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Nio Inc (NIO) Q1 2023 Earnings Call Transcript

NIO Earnings Call - Final Transcript

Nio Inc (NASDAQ: NIO) Q1 2023 earnings call dated Jun. 09, 2023

Corporate Participants:

Eve Tang — Investor Relations

William Bin Li — Founder, Chairman, and Chief Executive Officer

Steven Wei Feng — Chief Financial Officer

Stanley Qu — Senior Vice President, Finance

Analysts:

Tim Hsiao — Morgan Stanley — Analyst

Bin Wang — Credit Suisse — Analyst

Ming-Hsun Lee — Bank of America Securities — Analyst

Yuqian Ding — HSBC — Analyst

Nick Lai — J.P. Morgan — Analyst

Paul Gong — UBS — Analyst

Xue Deng — CICC — Analyst

Vijay Rakesh — Mizuho Securities — Analyst

Presentation:

Operator

Hello, ladies and gentlemen. Thank you for standing by, and welcome to the NIO Incorporated First Quarter 2023 Earnings Conference Call. [Operator Instructions]

I would now like to hand the conference over to your host, Ms. Eve Tang from Capital Market. Please go ahead.

Eve Tang — Investor Relations

Good morning and good evening, everyone, welcome to NIO’s first quarter 2023 earnings conference call. The Company’s financial and operating results were published in the press release earlier today 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, Senior VP of Finance; and Ms. Jade Wei, VP of Capital Markets.

Before we continue, please be kindly reminded that today’s discussion will contain forward-looking statements made under the safe harbor provisions of the US 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 US Securities and 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.

William Bin Li — Founder, Chairman, and Chief Executive Officer

[Foreign Speech]

Hello, everyone. Thank you for joining NIO’s 2023 first quarter earnings call.

[Foreign Speech]

In the first quarter of 2023, NIO delivered a total of 31,041 smart electric vehicles, up 20.5% year-over-year.

[Foreign Speech]

In April and May, NIO delivered 6,658 and 6,155 vehicles, respectively. We expect the total deliveries in the second quarter of this year to be between 23,000 and 25,000 units.

[Foreign Speech]

As we ramp-up the production of the All-New ES6 and other new models, we’re confident in continuously driving up our delivery volume.

[Foreign Speech]

Next, I would like to share with you the recent highlights of our products, R&D, and operations.

[Foreign Speech]

On May 24th, we launched the All-New ES6, an all-round mid-size smart electric SUV and started its delivery the next day. The product quality of the All-New ES6 has been widely acclaimed by the first batch of users.

[Foreign Speech]

In May, we also started the user delivery of the 2023 NIO ET7 and the flagship coupe SUV EC7 coming with more than 15 new features and enhancements. The 2023 NIO ET7 continues to lead the change in the premium smart electric mid-large sedan market as the flagship coupe SUV EC7 inherits NIO’s high-performance DNA and both ultimate riding and handling experience.

[Foreign Speech]

NIO’s product quality and safety also recognized by authoritative institutions. On April 24, NIO ET5 was rated good. The highest safety level by China Insurance Automotive Safety Index or C-IASI. In J.D. Power’s 2023 China New Energy Vehicle Initial Quality Study released on June 1st, NIO ES6 won first place in the premium BEV segment for the fourth consecutive year. Also, in J.D. Power’s 2023, NEV-IQ study, which evaluates new energy vehicle’s performance, execution and layout, NIO ET7 ranked number one among premium BEVs.

[Foreign Speech]

We plan to launch the new ET5 Touring on June 15th and start the delivery in the same month. As the world’s first smart electric tourer, the ET5 Touring is designed to cover diversified scenarios for both individual and family users, significantly improving our competitiveness in the premium family vehicle market.

[Foreign Speech]

Besides new flagship SUV, the All-New ES8 will also commence delivery in the NIO10[Phonetic]. The new EC6 of our second-generation mid-size smart coupe SUV will be launched and delivered in the third quarter. As we proceed with product platform transition, NIO’s complete NT2.0 lineup featuring eight different products will form a combined force to better cater to the diverse needs in the premium smart EV market and provide users with more experiences beyond expectations.

[Foreign Speech]

In June, NIO’s Smart System Banyan will be upgraded to version 2.0. This release includes over 120 new features and enhancements. By connecting NIO’s products, services, and the community in a more seamless way, Banyan 2.0 will deliver a one-of-a-kind digital experience. It’s particularly worth mentioning that Banyan 2.0 provides a new feature that is automatic planning of charging and swapping routes. Enabled by new Power cloud and the comprehensive power infrastructure, it can let users plan for charging and swapping along the navigation route for long-distance trips with just a one tap.

[Foreign Speech]

In terms of intelligent driving, NIO has released Navigate on Pilot plus beta or NOP+ beta to all NT2.0 users. Based on in-house developed NIO Intelligent Driving technologies and closed-loop data management, NOP+ beta has made significant improvements in making users’ journeys more reassuring, comfortable, and efficient. In Banyan 2.0, NOP+ will be using NIO’s proprietary BEV models and occupancy network for perception and the large language model trained with large-scale data sets for planning and control. The experience of NOP+ will be further enhanced. In the meantime, we have started to test our Power Swap Pilot for Highway at scale, and we’ll make it available for 40 Power Swap stations on highways, starting from the third quarter this year. This feature will be gradually rolled-out to more Power Swap stations with users — with which users can enjoy more seamless Navigate on Pilot experience from point A to point B on highways.

[Foreign Speech]

With respect to the sales and service network, we now have 365 NIO Houses and NIO Spaces in 136 cities, and 359 NIO Service Centers and NIO Delivery Centers in 196 cities.

[Foreign Speech]

In terms of the charging and swapping network, on April 13th, the first batch of NIO Power Swap station 3.0 started operation. The Power Swap station 3.0 features the synchronization of three operating positions, making it faster than the previous generation with higher service capacity and more intelligent experiences. So far, NIO has installed 1,474 swap stations worldwide, including 119 third-generation Power Swap stations, and has completed over 23 million swaps for users. NIO has also installed 7,000 Power Chargers and 8,800 Destination Chargers. Beside, our Power Map has also been connected to over 1.1 million third-party chargers globally.

[Foreign Speech]

On April 17th, NIO’s first 500 kilowatt Power Chargers went online, completing the new-generation of power up station, which is an integrated station featuring 500 kilowatt Power Chargers and the Power Swap station 3.0. Through efficient coordination between chargers and the swap stations and flexible capacity distribution, the Power Chargers can operate more stably and efficiently.

[Foreign Speech]

On April 22, the fourth NIO User Council was established after the NIO User Council member election, which was actively participated by NIO users worldwide. This year, NIO Users Trust will continue their work centering on public welfare, user care, and common growth.

[Foreign Speech]

On March 25th, further deepening of our partnership with World Wide Fund for Nature, WWF. NIO announced to join the Science Based Targets initiative and the plan to set a Science Based Target within the next two years with the goal of contributing to global sustainable development and living up to the Blue Sky commitment.

[Foreign Speech]

In the face of the challenging market situation, we will timely adjust our sales and marketing priorities to ensure the market competitiveness of our products and services. In the second half of 2023, with the entire NT2.0 product lineup entering the premium battery electric vehicle market and 1,000 new Power Swap stations put into operation, NIO’s product competitiveness powered by our decisive efforts into developing full stack R&D capabilities and core technologies of smart EVs will be gradually unleashed, which, in turn, can better prepare us for the increasingly intensifying competition at the next stage.

[Foreign Speech]

As always, thank you for your support. With that, I will now turn the call over to Steven to provide the financial details for the first quarter. Over to you, Steven.

Steven Wei Feng — Chief Financial Officer

Thank you, William. I will now go over our key financial results for the first quarter of 2023. And to be mindful of the length of this call, I will reference to RMB only in my discussion today. I encourage listeners to refer to our earnings press release, which is posted online for additional details.

Our total revenues in the first quarter were RMB10.7 billion, representing an increase of 7.7% year-over-year and a decrease of 33.5% quarter-over quarter. Our total revenues are made of two parts, vehicle sales and other sales. Vehicle sales in the first quarter were RMB9.2 billion, representing a decrease of 0.2% year-over-year and a decrease of 37.5% quarter-over quarter. The decrease in vehicle sales year-over-year was mainly due to lower average selling price as a result of higher proportion of ET5 and 75 kilowatt-hour standard-range battery pack deliveries, partially offset by an increase in delivery volume. The decrease in vehicle sales quarter-over-quarter was mainly due to a decrease in delivery volume and lower average selling price as a result of higher proportion of ET5 and 75 kilowatt-hour standard-range battery pack deliveries.

Other sales in the first quarter were RMB1.5 billion, representing an increase of 117.8% year-over-year, an increase of 11.3% quarter-over-quarter. The increase in other sales year-over-year was mainly due to the increase in sales of accessories, provision of repair and maintenance services, provision of auto financing services, sales of used cars and provisional of power solutions, as a result of continued growth of our users. The increase in other sales quarter-over-quarter was mainly due to the increase in provision of auto financing services, sales of accessories, provision of repair and maintenance services, provision of power solutions and sales of used cars, as a result of continued growth of our users, and partially offset by a decrease in revenue from rendering of research and development services.

Gross margin in the first quarter of 2023 was 1.5%, compared with 14.6% in the first quarter of 202 and 3.9% in the fourth quarter of 2022. The decrease in gross margin year-over-year and quarter-over-quarter was mainly attributed to decreased vehicle margin. More specifically, vehicle margin in the first quarter was 5.1%, compared with 18.1% in first quarter of 2022 and 6.8% in the fourth quarter of 2022. The decrease in vehicle margin year-over-year was mainly attributed to changes in product mix and increased battery cost per unit. The decrease in vehicle margin quarter-over-quarter was mainly due to changes in product mix and increased promotion discount for the previous generation the ES8, ES6, and EC6, which were partially offset by the inventory provisions, accelerated deprecation on production facilities, and losses on purchase commitments for the previous generation of ES8, ES6, and EC6 in the fourth quarter of 2022.

R&D expenses in the first quarter were RMB3.1 billion, representing an increase of 74.6% year-over-year, a decrease of 22.7% quarter-over-quarter. The increase in research and development expenses year-over-year was mainly attributed to the increased personnel costs in research and functions and the increased share-based compensation expenses recognized in the first quarter of 2023. The decrease in research and development expenses quarter-over-quarter reflected fluctuations due to different design and development stages of new products and technologies.

SG&A expenses in the first quarter were RMB2.4 billion, representing an increase of 21.4% year-over-year, and a decrease of 30.7% quarter-over-quarter. The increase in SG&A expenses year-over-year was primarily due to the increase in personnel costs related to sales and general corporate functions and increase in expenses related to the Company’s sales and service network expansion. The decrease in SG&A expenses quarter-over-quarter was mainly due to the decrease in sales and marketing activities and professional services.

Loss from operations in the first quarter was RMB5.1 billion, representing an increase of 133.6% year-over-year, and a decrease of 24.1% quarter-over-quarter. Net loss in the first quarter was RMB4.7 billion, representing an increase of 165.9% year-over-year, and a decrease of 18.1% quarter-over-quarter. Net loss attributable to NIO’s ordinary shareholders in the first quarter was RMB4.8 billion, representing an increase of 163.2% year-over-year, and a decrease of 17.8% quarter-over-quarter. Our balance of cash and cash equivalents, restricted cash, short-term investment and long-term deposits was RMB37.8 billion as of March 31st, 2023.

Now, this concludes our prepared remarks. I will now turn the call over to the operator to facilitate our Q&A session.

Questions and Answers:

Operator

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

Tim Hsiao — Morgan Stanley — Analyst

[Foreign Speech]

So my first question is about what are your cost control because NIO have been investing more aggressively since 2021 on new models, sales and marketing, and energy replenishment network. So in light of the challenging industry and macro outlook, would NIO consider streamlining the model portfolio and cutting back on investment in some projects, like smartphone, battery, chipset and refocus resource on the few flagship models? And separately, does NIO still stick to its original schedule to launch our mass-market brand, ALPS, next year? So that’s my first question. Thank you.

William Bin Li — Founder, Chairman, and Chief Executive Officer

[Foreign Speech]

Thank you, Tim, for your question. As you have mentioned, the market competition is intensifying and we do face a lot of changes in the market dynamics. For the NIO technology platform 2.0, we are about to show the whole lineup of the eight products based on the NT2.0 and these eight products will enter the market in the near-term gradually. The current focus for us is to make sure we have the new organization structure to have a more targeted sales strategy and a marketing strategy for all the eight product that to reach its own target user groups, because when we design those products, we do have a specific positioning of different products in their specific segment and target group.

So the current challenge for us is to make sure our marketing and sales team can be more dedicated on these eight products in terms of our showroom layout and the product reach and the marketing reach and the distribution of the resources at the sales and marketing teams. We want to make sure, for each product, we have a dedicated team to take responsibilities in terms of its sales and marketing efforts. Of course, for those key products, we will put more resources to make sure we can reach much better sales performance. But just like I mentioned, the focus for us now is to make sure we can have a more dedicated resources for the eight products separately, and to make sure they can achieve a good market share in terms of their specific segment.

[Foreign Speech]

Yes, of course, we need to be more agile in terms of face the challenges of the changing market situation to ensure our competitiveness in terms of the products and services. Regarding the topics of the R&D projects, overall speaking, we would like to insist on offer big directions in terms of the R&D projects. In the short-term, yes, we do have some pressures, but we think is really important and necessary for us to focus on those R&D capability building to build our long-term competitiveness. But at the same time, based on our resources and the priorities of the Company, we can adjust the pace of the investment for all those different R&D projects.

For the question regarding ALPS project, our timing for ALPS brand is still the same, that is the second half of 2024, where we plan to launch the ALPS products at that time and we will choose the specific timings for those different products. However, at the same time, we want to make sure, for the ALPS products, we can have a much faster pace in terms of the go-to-market because this can help us to improve the efficiency and have a much better planning of the resources, especially at the marketing and the sales front.

Tim Hsiao — Morgan Stanley — Analyst

[Foreign Speech]

So my second question is about the new ES6. The second quarter guidance getting stronger than market expectation, which should go to like a 3,000 to 4,000 units of additional sales of the new ES6. So could you share a little bit more about the order intake of the new ES6 since its launch today and if there are any bottleneck to the delivery of new ES6? In the meantime, are you still expecting the sales aggregate of ET5, ES6, and the upcoming ET5 Touring to achieve 20,000 per month and when do we expect to achieve that [Indecipherable] target? So that’s my second question. Thank you.

William Bin Li — Founder, Chairman, and Chief Executive Officer

[Foreign Speech]

Thank you, Tim. ES6 is very well-received by the users and also received very good feedback in the media. We think the order performance has reached our expectations and the test to drive conversion rate of the ES6 actually reached a record high in the history of NIO, so that’s why we’re very confident in terms of the sales performance of ES6. At this stage, especially in June, we need to focus on the ramp-up of the ES6 first, but for the target in July is we want to achieve 10,000 units in terms of the production and delivery. We are very confident to achieve this target in July and the supply chain team, manufacturing team, and other teams are making all sorts of preparations to make sure we can achieve this objective.

Regarding the ET5, ET5 Touring, and ES6 overall volume, we believe that there is opportunity for us to still achieve 20,000 units in one month. The big challenge for us right now is more about the ET5 because if we look at the ET5’s pricing, we can see that, last year, we still have around RMB12,000 subsidies for the users, and at the same time, users can get the home chargers free-of-charge last year, but now users will need to pay for the home chargers for the ET5. So net-net speaking, probably for the ET5, if we make the apple-to-apple comparison, it’s probably like a RMB20,000 more expensive this year. This is the fact and the challenge we need to face. But what we need to focus on is to make sure we can find a better way to expand the user needs and demands. The more — the challenge we are facing right now is about the ET5, but just like I mentioned, we’re going to launch the ET5 Touring on June 15th. This is going to help us to improve overall product competitiveness because we believe the ET5 Touring can cater to the diversified needs of individuals and family users, and this can help us to boost our product comparativeness in this specific market segment.

Tim Hsiao — Morgan Stanley — Analyst

[Foreign Speech]

William Bin Li — Founder, Chairman, and Chief Executive Officer

Thank you, Tim.

Operator

Thank you. Your next question comes from Bin Wang from Credit Suisse. Please go ahead.

Bin Wang — Credit Suisse — Analyst

Thank you. I’ve got two questions. Number one is about the margin outlook. We reached the 10,000 per month for ES6 for the quarter. So what’s the gross margin expectation we can have for the quarter and the second half? That is number one question about gross margin guidance. [Foreign Speech]

Stanley Qu — Senior Vice President, Finance

Hi, Bin, this is Stanley. Yeah, as William mentioned, with the delivery of our NT2.0 product with higher price from Q2 to Q3, the average selling price and gross profit margin per car will recover. So we are confident that the gross profit margin will start to recover to double-digits in Q3 and over 15% in Q4, yeah. Thank you.

Bin Wang — Credit Suisse — Analyst

Okay, great. My second question about any fundraising demand[Phonetic] are needed? Because, right now, people worry about your net cash position, which is declining quite fast. And so can you provide some update about your potential fundraising, especially on NIO China IPO. [Foreign Speech]

William Bin Li — Founder, Chairman, and Chief Executive Officer

[Foreign Speech]

Thank you, Bin, for your question. Yes, for this year, if we look at the first quarter and the second quarter, because of the delivery performance, which is actually less than that of the fourth quarter last year, so this has affected our operating cash flow, but together with our delivery volume ramp-up in the third quarter, we believe the operating cash flow will also improve. Currently, we believe our cash is sufficient to support the Company’s business development. As a publicly-listed company, we make very prudent management of our cash positions, and at the same time, we do have all the different channels to do the fundraising in different markets. But this year, we have made some adjustment in terms of our cash spending. For example, we have delayed our capex investment and we have also delayed some R&D projects. At the same time, in terms of our global market expansion, we believe it’s more important for us is to focus on the markets that we have already entered. So for example, for those countries where we’ve already entered in Europe. So if we have any kind of plans in the capital markets, we will, of course, let everyone know.

Bin Wang — Credit Suisse — Analyst

Thank you, William Bin.

Operator

Thank you. Your next question comes from Ming-Hsun Lee from BofA. Thank you. Please go ahead.

Ming-Hsun Lee — Bank of America Securities — Analyst

Thank you, William and Steven. So I also have two questions. My first question is, what is the battery price decline in the first quarter and how much does the battery price to help gross margin in the first quarter? And also, could you also comment the second quarter and third quarter’s battery price trend. That’s my first question. Thank you.

Stanley Qu — Senior Vice President, Finance

Hi, Ming. Generally, the price of lithium carbonate decrease a little bit from Q1. So this lead to a certain increase of our gross profit margin. Regarding amount wise, I think the RMB2,500 per car. But recently, I think we can also see the lithium carbonate price also recover a little bit to RMB310,000 per ton, so the [Indecipherable] change of lithium price will bring uncertainty to our gross profit margin, yeah. Generally — that’s generally the impact of lithium, yeah.

Ming-Hsun Lee — Bank of America Securities — Analyst

I think Stanley, my question is regarding your latest capex and operating expense guidance because, I think, William just mentioned that you are starting to control some investment, especially, some long-term investment. But are you able to give some new guidance, if there is any? I remember last year, the capex is around RMB10 billion, yeah, so I want to know your guidance for this year for capex and opex. Thank you.

Stanley Qu — Senior Vice President, Finance

Yes, Ming. Our capex will still concentrate on the construction of Power Swap stations, charging network, sales service network, and also tooling and production facilities for our new models. We will well control the cadence of those investments. But at this moment, I don’t think we can give the clear guidance of capex investment for this year. Yeah, we will make adjustments dynamically in line with the spending and also the status, yeah.

Ming-Hsun Lee — Bank of America Securities — Analyst

Yeah, and also any guidance on operating expense? Sorry.

Stanley Qu — Senior Vice President, Finance

Okay, regarding operating expense, one is for the R&D expense. The upcoming years remains to be the crucial stage for our R&D and also mass production of our core technology as new models. So our average in each quarter of 2023, the non-GAAP R&D expense will be kept at RMB3 billion to RMB3.5 billion per quarter. Yes, we will also manage spending curve and also keep improving our system efficiency. And for SG&A expense, yeah, we can see a decline in Q1. The main reason is because the reduced marketing activities and also seasonality impact of Chinese New Year, along with more marketing events like auto show, road show, and also launch of new models. The SG&A total amount will increase from Q2, but the efficiency will be improved from Q3 since our NT2.0 products will be launched and more volume will be realized. [Indecipherable], that’s the guidance for the opex of next quarters.

Ming-Hsun Lee — Bank of America Securities — Analyst

No, thank you, Stanley. Thank you.

Stanley Qu — Senior Vice President, Finance

Thank you, Ming.

Operator

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

Yuqian Ding — HSBC — Analyst

[Foreign Speech]

William Bin Li — Founder, Chairman, and Chief Executive Officer

Yeah, go ahead.

Yuqian Ding — HSBC — Analyst

I’m sorry. [Foreign Speech]

So I’ve got two questions. The first is, do we have plan to introduce any budget version of our existing model, especially on the potential volume carrier ET5 by lower price and lower content to access more volume? And the second question, we talked about the dial down a little bit on opex burn. Generally, does that also affect or postpone our breakeven point of the year?

William Bin Li — Founder, Chairman, and Chief Executive Officer

[Foreign Speech]

Thank you, Yuqian, for your question. We understand that there are many different kind of pricing movements in the markets, but for us, regarding ET5, we don’t think it’s reasonable for us to have a budget version of the ET5 because of our philosophy is that we believe the different configurations or the important configurations should come as a standard for all of our NT2.0 products. For example, the June motor [Indecipherable] and other important functions and features. We believe those standard package philosophy can serve the long-term interests to our users, but at the same time, we do have some flexibilities in many other different approaches. For example, user rights, such as the free battery swapping. When we make those kind of considerations and adjustment, of course, the important thing is to make sure we can put the users’ interest first. So when we decided to make those kind of adjustment, that we also need to consider the interest of our installed base. For the second question regarding the breakeven point, according to the current situation, we do think probably we need to delay our breakeven point to within one year, and we think this is probably a reasonable assumption.

Thank you, Yuqian.

Operator

Thank you. Your next question comes from Nick Lai from J.P. Morgan. Please go ahead.

Nick Lai — J.P. Morgan — Analyst

[Foreign Speech]

My first question is really following-up the previous question regarding cash burn and capex cycle and so on. So you just mentioned that you pushed back the R&D expense and so on, but I’m more curious about ’24, ’25 planning. How should we expect the capex or cash burn into ’24 and ’25, would that be flat or up or down compared with 2023? Thank you.

William Bin Li — Founder, Chairman, and Chief Executive Officer

[Foreign Speech]

Thank you for your question, Nick. Regarding the dynamic and the fluid market situation, we understand it’s important for us to control the risk and to keep a stable and sound business operations. For the ALPS brand, basically, the project is moving forward according to our plan. For the production side, we believe the current production capacity is sufficient to support the needs of NIO brand and ALPS brand. So it means that, in terms of our production facilities and the capacities, there is no need to for big capex investment. In the market front, we believe, starting from this year, we should have sufficient Power Swap stations to support both brands to share the Power Swap stations. Previously, we mentioned that probably for the go-to-market of ALPS brand, we do need to make some investment in terms of capex and opex, but we would like to control the pace of the go-to-market cadence to make sure we can have a much faster movement and cadence and have a much agile mode to operate the go-to-market of the ALPS brand, so this can help us to save the resources and the capital. In terms of the cash management, of course, as a publicly-listed company, we need to be very prudent in terms of the cash management. For the financing channels, we do have different channels in terms of the RMB and US dollar capital markets. So for us, we think cash is not going to be a big issue for the Company. But at the same time, we still need to make a refined management of our cash and also the working capital of the Company.

Nick Lai — J.P. Morgan — Analyst

[Foreign Speech]

My second question is really simple, really about the product mix, yeah. The new products [Indecipherable] is going to account a meaningful portion of the volume and how should we think about the [Indecipherable] major module? And how should we think about about the product mix going forward? Thanks.

Stanley Qu — Senior Vice President, Finance

Hi, Nick. Regarding the volume percentage of ET5, ET5 Touring, yes — and ET6, I think, from a long-run, the percentage will be 80% around, yeah. But from — and from the long-run, as I mentioned earlier, this year, I think with all the NT2.0 product launched, our gross profit margin can recover to 15%, and long-term, considering the cost advantage brought by the in-house technology and capability and also the innovative supply chain developments, we — the NT2.0 product gross profit margin target will be — still be 20% from a long-run, yeah. Thank you.

Nick Lai — J.P. Morgan — Analyst

[Foreign Speech]

Operator

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

Paul Gong — UBS — Analyst

[Foreign Speech]

So my first question is regarding the NIO model sale trends. It seems that a few recent new models shared a little similarity with strong start, but after a few months it’s subsequently declined. Does our ES6 also face such kind of challenges or how should avoid this from happening again?

William Bin Li — Founder, Chairman, and Chief Executive Officer

Yeah, [Foreign Speech]

Thank you, Paul, for your question. Last year, we launched three products, ET7, ES7, and ET5. To be honest, in terms of the recent performance of these three products, including the second quarter, we understand the market performance of these three products is lagging behind of our expectations. If we look at the factors that affecting the performance of these three products, just like I mentioned before, last year, for the users who purchased those three products, they have more user rights and benefits and they can enjoy the national subsidies, but this year for the users purchasing these three products, apple-to-apple comparison, the cost increase is around RMB10,000 to RMB20,000. So at the same time, if we look at the micro-environment, we can see the market competition is also getting intensified. So some users are choosing probably some other new brands or some traditional brands over our products. This is one factor. And another factor is internal cannibalization or competition. For example, some ES7 users may decided to choose ES6 instead of the ES7, and for some the ET5 users, probably they decided to wait a little bit for the ET5 Touring. This is the situation that we are facing right now. That is why we decided that probably we’re going to make some adjustment in the near-term in terms of our sales channel and network as well as our organization structure and our sales and the marketing strategy and policies.

[Foreign Speech]

But for the five new products based on the NIO Technology Platform 2.0 that we launched this year, we do not have this concern. The first product we launched this year is EC7. After the delivery of EC7, we can see the demand is actually quite stable. As for the ES6, just now I have mentioned that we are very confident about the sales performance of ES6 after the product ramp-up. And then for this year, we are very confident of our speaking for all the new products that we launched this year, including the ES8. We’re about to start the delivery of the ES8 in the near-term, and currently, we can see that the reservation order performance is actually higher than our expectations. We believe, right now, the current pace of our product quality and the product go-to-market is actually much better than before. So we believe for these five new products, based on the NT2.0 Technology Platform, should be able to reach reasonable performance in terms of its delivery ramp-up. And recently, we have also launched the 2023 ET7. After the delivery of ET7, we believe it can also meet our expectations and the order performance is also quite stable.

Thank you, Paul.

Paul Gong — UBS — Analyst

[Foreign Speech]

William Bin Li — Founder, Chairman, and Chief Executive Officer

[Foreign Speech]

Paul Gong — UBS — Analyst

Sorry, I forget to translate. Sorry, I forget to translate. So my second question is regarding the margin outlook of the high-end NIO brands versus the low-end ALPS brand. NIO brands remains to be relatively expensive, thanks to the branding and the excellent service company has been offering, but yet to achieve satisfactory or kind of like excellent margins. So when you are moving towards ALPS to the rate in the lower-end, how do you foresee the margin would be like, especially compared to the high-end brand? Thank you.

William Bin Li — Founder, Chairman, and Chief Executive Officer

[Foreign Speech]

Thank you for your question. Regarding the brand positioning, I believe, right now, it’s a very chaotic period for the brand positioning. For the users — for most of the users, the majority of the times they choose a product based on the price. So right now, in terms of our product, our service as well as of technology and experience. So we believe we are much better than others in those different areas, but the values of our product and services and the technologies are not reflected in the perceived value and the price of the product. This is the reality that we’re facing right now, but we believe, for the long-run, the value of our products and services will be be recognized by the users and by the market. At the same time, we do face some challenges in the micro environment. For example, the lithium carbonate costs has significantly impacted our vehicle gross margin. Back in 2021, we have reached around 20% vehicle gross margin. At that time, we believe the lithium carbonate cost goes back to a reasonable level. We should still have a chance to reach 20% of vehicle gross margin. In the long-term, we believe in terms of the economies of scale and the efficiency improvement as well as the vertical integration of our core components and the in-house R&D capabilities, there is a strong base for us to achieve a 20% vehicle gross margin. That’s for NIO.

But for ALPS, the strategy is very different because we believe, in terms of the vehicle’s gross margin is actually more about how you define the product and how you design the product. So for ALPS, it’s more about finding the best solution in the specific segment that ALPS brand targets at. For us, if we look at the market, we see some companies that they sell the product at a price of around RMB200,000, but they can still achieve over 20% vehicle gross margin. So it shows that this is achievable. For NIO, because we have many high specs configurations in our products. For example, the over 1,000 top computing powers and all those smart features, it will be very difficult for us to lower the cost of those components and this will affect us in terms of lowering the price of our products. But for ALPS, it’s different. When we define ALPS’ products, of course, the target for us is to achieve reasonable vehicle gross margin and we believe it is reasonable and is possible for us to achieve the 20% vehicle gross margin.

Paul Gong — UBS — Analyst

Thank you so much, William, for your commentary. Thank you.

Operator

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

Xue Deng — CICC — Analyst

[Foreign Speech]

My first question is about, our NOP+ Beta version has been opened for several years — year several months. So can you share the — some users’ data, such as the usage time or accumulated mileage or average takeover mileage during this periods and how is their feedback? And we can see the official version will be charged for subscription. So can you share more of your understanding of subscription charge? And also in the second half of this year, we can see that highway navigation function to swapping stations [Indecipherable] launched. So what we think of the improvement of customers’ experience with this new function? And last one is, is there any time plan for our CTO[Phonetic] function in the second half year?

William Bin Li — Founder, Chairman, and Chief Executive Officer

Yeah. [Foreign Speech]

Thank you for your question. I will answer the NOP+ related question and Steven is going to address the question about the Power Swap stations. For the NOP+, right now, we have over 50,000 users using the NOP+ services, and for us, the accumulated mileage of the NOP+ is over 41 million kilometers. and every week, the mileage is around two million kilometers. We have already started the test of be NOP+ in the city scenarios and use cases. This year, we’re going to accelerate the test of the NOP+ in the city use cases or the urban use cases. We will also — when you get ready, we will also release this feature to the users.

Based on our internal evaluation right now, we are very confident regarding the performance of the NOP+ in the urban scenarios. At the same time, regarding the [Indecipherable], we are also doing some test, and if in the future the regulations and laws are in the right place for the NOP+ release, then we will release the — sorry, we will release the that NAD for our users. So when the regulation is in the right place and we believe this is probably, right now, all the R&D of our NOP+ and NAD is basically on track and according to our schedule.

Xue Deng — CICC — Analyst

[Foreign Speech]

So my second question is about the battery swapping station. We can hear you have got nearly 1,500 stations at present now, and nearly, we can see 200 stations has been added since this year. So have you seen that denser of our battery swapping stations network has been built and is quite good for our sales of our new models, especially for our penetration of lower-tier cities?

Steven Wei Feng — Chief Financial Officer

Hi, this is Steven. I think the short answer is a very clear, yes. We think we have seen a very clear flywheel effect between the Power Swap station network and our sales growth. As William just mentioned, we have already deployed 1,500 Power Swap stations across China, and at the end of this year, the number of Power Swap stations will rise to around 2,400. And every day, we offer around 60,000 to 70,000 times our Power Swaps to our users. So in average, every day, one Power Swap station offers 40 to 50 times our Power Swaps to our users. So that means, on one hand, our users rely on Power Swap station as their [Indecipherable]. On other hand, the Power Swap stations are very efficiently utilized. So that’s why we see a clear flywheel effect and that’s why we’re very determined to accelerate our Power Swap station deployment and also we’re very confident that more Power Swap stations will lead to more sales growth. And actually, in the Yangtze River[Phonetic] and some tier one cities, we have seen that After all the charging experience improves, the — our sales volume also grow, so that’s why we’re very confident that with more and more Power Swap stations penetrate into the low tier cities, naturally, NIO sales will lead to a very strong momentum and a solid growth in the low tier cities. [Indecipherable], I think looking forward, as more and more OEMs seriously look at Power Swap stations as more or less standard way, the Power Swap stations well become more and more convenient way for more and more EV users. [Foreign Speech]

Xue Deng — CICC — Analyst

Steven, thank you.

Operator

Thank you. Your next question comes from Vijay Rakesh from Mizuho Securities. Please go ahead.

Vijay Rakesh — Mizuho Securities — Analyst

Yeah, hi, just a quick question. Given some of the new ramps with the five-year models and it looks like you’re getting good response on it. Would you expect second half or even third quarter production run rates to get to the 20,000 per month on average? And just wondering what the expectation is on second half to first half deliveries.

William Bin Li — Founder, Chairman, and Chief Executive Officer

[Foreign Speech]

Thank you, Vijay, for your question. Of course, for us, the target for the second quarter of this year is to deliver over 20,000 units every month, and we are very confident to achieve this target.

Vijay Rakesh — Mizuho Securities — Analyst

Got it. And just one other question, as we look at some of the subsidies — as we look at some of the subsidies moving to tier two cities, is that a near-term — could that be a challenge for NIO and you don’t have enough swap stations, etc., on the tier two cities, etc.? Thanks. [Foreign Speech]

William Bin Li — Founder, Chairman, and Chief Executive Officer

[Foreign Speech]

This year, our target is to deploy 1,000 additional Power Swap stations, and for majority of those Power Swap stations will be deployed on highways and some of them will be installed in the tier three and tier four cities, and we believe that this is going to directly boost the sales performance of our products. Actually, in April, we started the deployment of the Power Swap station 3.0 and we accelerated the deployment in May. In June, we believe we’re going to deploy around 100 Power Swap station 3.0, and we believe gradually, from now on, we’re going to speed up the deployment of the Power Swap stations.

Vijay Rakesh — Mizuho Securities — Analyst

Thank you.

Eve Tang — Investor Relations

Thank you, Vijay.

Operator

As there are no further questions at this time, I would now like to turn the call back to the Company for closing remarks.

Eve Tang — Investor Relations

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.

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