Good day, ladies and gentlemen. Thank you for standing by and welcome to the Niu Technologies Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instruction will follow at that time. As a reminder, we are recording today's call. If you have any objections, you may disconnect at this time. Now, I'll turn the call over to Mr. Jason Yang, Investor Relations Manager of Niu Technologies. Mr. Yang, please go ahead.

Thank you, operator. Hello, everyone. Welcome to today's conference call to discuss Niu Technologies' results for the third quarter 2021. The earnings press release, corporate presentation and financial strategies have been posted on Niu's Investor Relations website. This call is being webcast from the company's IR website, and a replay of the call will be available soon. Please note today's discussion will contain forward-looking statements made under the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks, uncertainties, assumptions and other factors. The company's actual results may be materially different from those expressed today. Further information regarding the risk factors is included in the company's public filings with the Securities and Exchange Commission. The company does not assume any obligation to update any forward-looking statements, except as required by law. Our earnings press release on this call include discussions of certain non-GAAP financial measures. The press release contains a definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results. On the call with me today are our CEO, Dr. Yan Li; and the CFO, Ms. Fion Zhou. Now, let me turn the call over to Yan.

Well, thanks, Jason, and thanks, everyone, for joining us on the call today. So in the third quarter, we have seen a strong growth again with our total sales volume reaching 397,000 units, a 57% year-over-year increase, making this our best quarter for sales in our history in terms of volume. The sales volume in China market reached 392,000 units, a significant increase of 60% year-over-year, where the volume in the international market reached nearly 5,000, down 11% compared to last year, primarily due to the shipping issues that you are all aware of that continued to delay orders that we have received and manufactured but cannot leave the factory, and therefore, cannot be booked as sales. In the first three quarters of the year, our sales volume totaled 800,000 units, an increase of 77% compared with the same period last year. Now the strong Q3 growth in the China market showcases the strength of our growth strategy, which includes the expansion of our product portfolio to cover a wide range of electric scooters and the rapid expansion of our retail channels and geographic footprint. As mentioned in the last earnings calls, starting this year, we have launched five new vehicles under the new brand and the five new vehicles under the global brand, which enabled us to have a wide range coverage of the consumer needs from mid- to high-end. The new product design also takes into account preferences of both male and female customers, allowing us to attract a wider range of customer group. In the electric motorcycle class, our entry model, Gova G3, has a starting price of RMB306 -- of RMB3,699, and our top of the range NQi GT has a price tag of RMB20,299. We have a total of eight series and 22 electric motorcycle…

Thank you, Yan, and hello, everyone. Our press release contains all the figures and the comparisons you need. And we have also uploaded Excel format figures to our IR website for your easy reference. As I review our financial performance, we are referring to the third quarter figures unless I say otherwise. And all the monetary figures are in RMB unless otherwise noted. Our quarter three sales volume reached 397,000 units, representing a 58% year-over-year growth. China sales volume increased by 60%, primarily driven by new product launches in the past two quarters and the continued retail network expansion, one new e-bicycle model, G0, and one upgraded e-motorcycle model, G3, were available on the market in quarter 3. These two models contributed around 16% of our total sales volume in the third quarter. We opened 750 new stores in China during the first half of this year. The newly opened stores not only contributed to our sales volume growth, but also played a critical role in promoting our brand and gaining our market share. We opened another 320 new stores in the third quarter, which will help us with further steady growth in the future quarters. International sales volume however decreased by 11% as a result of continued challenges from international shipping. With regards to product mix, N-Series accounted for 6% of total sales volume, M-Series accounted for 6%, U-Series accounted for 13%, and global production accounted for 75%. Out of the 75% from global products, 41% was from the low price model, G0, F0 and C0. Remaining 34% was from other global models with relatively higher retail price. The increased mix in Gova product was due largely to two reasons. First, the new Gova product launches in quarter two and early quarter 3: F0, C0, G3 and F4 have…

[Operator Instructions] Your first question comes from the line of Vincent Yu of Needham & Company. Please ask your question.

[Foreign Language] I have questions on these three topics. One is on our overseas business. How do we think about the shipping constraints will continue to impact our revenue in next quarter? And then how we think this backlog will be realized in the next few quarters? And a second question is on the supply chain. How do we think about these rising costs and the parts costs impacting our operations? And the third question is, I would like to management share some insights on the e-scooter replacement cycle, especially under current relatively soft macro condition.

Vincent, if you don't mind, I'll answer this question in English. I think first one, with the shipping backlog, I think Q3 has been a bit tough. Obviously, for international, Q3 used to be -- also if you look at it, it's actually historically has been a low season because whatever we shipped in Q3, it's actually going to be arriving in Europe and Americas in sort of Q4, it's actually the winter season, it's actually low sales. So we actually expect the Q4 shipping start to improve, especially October, November is still a bit tough, but we start seeing actually capacity start to empty out in second half -- starting like November and also in December. So we actually have a lot of orders in backlog and are supposed to be go on the ship in December, both from the motorcycle point of view, electric motorcycle and also the 20,000-plus electric scooters. So I think that's for the international sales into our shipping backlog. It wouldn't be necessarily a block issue in Q4. Because demand side, we still see a strong demand for both motorcycles and also for the kick scooters. Now on the supply chain issues, I think early this year, the supply chain issues was really a shortage of chipsets, especially the imported chipsets that -- we had -- that impact a little bit our business but not significantly. And then we were able to actually redesign our MCUs on the stuff actually use the replacement -- the domestic China chipset to replace some of the imported ones, and that actually helped to reduce the impact. Right now, it's actually -- the Q3 is nothing too much. I think really, we're looking at Q4 and maybe next year, there might be pressure in term of raw material…

Yes, very helpful. Thank you.

Your next question comes from the line of Jing Chang of CICC. Please ask your question.

Hi Jason. Hi Yan. Thank you for your communication. And congrats to Fion to -- on taking office. Then I have two questions. The first is about the average selling price of accessories. So we can see that the average selling price of accessories and services fluctuated great on different quarters. So are under -- or how much of the average selling price comes from overseas battery tax? And thus, how much obtained from the subscription service fee and also other accessories? And also how do we anticipate on the fourth quarter and also the future? And my second question is, we can see that the sales volume of N, M and U-Series decreased a lot in the third quarter compared to last year. So ASM of new products launched next year are mainly focusing on high-end models. So first, how to look at the competitiveness of our new high-end products? And also, if our peers products keep low prices in addition, obviously, of our sales growth momentum under such products next year?

Okay. Then I will answer the first question. Actually, in quarter three, the accessory and spare parts revenue was CNY90 million and services revenue was CNY50 million. And as we mentioned, the accessories and services revenue increased a lot in the China market. And this quarter, we do see international market, and that's why the accessories and services revenue declined in the international market. But with the recovery of the international sales in quarter four, as Yan mentioned, and those kind of other revenues will recover with the same line as the international sales. So we still rely on quite strong increase in the future quarters of this kind of revenue.

Okay. And I think for your second question, yes, I think for Q3, as I mentioned, that the NMU, basically, the new branded products which we group the NMU and the new branded products, actually, the volume actually did decrease, partially because really in Q3 and the second half of Q2 is actually the May and the June, we rolled out like five new Gova products. And that -- and with the marketing campaign, really tried to gain market share in the mid-end product replacement customers. So I think that actually -- and if you look at our -- because our business is not exactly direct to consumer. Our business goals is actually we sell to distributors and distributors sell to retail stores, then retail stores to consumers. So along those lines, there are capital being used by the distributors and capital being used by the retailers. To some extent, you can understand that as we have more new product in Gova, if there are distributors and retailers, they only have limited capitals, right? So some of your capital will be occupied by the Gova product. I think that's where it actually create a -- the capital drain is done by the distributors on the Gova product, less than on the NMU, that actually create a temporary decrease on the NMU. Second is actually we haven't done too much in term of -- in Q3, we haven't really rolled out the -- a new, what we call the new product for NMU, except the M2 S, which is a upgraded version for M2. So I think that also create a little bit drag on NMU product. But going forward, I think this -- in 2022, we have planned actually quite a number of new product under the NMU series. And that will actually help to increase not only the percentage and also increase the sales volume of the NMU products. So we're actually quite promising and quite hopeful about 2022 for the NMU series.

Perfect. Thank you.

[Operator Instructions] Your next question comes from the line of Bin Wang of Credit Suisse. Please ask your question.

Thank you. I've got two questions. Number one is about your service income. Is that linked to your low-end version of the Gova series, which means that Gova series naturally have less revenue income, that's why revenue growth has been lower compared to the scooter growth? Just want to know the different products relate to the [indiscernible], we see any difference. That's number one question. Number two is about, can you elaborate a little bit about your -- the market dynamic of your new category because we're not very familiar with the kick scooter on your upcoming hybrid products? You mentioned about cc [indiscernible] hybrid, it means you will have an engine in storage for electronic scooter, different names.

All right. So Bin, I think I'll address those two questions. One, with the service income, yes, some of the Gova product are not -- doesn't have the smart IoT devices. So to that extent, we're not going to see, what do you call it, connectivity income from those Gova products. And -- but it's not all Gova product doesn't have the connectivities. There are a portion of Gova products will have, what do you call, add-on boxes post the -- at the store. So those Gova product actually, we're still able to charge -- the users still pay a connectivity fee along the Gova products. So that maybe address some of the concerns here. Second, we didn't mention explicitly, but really starting this year, we'll start getting service revenues from our sharing scooters. So we're getting about $10 per month per scooter. Not entirely on the entire fleet, some operators haven't started -- haven't paid yet, but approximately on half the fleet. So I mean, as we have more sharing vehicles deployed globally, you're going to see that income -- that revenue stream come in nicely. I think that's two part of services. Now on the new categories, I assume you were asking about the hybrid products. Yes, the hybrid products are first attempt. We'll debut this product actually tomorrow at EICMA. So you're going to see the news on the design. It's actually a beautifully designed product. What we see is actually, there is one part of motorcycle categories that we are not able to attack. That's actually around the 150 cc to 250 cc motorcycles. That part of motorcycle still represents roughly about 30% of the market in Europe and the United States. But the reason being that it actually require a longer drive range. If you simply just do electric, it will be too expensive for users to buy unless you go with the sort of -- the industry product is 0, which is like €10,000 even more. So what we have is this is actually a completely internal design technology that actually combine a combustion engine with the electric motor and with -- even with the battery into it. So actually, it will allow user to have a limited drive range, well, limited by the gas tank. But at the same time, when you do a city commute, we'll use more the electric motors such that it will actually give you a more environmentally friendly in term of usage, in term of gasoline usage per kilometer. But this product will be probably available towards the second half of the 2022. So this -- in EICMA, we're going to show the concept design and some of the technologies. And the product is still in development and will be ready in the second half of 2022.

Thank you.

Your next question comes from the line of Wei Shen of UBS. Please ask your question.

Good evening, Jason, Yen and Wenjuan. Thank you for taking my questions. The first is about the margin. Investors are concerned about the price war in this year and which was most severe in the third quarter. We noticed from mid-November, YADEA and AIMA have raised price by 5%. So can I have your view on the price war and the impact on margin trend in 2022? This is my first question.

Maybe I'll mention first and then I'll have Fion talk a bit more on margin part. Yes. So to be honest, I think those two players have been involved in price war. And we are not engaged in the price war, but we did a bit marketing promotion, our Gova product in Q3, because a lot of price war happened in really low end. Even with our Gova entry product at CNY2,499, we're still like a mid-end product. We're not even at low end yet, right? So to some extent, we see our margins still much, much higher than YADEA's and AIMA's margin. And obviously, they start to raise price in September. We haven't done that yet. The reason we haven't done that yet because we did a little bit in April that helped to absorb some of the cost. And we'll also carefully observe the market to see when is the right time to increase the price. But as I mentioned earlier, with what we observed the trend of lithium battery prices, there is likely that we're going to increase price in early 2022. And we usually do that during the holiday season -- well, the Chinese New Year season will have a less impact in term of -- from the retail. Yes, I think that's my comment.

Yes. I think you already addressed all the factors.

Okay.

Okay. Also, because the margin, I know there are a lot of moving parts, including the price war and also the commodity price. So what's your general view on 2022 margin? Because I see there is some margin pressure in the third quarter. And what's your view on the fourth quarter and 2022?

So maybe I can give some insights and then Yan will add extra comments. And as Yan mentioned, actually, even though we consider about the retail price increase in early 2022, we're still facing the higher raw material cost problem. And luckily though, we have made the cost optimization, and those initiatives begin to show positive effect. And that's why we didn't see any -- the huge margin loss in this quarter. And those cost optimization initiatives will bring benefit in the future quarters. And with the strategy that we may increase the sale -- the retail price was around 3% to 5%, which will not bring the active feedback from the customers. I think we can still remain the good gross margin. And Yan?

Yes. I think that's about it. Really, on one hand, I don't see we're going to see a margin decline next year. But on the other hand, I think we'll see a stable margin with a slight increase.

Okay. And my next question about -- is about your new product. You just mentioned that you have prepared a lot of new products, including the kick scooter, the electric motorcycle in 2022. Can -- because we are not really familiar with these new market segments, can you give us more color, like the sales guidance in 2022 or 2023? Which product line will become a significant contribution in terms of revenue in the next two to three years? Because I think some of the products are mainly for brand building, it's not for volume sales. Correct me if I'm wrong.

No. Yes. I think let me put this way, right? So I think it's too early for us to give our guidances. But I think there's three categories. One, we're looking at the kick scooters. The kick scooter, the entire market does about, I think, from what I read, probably like a 6 million to 8 million units per year. It depends on whether you include some of the kids ones or not. And this year, so 6 million to 8 million, mostly in United States and Europe. So those two markets where we do have a strong brand in term of urban mobility. And I think this year, we -- initially, we have our K3. And now with the K3 Max and K2; and potentially next year, we're going to have a couple of more kick scooter products, that will give us a wide range of products that help us to cover the entire product range spend for the -- that 6 million units of entire -- the entire market, 6 million units. So we're actually quite optimistic with our growth in our kick scooter. Now the e-bike, e-bike is also about 6 million units a year. Roughly about 80% or -- actually, yes, about 80% in Europe and about to 15 -- 10% to 15% in the United States. So we have two e-bike products so far. We have our EUB-01 that we launched last year started to make some sales this year. And we have our BQi to be launched at EICMA tomorrow, but that product wouldn't be available for sales until Q1 or early Q2 of 2022. So -- but as we will actually start to actually generate more product along the e-bike categories. Both the kick scooter and e-bikes, we'll have two dedicated team for…

Very clear. Very clear, thank you.

As there are no questions, thank you. Seeing no more questions on the queue, let me turn the call back to Mr. Li for closing remarks.

Well, thank you, operator. And thank you all for participating in today's call and for your support. We appreciate your interest and look forward to reporting to you again next quarter on our progress. Thank you.

Thank you all again. This concludes the call. You may now disconnect.