Hello ladies and gentlemen, thank you for standing by for NIO Incorporated’s Fourth Quarter and Full-Year 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 fourth quarter and full-year 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 Chief Executive Officer, Mr. Stanley Qu, Chief Financial Officer. 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 Q4 and full-year earnings call. In Q4, the company delivered a total of 72,689 Smart EVs, setting a new quarterly record. In December, amongst the deliveries, surpassed 30,000 for the first time. For 2024, the company's total delivery reached 221,970, marking a 38.7% increase year-over-year. The new brand continued to lead the premium segment delivering 201,209 vehicles, securing a 40% market share in China's BEV segment priced above RMB300,000. The ONVO brand delivered 20,761 vehicles in the mainstream family market. The market share of the ONVO L60 has been steadily increasing since its launch, ranking among the top three in China's BEV SUV market price between RMB200,000 and RMB300,000. In January and February, due to seasonality and the Chinese New Year holiday, the company delivered 27,055 vehicles. We expect total deliveries in Q1 to reach 41,000 to 43,000 units, reflecting a year-over-year growth of 36% to 43%. On the financial side, our efforts in supply chain optimization and cost control have delivered strong results. NIO’s vehicle margin improved to 14.9% in Q4, while ONVO achieved a positive vehicle margin in the early stage of production run-up. As a result, the company's overall vehicle margin reached 13.1% in Q4. At the same time, the profitability of our after-sales services continued to improve, along with growth in technology service revenue, leading to a positive gross margin in other sales in Q4. Now, I'd like to share some updates on our products and operations. Starting this year, our three smart EV brands have entered a new product cycle. For the premium brand, NIO, at NIO Day on December 21, we launched NIO 89, a flagship smart executive sedan. As the result of NIO's 10-year tech innovation, 89 set a new benchmark for premium smart executive…

Thank you, William. Let's now review our key financial results for the fourth quarter of 2024. Our total revenues reached RMB19.7 billion, increased 15.2% year-over-year and 5.5% quarter-over-quarter. Vehicle sales were RMB17.5 billion, up 13.2% year-over-year and 4.7% quarter-over-quarter, primarily driven by higher deliveries, partially offset by a lower average selling price due to changes in product mix. Our other business segments also delivered solid performance. Other sales were RMB2.2 billion, grew by 33.8% year-over-year and 12.7% quarter over-quarter. The annual growth was from increased sales of parts, accessories, after sales vehicle services, and provision of power solutions, along with a rise in sales of technical R&D services. The increase quarter-over-quarter was driven by higher sales in technical R&D services, used cars and our parts, accessories, and after sales vehicle services. Looking at margins, vehicle margin was 13.1% in this quarter, compared with 11.9% in the Q4 last year and unchanged from last quarter. The year-over-year increase was mainly due to lower material cost per unit. As the margin turned positively this quarter, mainly due to the increase in the provision of technical R&D services, as well as the sales of parts, accessories, and after-sales vehicle services with relatively higher margins. Overall, gross margin was 11.7%, up from 7.5% in Q4 last year, at 10.7% last quarter. Turning to OpEx, R&D expenses were RMB3.6 billion, decreased 8.5% year-over-year, and increased 9.6% quarter-over-quarter. The year-over-year decrease was mainly driven by reduced personnel costs and design and development costs, while the quarter-over-quarter rise reflects additional investments in design and development partially offset by the decreased personnel costs. SG&A expenses were RMB4.9 billion, up 22.8% year-over-year and 18.7% quarter-over-quarter. The year-over-year increase was mainly driven by increased sales and marketing for new brands and products and higher personnel costs from sales and service network expansion. The quarter-over-quarter increase was mainly due to the same enhanced sales and marketing efforts, and higher professional services costs for general corporate functions. Loss from operations was RMB6 billion, down 8.9% year-over-year and up 15.2% quarter-over-quarter. Interest and investment loss was RMB0.2 billion, compared with investment income of RMB1.4 billion in 2023 Q4 and RMB0.3 billion in 2024 Q3, primarily due to the fair value change of equity investment. Other loss net in Q4 was RMB0.5 billion, primarily due to the loss from the revaluation of overseas RMB-related assets caused by the depreciation of RMB against the U.S. dollars this quarter. Net loss was RMB7.1 billion, showing an increase of 32.5% year-over-year and 40.6% quarter-over-quarter. Lastly, we ended the quarter with total cash and cash equivalents, restricted cash, short-term investment, and long-term time deposits amounting to RMB41.9 billion. That wraps up our prepared remarks. For more information and details of our unaudited fourth quarter and full-year 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 is from Tim Hsiao from Morgan Stanley. Please go ahead.

Hi, this is Tim from Morgan Stanley. Thanks for taking my question. I have two questions, the first question is about cost reduction effort, because a lot of market focus has put on new latest round of restructuring. So I just want to know that how much of cost saving would management expect to achieve and when are we going to see the contribution emerging in upcoming quarters? That's my first question. Thank you.

[Foreign Language] [Interpreted] Thank you for the question. Regarding the cost reductions, actually since last year we have already started the cost mining initiatives and for the 2024 full-year we were also on track for the cost reduction initiatives. As you can see in our vehicle margin for Q4 it has fulfilled our expectation. And we will continue such cost reduction actions this year from multiple aspects, including supply chain, R&D. In that case, we foresee that our vehicle margin will also continue to grow starting Q2. And in terms of expenses, actually in Q4 last year, as we have launched the new brand ONVO together with its product, we have started to make investments and expenses in developing its sales and service networks, as well as in brand related activities. And such activities and expenses will continue in Q1 this year in building up the new brand and also the sales and service networks. But in the meantime, starting Q1 this year, we have started an all-employee comprehensive cost reduction initiative covering R&D, supply chain, sales, and also service teams. We call it CBU or sales business unit. Basically, we ask all the teams and employees to take the ownership and accountabilities of the company's operational targets. We already have seen some good results and actions taken voluntarily by the R&D teams, by the sales and service teams in reducing the cost and improving the efficiency. And the results of such actions will be reflected in our balance sheet in the coming quarters starting Q2. As we continue to strengthen our cost control and also expenses management in the second-half of this year, together with improvements in the sales volume, in the vehicle margin, as well as in the expense control, we are confident that we are going to achieve our breakeven target in Q4. Katie, please.

Thank you. My second question is about ONVO. Just want to know that what actions could ONVO take to regain the growth momentum? Will NIO stick to the multi-brand strategy or could potentially change on vote to a [suffering] (ph) on the NIO to save cost and enhance efficiency? So that's my second question. Thank you.

Thank you for the question. Regarding ONVO, its sales performance starting this year didn't meet our expectation and we have also reviewed the comprehensive reasons and causes for its performance. The first reason is because of the brand awareness and exposure. As ONVO is still a new brand, in terms of its brand awareness and awareness, it is actually far below its competitors. We have also done some study and research on the influence of the brand awareness of ONVO and in terms of the brand awareness, it is only one-third of that of NIO. In that case, as we consumed all the existing order backlogs, we are facing larger pressures regarding the fresh orders. Starting this year, especially during and after the Spring Festival holidays, we have also taken a series of actions to help strengthen and improve the brand awareness and exposure. We have rolled out some offline advertisements in the train stations and also in the elevators of the apartment buildings. We have also double-down on the social media campaigns to help improve the exposures and we are seeing some good effects in helping ONVO being more famous and well known. And the second reason is regarding the coverage of the points of sales. We have been ramping up the sales store coverage of the ONVO brand. Last year when we just launched the brand we have around 105 stores in China and by the end of last year we have opened up another 100 stores and so far we have more than 400 stores in China. Yet most of the stores are still quite new in terms of their efficiencies and productivity they are not yet to a mature level. So it will take some time for this new stores to start yield real results. We…

Thank you, team.

Thank you. The next question is from Bin Wang from Deutsche Bank. Please go ahead.

[Foreign Language] My first question is about your [Technical Difficulty] gross margin including vehicle gross margin and overall gross margin. Meanwhile, you mentioned that you will -- actually even in the number four quarter this year. So what's your assumption in terms of gross margin and volume? [Foreign Language] And my second last question is that, previously, you guided your 2025 volume will be double year-over-year after the first quarter. Can you provide an update on the volume guidance? Thank you.

[Foreign Language] [Interpreted] Thank you for the question. Regarding your questions on the vehicle margin, normally, Q1 is the off season in the south of the vehicle products. And also in Q1, we are in between generations for our 5 and 6 series as they will soon be upgraded to the model year 2025 to clean up the inventories for the existing generation. We are also under pressure regarding the vehicle margin for the NIO brand. And in terms of the ONVO brand, as William has mentioned, the sales performance of the ONVO product didn't meet our expectations in this year considering the amortizations and other factors. We are also under pressure and a challenging situation managing the ONVO product and its vehicle margin. So overall speaking, the company's vehicle margin in Q1 will not be as good as you would have expected based on our margin performance in Q4 last year. But still, our full-year target is to achieve breakeven in Q4. In that case, we have also mapped out a road map of our product margin. For the NIO brand, we would like to achieve a margin -- a vehicle margin of 20%. And for the ONVO brand, it will be 15%. Regarding the actual actions that we have taken to control the cost and also improve the vehicle margin, there are several actions. The first is to implement a more systematic cost reduction initiative by making our products more platform-based and improving the commonalities across different products and also across brands. There are several examples. For example, we have implemented an overall platform strategy for the seats. Now the product from the NIO brand and ONVO brand share the same seat structure. With that, we are able to reduce the total [BOM] (ph) cost for the seat…

Thank you. The next question is from Paul Gong from UBS. Please go ahead.

[Foreign Language] Thanks for taking my question. The AI and the robotics has been a very hot topic in this earnings season. In one of your peers' earnings call, the AI has been mentioned by 49 times during the whole call. But I guess it hasn't been mentioned here. Can you please remind us your latest thoughts on the AI autonomous driving, robotics, et cetera?

[Foreign Language] [Interpreted] Thank you for the question. Regarding the application of AI technologies, NIO is the first car company to introduce an AI companion in the car. It's NOMI, and it's loved and well received by many users. For NOMI, it has its own large language model capabilities, NOMI GPT, but on top of that, it is also supporting third-party large language models. With that, the satisfaction and also the interaction rate of NOMI is growing. NOMI is also a quite profit-making IP with a lot of popular merchandise and also high take rate. And in addition to the AI application on NOMI, we also have AI applied to our smart driving technologies and experience as last year, we have introduced the NIO WorldModel, NWM, and the latest AD version with smart driving release will be based on the NIO WorldModel. And actually, I have participated in some internal beta version tryout, and I can say that I really look forward to that version. It has quite good performance in terms of the active safety and the experience in general. And of course, AI is a very important basic capabilities. In terms of AGI, in terms of robots, in terms of the fundamental capabilities for AI. But for the foreseeable future, for us, we will mainly focus on our core business, that is the automotive product. And in that case, AI will be more of an enabler to achieve better product experience as well as better business and management as AI itself is one of our full stack capabilities and it is ever present in every aspect of our business. And as many people are talking about how the automotive product is becoming an AI agent, and I believe that the company itself is also turning into an AI agent. But still for the short term, our primary focus is still our core business as well as our operating targets. But a side note here is that NIO Capital has invested in a lot of AI companies, especially industry-leading AI companies. And in that case, we're in close contact with the cutting-edge technologies and also the outstanding founding teams in the AI arena. And in-house, we also have capable AI talent working on the relevant view. Thank you, Paul.

Yes. Sorry, my second question. My second question is regarding the ramp up models. I think the company has eight models at the same time right now. And after this year's new model launch, it would move into some mid-teens. Given the cannibalization between each other and also one of the peers has demonstrated with even only one single model, the volume could still be achieved. Shall we consider to concentrate more into some blockbuster models and eliminate some of the less popular models to be more focused? What do you think is the most optimal number of models for each of the brands?

[Foreign Language] [Interpreted] Thank you for the question. As we now have three brands, NIO, ONVO and Firefly, our overall product strategy and portfolio for these three brands will also be quite different as it is also dependent on their respective segment and also brand positioning. For the NIO brand, we will basically keep the existing lineup, spanning from RMB300,000 all the way to RMB800,000. And it will covering for me, for family and for business segments. With ET9 being delivered, we are completing this brand, this price coverage from RMB300,000 all the way to RMB800,000 price segments in the premium market. And for the premium market users, they actually care more on the personalization and also the unique identity of the vehicle products. If you look at other premium brands like BMW and Mercedes, they actually offer 40, 50 products in their lineup. So this, for this segment, users care more about the differentiation and also the personality of their products. As for the ONVO brand, we will be more careful with the number of products in the lineup. This year, we are going to introduce two new products under the ONVO brand. Together with L60, there will be three products in the lineup by end of this year and we will not drastically increase or expand the existing portfolio, but to control that within a reasonable range. As for the Firefly brand, it is a high-end small car brand. In that case, it's not necessary to really offer too many different products. So our overall strategy is to have a differentiated product portfolio and lineup for different brands, but overall maintaining a rather stable and reasonable product lineup across three brands. But for each model, there will be also emphasize the highlights and also targeted user group.

Thank you.

Thank you. The next question is from Yuqian Ding from HSBC. Please go ahead.

[Foreign Language] The first question is about cash position, supply chain perspective against that and also potential financing. So if we see our net cash position at above RMB25 billion. But given the volatility between quarters, the supply chain coming from more conservative perspective and how sustained would that require additional financing? No matter if it's debt or equity. Can we have a little bit more clarification on that? [Foreign Language] Second question is about the CapEx guidance. Can we see a little bit breakdown into a refreshed CapEx guidance this year? We talked about a commitment into swap network. But since we signed the collaboration with CATL, can we leverage the partnership to do some CapEx building? Can we expect the CapEx to taper off this year? Thank you.

[Foreign Language] [Interpreted] Thank you for the question. Regarding your first question on the cash reserves. By the end of 2024, our cash position was RMB49.1 billion. And in Q1, as we see the decrease in the sales volume quarter-over-quarter, we did experienced an operating cash outflow. Yet, as we have introduced that this year will be a pivotal year for our product launch. As we witness the rebound start in Q2, we will also see major improvement in the operating cash flow. And also, as we have previously introduced, starting Q1 this year, we have conducted a series of adjustments and also streamlining activities. This will also reflect in our performance, financial performance starting Q2. Overall speaking, we will be prudent with our cash flow management to make sure that our resources can sustain our continuous growth and development. And regarding your second question on the fund raising, we have various options -- we have various fund raising channels where the capital market -- for the U.S. capital markets, RMB capital markets, public or private, we will be planning our fundraising requirements and activities according to the operations of the company, as well as the changes in the market. And regarding the question on the CapEx. As we have mentioned that this year, we will launch major products. In that case, we have made the CapEx spending in the tooling’s and also the production equipment together with our supply chain partners. And in the meantime, as we are launching new products, our third factory is also going to be put in operations depending on the overall production plan. So our CapEx this year will be higher than in last year, but still, we will have a very prudent measure and a manner in managing our investment pacing and also our cash position to make sure that we have a very good control over the spending. In terms of the CapEx for the power swap stations. Starting last year in terms of the power swap network expansion, we have already started to adopt one principle, that is to leverage the resources of our power swap partners as much as possible. As last year, we have announced the Power Up Partner Plan where we invite the partners to jointly build the swap stations and the network. For the Power Up County Plan this year, most of the stations will actually be sponsored or built by our partners and by ourselves. In that case, the CapEx utilization for the power swap stations will also be relatively limited.

Thank you, Rui Chen.

Thank you. The next question is from Ming-Hsun Lee from Bank of America. Please go ahead.

[Foreign Language] So first question is regarding your autonomous driving technology plan. When do you plan to roll out your end-to-end model? And in the future, do you consider to use the [Indiscernible] chips in your car or you will use your Shenji chips in all of your NIO branded model? Thank you. That's my first question.

[Foreign Language] [Interpreted] Thank you for the question. Actually, last year, we have already implemented the end-to-end solution to our active safety features. As different companies may have a different priority, we're, of course, ranking on the technology applications. And for us, we believe that safety matters the most. That's why we have implemented the end-to-end model firstly in our active safety features and we did see major improvement regarding the safety level week-over-week by 40%. So it is playing a very important role in providing a safer trip for our users. And in terms of the end-to-end solution-based, Navigate On Pilot Plus for the city roads, we have also started small-scale testing and internal testing, and we plan to release that to our users by the end of April after a series of preparations and also approval applications. And regarding the use of the chip for smart driving. ET9 is going to premiere our in-house developed chip for the smart driving. It is made with advanced manufacturing process, NX9031. And after ET9, our 2025 model year, the 5 and 6 Series will also be launched and equipped with the in-house developed chip for the smart driving. So all the future new models will be equipped with this in-house chip. As for the ONVO brand, currently, it is using the Orin-X chip for the smart driving functionalities and it does not have a plan to use [Indiscernible].

Thank you. My next question is regarding the OpEx because in the past few quarters, we continue to see your gross margin continue to improve Q-on-Q. But for the operating expenses, do you have the latest guidance and a new plan? For example, in the past, William mentioned that the stabilized R&D will be RMB13 billion every year? And could you give any new update for this number? And also for the sales and marketing expense? Do you have any target ratio, yes, OpEx ratio for this number? Thank you.

[Foreign Language] [Interpreted] Thank you for the question regarding OpEx. In terms of the R&D funding and expenses, for this year, we will continue to have the same intensity level for the R&D expenses, around RMB3 billion every quarter on the non-GAAP basis. Of course, as mentioned by William, this year, we have rolled out the CBU mechanism where we emphasize more on the projects with high return and also high yield. In that case, we will also optimize our project initiation and approval process to make sure that our R&D expenses are reasonable and also efficient. And regarding the SG&A expenses, we did have bigger challenges to manage in the first quarter of this year as Q1 is normally the off-peak season for the sales, the overall volume in Q1 is not so high. In that case, the SG&A expenses account for a bigger part in -- to the sales revenue. And also in the coming -- in this quarter, we are still building up and expanding the sales and service network, as well as growing the sales force capabilities for the ONVO brand. In that case, ONVO's SG&A expenses is also higher. But as we have introduced, we are going to take a series of actions to improve the efficiency and the productivity of the teams and also to streamline the non-frontline sales functions to consolidate some of the sales functions between the NIO and the ONVO brand and also to leverage NIO's network for the sales of Firefly. With all these actions taken, we expect the better results to be reflected in our financial performance in the coming quarters. As we grow our sales volume and also gradually achieve the breakeven target in Q4, you will also see SG&A accounting for smaller portions to the sales revenue. And with that, you will see also the effect reflected by the improvement in both volume and also in the efficiency of people and expenses.

[Foreign Language] Thank you. That’s all my question.

Thank you. The next question is from Xing Chang from CICC. Please go ahead.

[Foreign Language] So my question is regarding to the other sales -- other revenues. And we can see that in the fourth quarter, the gross profit margin of other sales is already positive and reached 1.1%. So could you please break down the reasons for this?

[Foreign Language] [Interpreted] Thank you for the question. Regarding the gross margin of other sales, it mainly consists of three things: the revenues from the aftersales services, revenues from the power services and also revenues from the technical services we provide to the supply chain partners and also to affiliated parties. And in Q4, we have the positive margin on other sales. It's mainly because we have been continuously improving the efficiency of the aftersales services. Of course, in terms of the power swap or the power service in general, as we are still making advanced deployment of the facilities and infrastructure network, the loss is actually not significantly narrowed from the power perspective. And for the other sales to be with positive gross margin in Q4 last year, it's mainly because of the revenues from our technology services provided to the partners and also the affiliated parties. It's around RMB220 million in Q4 last year, yet such revenues are more project-based and also it's relevant to the cadence and the progress of the services we provide to them. In that case, there will be -- in the future, there will be also similar revenues, but it will not be a recurring regular revenues from that perspective. In 2025, as we continue to increase our vehicle population, we also foresee continuous increase in the efficiency of our aftersales services. As for the power networks, as we are still making advanced deployment of the power swap stations, we will still encounter slight loss-making with the combined margin of the aftersales services and the power services if we exclude the technical services. In terms of the technical services, if we can make major deals or if we can make major progress, probably there will be some good news to this call.

Thank you.

Thank you. The next question is from Tina Hou from Goldman Sachs. Please go ahead.

Thanks management for taking my question. So I have a quick one. Just regarding our longer-term outlook, say by 2030, do we still maintain our previous, I think, volume and the margin outlook? And could you please remind us of your revenue scale -- sorry, your sales volume scale target as well as your maybe overall gross margin as well as operating margin? Thank you.

[Foreign Language] [Interpreted] As right now, the company is still striving to be breaking even in Q4 this year. If we set for a longer-term outlook for the future, we believe that for the smart EV companies or for the automotive industry in general to maintain a relative competitive edge among the competitions, an annual volume of 2 million units with 20% gross margin, 7% to 8% net margin, that will be a baseline for the -- for a smart EV company to survive for the longer term. Thank you, Tina.

Oh, thank you. Thank you, William.

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 so much for joining us today. If you have further questions, please feel free to contact NIO's IR team through the contact information on our website. This concludes the conference call. You may now disconnect the line. Thank you.