of our features. On top of that, by securing a good safety of the future, we will then look at the usability and also the experience of the feature, such as further releasing the pressure and stress of driving. We have the same approach for our other features like our end to end model we started with active safety, and we see significant benefits on improving the safety of our users with that feature.

Thank you, William. The second question is on breakeven and capital requirements. It looks like next year is very exciting, fully loaded with a strong product cycle also coupled with CapEx and OpEx intensity. So do we have a refreshed breakeven timetable? And how do we look at the capital requirement in the coming 12 months to 18 months?

[Foreign Language] Thank you for the question. Regarding the requirements for the capitals. In the third quarter of this year, we have a realized free cash flow. And in Q4, according to the current volume guidance, we expect to continue the positive free cash flow. And for the year of 2025, as we target to double our delivery volume and also by controlling our funding and the pace quarter-over-quarter we expect that we will continue a positive growth on our operating cash flow and such growth will sustain our OpEx and CapEx on the activities. So regarding the capital requirement, we're in general fundraising requirement. We don't have a must have agenda. Instead we will adjust our fundraising plan and agenda according to the market more dynamically. [Foreign Language] And regarding your question on the profitability, I would like to answer to that from three perspective. The first is that as still a young automotive company, sales volume is still a very important factor for us to consider. And just now, we have introduced the product 1 of all 3 brands for the next year. With new brands and new products coming into the market, we will be able to realize higher volume, and we are also confident with our sales volume in the coming years. And the second is regarding the vehicle margin. We also will continue to improve our vehicle margin from Q4 this year, together with our sales volumes. And the third is continuous cost saving and efficiency improvement initiatives. Inside of the company, we actually started a project called cost mining to just identify the waste and also improve the cost structure and reduce or save costs on all aspects. And we also see pretty good effect with this initiative. With that, we expect that with improved volume with improved operations, our loss will also be gradually narrowed.

[Foreign Language] This is William speaking. Stanley has just introduced our approach to narrow the loss. Regarding our overall expenses, our R&D expenses will be continued to stay at this relatively high level. And for the SG&A expenses because of our PowerApps Countif plans, we will roll out the charging and swapping networks and also we will need to boot up the sales and service network for the ONVO brand, so the SG&A expenses will also be under short term pressure. But still we will make sure that we are on the right track to gradually narrow our losses. And regarding the profitability, the entire companies do use 2026 as the timing where we will achieve the full year breakeven. And we will be also planning our strategies and activities according to that target.

Your next question comes from Xue Deng with CICC. Please go ahead.

Hi, thank you for taking my questions. So my first question is a following up question for the overseas market. So we actually our brand and automotive in Europe market quite early as pioneer, but now we also see some peer brands companies, they accelerate their exposure in the European market. So can you share our current like European market strategies whether we can differentiate our brands and also to further expand our volume? Also, especially combined with the launch of Firefly new models next year where there be a more aggressive overseas expansion targets next year

[Foreign Language] Thank you for the question. It's true that NIO has been in the European market for a while and its overall operations and performance didn't really live up to our original expectation yet. For the NIO brand, our expectation for the European market is actually a pretty long-term vision. And also starting this year and next year, another difference is regarding our second and third brand, ONVO and the Firefly. These two brands have a broader market globally. With that we will also be able to continue our international expansion leveraging this two brand. And this two brand will be playing a bigger role in our next step. Especially for NIO, it is a premium brand. Now with the tariff in Europe, its selling price is basically on par with the price of a Porsche. In that case, its market is becoming more and more limited. But we will still keep a long term price presence of the new brand in the European market. But in the meantime we will prioritize the global expansion with the ONVO and the Firefly brand. That will be our strategy. So starting next year you will see that ONVO and the Firefly products are becoming available in one more countries and regions. [Foreign Language] And another difference is that here in the Chinese market we started with the new brand for the premium segment and then we established the power swapping and the charging network and ONVO brand is now sharing all these established resources and network. But when it comes to the global market, actually according to the product definition and brand positioning, ONVO actually has a larger market and also it can ramp up to a higher volume much faster than the new brand. In that case, the power swap stations and the charging facilities deployed for the ONVO brand will then be leveraged by the NIO brand. So in the global markets actually NIO, the NIO brand will rely more on the ONVO brand. And with that we will be establishing the charging and swapping facilities centering on the ONVO brand and Firefly brand for the global market.

Okay, thank you. My second question is regarding to the other sales growth loss. So we can see the gross loss of other sales also narrowed significantly for the previous quarters. So which I think may be related to the increase in our sales volume and also the increase in our like charging and swapping charges and also services. So how do we look forward to the trend of the gross profit margin of other sales and whether we have an expectation when it can turn positive?

[Foreign Language] Thank you for the question. Regarding other business, in the second and third quarter we have narrowed the losses on other business and also improved the gross margin. This is mainly because on the one hand we have been improving the efficiency of our after self services and on the other hand because of the R&D pace of the fourth generation power swap station, we had slowed down the network deployment and infrastructure construction of the power swap stations. With that our net loss has narrowed in the third quarter. But in the coming quarters we will -- on the one hand we will still continue to improve the efficiency and also the profitability of our outer self-services. However, on the other hand for the entire company, especially for the ONVO brand, we will need to speed up our infrastructure construction so that we will have our power swap stations and other facilities built in advance earlier than the actual need. And in the meantime, with our Powerapp Contif plan for the coming quarters, we will speed up the installation and construction of this swap station. With that there will be higher loss on other business. But overall speaking, we hope that the profitability or the improvement on the upper cell services can offset the loss we have on the advanced deployment of this power swap facilities. That will be our overall strategy.

Your next question comes from Paul Gong with UBS. Please go ahead.

Hi William, thanks for taking my question. Two questions here. The first question is regarding the demand visibility for the ONVO L60. You seem to be pretty confident with 20,000 units of the volume of the L60 delivery in March. That would put L60 on par to Xiaomi [ph] 27 and the auto L6 for now. But when you consider right now it is peak season with the help of the stimulus and moving to Q1 is going to be flag season with perhaps less policy support. How do you have such visibility? Will you carry over, let's say significant amount of the backlog you take from right now into the Q1 delivery? Or how do you have such kind of strong visibility for the 20,000 delivery in March?

[Foreign Language] Thank you for the question. We are confident in the demand for the L60. As in the recently several months, the wait time for the L60, the wait time for the delivery of the L60 is relatively long. And also as starting next year, some of the subsidies on the vehicles will be gone. In that case, our short term demand is affected because of this disturbance. But if you look at the actual conversion rate from test drive to order, you will see a pretty high rate. Please forgive me that I cannot disclose the specific number yet. This conversion rate is higher than any existing new product. So overall, speaking with a competitor product with a competitive price, we are confident with this product even against the competition in the market. And for the moment our main focus is to enhance the coverage of its sales and service network. At the moment it has around 190 ONVO stores and for the next step we will enlarge the coverage as in comparison to Tesla and then we also -- such coverage is not expensive enough. So we will open more stores. We will enhance and enlarge our sales force. Gradually you will see the positive effects of this action. And starting January next year as the subsidies will be basically be canceled or removed for all the products in a similar segment. In that case, we will be on the same level for the competition but with a stronger product competitiveness and also established sales capacity and the capability, we are confident with L60's overall performance. Thank you.

Thank you. My second question is regarding the next generation platform NT3. I think the NT2 versus NT1 has a significant improvement of the autonomous driving calculation power including the 4O rings and also has improved some of the powertrain efficiency. Right now when you are thinking about designing the NT3, how do you think of the platform in terms of let's say the computing power for the [Indiscernible], the battery size, the power of the motor and the system integration architecture, etcetera. So can you give us a little bit color of the technology direction of the NT3 platform piece?

[Foreign Language] For the new plant, the ET9 will be the first model coming off from our latest generation technology platform. It is equipped with many new things including high voltage architecture, e-architecture, operating system, smart driving capabilities enabled by our in house developed the chip for the smart driving and also advanced and high performance sensors. So if you look at its configuration and performance, it is quite different from any of our existing products. It is basically at a different level and gradually these technologies will be trickling down to our future products on the third generation platform. We will use these technologies to iterate and upgrade our existing products. And for ET9, it is the embodiment of our R&D investment and the results achieved in the past 10 years. Thank you Paul.

Your next question comes from Tina Hou with Goldman Sachs. Please go ahead.

Thanks management for taking my questions. The first one is regarding operating expenses. In terms of R&D, I also see that usually in the fourth quarter there is around about close to RMB1 billion of higher R&D expense versus third quarter. Should we expect a similar type of seasonality into 4Q, 2024 and also for 2025 as we continue to develop new products and then continue to invest in autonomous driving and other technologies, what level of R&D spending are we looking at? And also for sales and marketing in 2025 seeing that this year we launched one model, the ONVO L60, but next year we're going to launch four new models. So it doesn't seem like the sales, the SG&A expense is going to slow down in terms of the growth. Is my understanding correct? Thanks.

[Foreign Language] Regarding the R&D expenses in general, we will be having our investment in R&D for around RMB3 billion per quarter and we will be stabilizing at around that level. But because of the differences of the projects and also at the different stages of the R&D, the actual spending, there will be ups and downs in the actual spending for every quarter. For example, in the fourth quarter of this year the R&D expenses will be higher or is expected to be higher than the third quarter. That is also mainly because of the products are at the different stage of R&D and the cycle and the expenses will also be different accordingly. For the year of 2025, we will also keep our R&D expenses at around the same level, that is around RMB3 billion per quarter on the non-GAAP basis. We will also keep the R&D team in the rough similar size, around 11,000 people and then as we progress with our R&D projects and product development, there will also be slight ups and downs in the R&D expenses on a quarterly basis, but in general it will be around RMB3 billion. Regarding the SG&A expenses as also I've mentioned, in line with the increase of our sales volume, we will also have SG&A expenses going up, but we will also manage this quarter-over-quarter so that we can make sure that we optimize the ratio of the SG&A in comparison to the overall sales revenue.

Thanks Stanley. So my second question is regarding the share of losses of equity investee. So we've seen over the past three quarters that we have seen a negative number and that number has been expanding. So is this related to the battery as a service operation? And then how should we think about this loss from the equity investee going forward? Thanks.

[Foreign Language] Thank you for the question. In the third quarter the share of the losses of the equity had an increase. That is mainly because for the entire company we have made some investments into the upstream and the downstream company centering on this industry. And in in the third quarter the loss went up mainly because of the losses of our investee, which is also acceptable and understandable as they are also in a highly competitive industry. In terms of Weineng [ph], which is our battery asset management company, its actual business means that it will not worsen our losses on the shares because if you look at its actual business since Q1 this year, after we have adjusted the prices for the battery as a service monthly subscription fee, we actually have witnessed a higher take rate on the bus service, especially in the second half with both new and onward products into the market, the business actually experienced growth with the battery asset management. In that case, it has a pretty promising profitability going forward.

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

Thank you again for joining us today. If you have any further questions, please feel free to contact us through the contact information provided on our IR website. This concludes the conference call. You may now disconnect your line. Thank you.