NIO Inc. (NIO) Q4 2020 Earnings Call Transcript

NIO Inc. (NYSE: NIO) Q4 2020 earnings call dated Mar. 01, 2021

Corporate Participants:

Eve Tang — Capital Markets and Investor Relations

Bin Li — Chairman and Chief Executive Officer

Wei Feng — Chief Financial Officer

Stanley Qu — Vice President – Finance

Analysts:

Edison Yu — Deutsche Bank — Analyst

Ming-Hsun Lee — Bank of America Securities — Analyst

Stanley Qu — Vice President – Finance

Bin Wang — Credit Suisse — Analyst

Tim Hsiao — Morgan Stanley — Analyst

Nick Lai — JPMorgan Chase & Co. — Analyst

Lei Wang — CICC — Analyst

Paul Gong — UBS — Analyst

Jeff Chung — Citigroup — Analyst

Fei Fang — Goldman Sachs — Analyst

Presentation:

Operator

Hello ladies and gentlemen, thank you for standing by for NIO Incorporated’s Fourth Quarter 2020 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, Ms. Eve Tang from Capital Markets and Investor Relations. Please go ahead, Eve.

Eve Tang — Capital Markets and Investor Relations

Good morning and good evening everyone. Welcome to NIO’s fourth quarter 2020 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, VP of Finance, and Ms. Jade Wei, AVP of Capital Markets and Investor Relations.

Before we continue, please be kindly reminded that today’s discussion will contain forward-looking statements made under the Safe Harbor provisions of the 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 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.

Bin Li — Chairman and Chief Executive Officer

[Foreign Speech] Hello, everyone. Thank you for joining NIO’s 2020 Q4 earnings call. [Foreign Speech] In the fourth quarter of 2020, NIO delivered 17,353 ES8, ES6 and EC6, representing a strong growth of 111% year-over-year and 42% quarter-over-quarter. The cumulated deliveries of 2020 reached 43,728, representing a strong growth of 113% over 2019. We achieved a historic monthly delivery of 7,225 vehicles in January 2021 and a resilient delivery of 5,578 vehicles in February 2021, representing strong 352% and 689% year-over-year growth respectively.

[Foreign Speech] In 2020, all three new models have achieved exceptional performance in the market. ES6 has been the best selling electric SUV in China for the full year of 2020. ES8 has reached number one in sales in 2020 in the premium electric SUV segment priced as of RMB400,000 in China. EC6 has ranked at the top in the premium coupe SUV segment for three consecutive months in China starting from November 2020, backed by the top-notch product quality and service. NIO has gained growing positive recognition and feedback from users and the industry. In the China Insurance Automotive Safety Index published in January 2021, EC6 achieved the best safety rating among all models tested by CIASI in 2020.

[Foreign Speech] Supported by competitive product offerings, outstanding services, and innovative business models, we have won increasing user recognition and expect the overall deliveries in the first quarter of 2021 to reach 20,000 to 20,500 vehicles.

[Foreign Speech] In terms of gross margin, driven by steadily increasing deliveries, stable average selling price, and improving material cost and manufacturing efficiency, our vehicle gross margin in Q4 reached 17.2%, moreover, benefited from the new energy credit revenue. The overall gross margin has also increased to 17.2%.

[Foreign Speech] NIO has continued to achieve positive cash flow from operating activities in the fourth quarter and the full year of 2020. In all aspects, NIO’s operational efficiency and overall system efficiency has significantly improved in 2020.

[Foreign Speech] Next I would like to share with you some key topics of the company. [Foreign Speech] As the new play on January 9th, 2020 or actually 2021, we launched the ET7 our the first flagship sedan based on the new technology platform 2.0 [Indecipherable] with its cross breeding dimensions, breakthrough exterior, sophisticated interior, efficient powertrain, immersive digital cockpit and industry-leading autonomous driving capabilities, ET7 has received remarkable feedback from users, media, and the industry. Its order performance has also exceeded our expectations.

[Foreign Speech] Based on NIO’s in-house full-stack autonomous driving technology platform, ET7 will be equipped with NAD, NIO Autonomous Driving, consisting of NIO Aquila Super Sensing and NIO Adam supercomputing. NIO Aquila Super Sensing system has 33 high-performance sensing units, including 11 8-megapixel high resolution cameras and one high-resolution LiDAR with a detection range of 500 meters. The computing power of NIO Adam is up to 1,016 TOPS. The sensor suite and the computing power of NAD far surpass other competitors and will expedite the mass production progress of the autonomous driving industry.

[Foreign Speech] NAD will provide a safer and more relaxing AD experience from point A to point B, gradually covering highway, urban, parking, charging, swapping and other use cases to free-up time and to reduce accidents. In addition, NIO NAD will be the first AD system offered through a monthly subscription service or AD-as-a-service, so more people can try out and enjoy NIO NAD.

[Foreign Speech] We have also launched the Power Swap Station 2.0 at the NIO Day, which enjoys much lower cost and 3 times higher service capacity compared with the first generation. In addition, we have launched the 150 kilowatt hour battery pack, which boasts 50% energy density improvement and can significantly extend the driving range of all new models. With the 150 kilowatt hour battery pack, the NEDC range of ET7 can reach over 1,000 kilometers. Under NIO’s service system, every user can shift to — upgrade to different battery packs on demand.

[Foreign Speech] NIO is devoted to building an innovative model of battery vehicles operation and battery subscription with chargeable, swappable, upgradable batteries as well as providing holistic power solutions to users. Along with the growing user base and expanding battery offerings, more and more users opt for battery-as-a-service, BaaS. In February 2021, the take rate of BaaS among new orders has reached 65%. We believe BaaS and NIO’s holistic charging and swapping service system can accelerate the conversion from ICEs to the EV.

[Foreign Speech] The continuous development and research of new products and technologies is the cornerstone of sustainable development. NIO will decisively step-up our R&D investments and speed-up the development and production of core technologies and new products. In 2021, our R&D investment is expected to double and reach around RMB5 billion.

[Foreign Speech] Our production capacity has reached 7,500 units in January. Our partner JAC has already kicked off further production capacity expansion in the Hefei plant and plans to expand the annual production capacity to 150,000 units under one shift and 300,000 units under two shifts to prepare for the production of ET7 and future products.

[Foreign Speech] In February 2021, NIO entered into a further collaboration framework agreement with the Hefei government to jointly plan and build the Xinqiao Smart Electric Vehicle Industrial Park, including R&D and manufacturing, pilots demonstration and industrial supporting services, and build a world-class smart electric vehicle industry cluster with a full-fledged industry value chain.

[Foreign Speech] With regards to the sales and service network, we now have 23 NIO Houses and 303 NIO Spaces, covering 121 cities in China. In light of the continued contribution of the offline spaces towards brand awareness, order growth, and user community operations, we plan to open 20 new NIO Houses and 120 new NIO Spaces in 2021 to further expand the network coverage, leverage NIO’s competitive edges of direct to sales, consolidating both online and offline traffic, as well as improve the user experience and the efficiency of the overall sales process.

[Foreign Speech] NIO has built 191 swap stations in 76 cities. Starting from the second quarter of this year, we will gradually deploy the Power Swap Station 2.0, which offers better experience with lower cost. Our target in 2021 is to ramp-up to at least 500 power swap stations in total. Moreover, we will step up our efforts in building our supercharging network and destination chargers. We currently have 127 power charger stations and over 1,700 destination chargers, which will reach 600 and 15,000 respectively by the end of 2021.

[Foreign Speech] While the user base grows, the operational efficiency of NIO’s after-sales service system is also improving. We now have 31 new service centers and 158 authorized service centers. To deliver better service experiences to the users, we will expand over after-sales service network to further optimize our after-sales service system.

[Foreign Speech] NIO aims to build a community starting with smart EVs while we share joy and grow together with users. The live broadcast of the NIO Day 2020 held on January 9, 2021 has attracted 100 million views. At the NIO Day, we launched the Blue Point Plan and became the world’s first auto company to help users to certify emission reduction and trade carbon credits. In 2021, the second user council of the NIO User Trust has decided to focus their work this year on user care, industries of communities, public welfare and environmental protection. The constant support of our users is the constant force to drive us to always move forward.

[Foreign Speech] 2020 is an important milestone on the development journey of NIO. With the users’ support and the team’s efforts, the company’s overall operations are back on-track and have entered into a rapid development stage. As a start-up, we will stay true to our original mission, continue to make decisive and efficient investments in the R&D of new products and core technologies and further expand the charging and swapping network and the after-sales service network to provide the best holistic experience to NIO users.

[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 quarter. Steven, please go ahead.

Wei Feng — Chief Financial Officer

Thank you, William. I will now go over our key financial results for the fourth quarter of 2020, and to be mindful of the length of this call, I encourage listeners to refer to our earnings press release, which is posted online for additional details.

Our total revenues in the fourth quarter were RMB6.64 billion or $1.02 billion, representing an increase of 133.2% year-over-year, an increase of 46.7% quarter-over-quarter. Our total revenues consist of two parts; vehicle sales and other sales. Vehicle sales in the fourth quarter were RMB6.17 billion or $946.2 million, accounting for 93% of total revenues in this quarter. It represented an increase of 130% year-over-year and increase of 44.7% quarter-over-quarter. The increase in vehicle sales year-over-year was primarily due to higher deliveries achieved from more product offerings and the expansion of our sales network through the continuous launch of NIO Spaces in 2020.

Other sales in the fourth quarter were RMB467 million or $71.6 million, representing an increase of 184.1% year-over-year, an increase of 80.2% quarter-over-quarter. The increase in other sales year-over-year was mainly attributed to sales of automotive regulatory credits as well as the increased revenues derived from the home chargers installed and accessories sold in line with incremental vehicle sales.

Cost of sales in the fourth quarter was RMB5.50 billion or $842.8 million, representing an increase of 77.3% year-over-year, an increase of 39.6% quarter-over-quarter. The increase in cost of sales year-over-year was mainly driven by the increase of delivery volume in the fourth quarter of 2020.

Gross profit in the fourth quarter was RMB1.14 billion or $175 million, representing an increase of RMB1.40 billion from the fourth quarter of 2019, an increase of RMB556.1 million from third quarter of 2020. This increase in gross profit was mainly attributed to increased vehicle sales and increased vehicle margin. Gross margin in the fourth quarter was 17.2% compared with negative 8.9% in the same quarter of 2019 and 12.9% in the third quarter of 2020. The increase of gross margin was mainly driven by the increase of vehicle margin in the fourth quarter of 2020. More specifically, vehicle margin in the fourth quarter was 17.2% compared with negative 6.0% in the same quarter of 2019 and 14.5% in the third quarter of 2020. The increase of vehicle margin was mainly driven by the increase of vehicle deliveries as well as a decrease in purchase price of certain production materials.

R&D expenses in the fourth quarter were RMB829.4 million or $127.1 million, representing a decrease of 19.2% year-over-year, an increase of 40.4% quarter-over-quarter. The decrease in R&D expenses year-over-year was caused by the decrease of R&D expenses related to the EC6, which came to mass production in September 2020, and the company’s overall cost-saving efforts and improved operational efficiency in R&D functions. SG&A expenses in the fourth quarter were RMB1.2 billion or $185 million, representing a decrease of 21.9% year-over-year, and an increase of 28.3% quarter-over-quarter. The decrease in SG&A expenses year-over-year was primarily driven by the company’s overall cost-savings efforts and improved operational efficiency.

Loss from operations in the fourth quarter was RMB931.4 million or $142.7 million, representing a decrease of 67% year-over-year and a decrease of 1.5% quarter-over-quarter.

Share-based compensation expenses in the fourth quarter were RMB60.2 million or $9.2 million, representing an increase of 17.6% year-over-year, and an increase of 22.3% quarter-over-quarter. The increase in share-based compensation expenses year-over-year was primarily attributed to the incremental options granted with relatively higher grant date fair values due to the increased share price.

Net loss in the fourth quarter was RMB1.39 billion or $212.8 million, representing a decrease of 51.5% year-over-year, and an increase of 32.6% quarter-over-quarter. The increase in net loss quarter-over-quarter was primarily attributed to the unrealized foreign exchange losses derived from the depreciation of US dollar cash balance held by domestic entities with functional currency of RMB in the fourth quarter of 2020. Net loss attributable to NIO’s ordinary shareholders in the fourth quarter was RMB1.49 billion or $228.7 million, representing a decrease of 48.4% year-over-year and an increase of 25.6% quarter-over-quarter. Basic and diluted net loss per ADS in the fourth quarter were both RMB1.05 or $0.16 per ADS. Excluding share-based compensation expenses and accretion on redeemable non-controlling interests to redemption value, non-GAAP adjusted basic and diluted net loss per ADS were both RMB0.93 or $0.14 per ADS.

Our balance of cash and cash equivalents, restricted cash and short-term investment was RMB42.5 billion or $6.5 billion as of December 31st, 2020. Additionally, we achieved positive cash flow from operating activities for the full year of 2020. And now for this outlook, as William mentioned, for the first quarter of 2021 the comp expects deliveries to be between 20,000 to 20,500 vehicles, representing an increase of approximately 481% to 424% from the same quarter of 2020, an increase of approximately 15% to 18% to the fourth quarter of 2020. The company also expects the total revenues in the first quarter od 2021 to be between RMB7.38 billion and RMB7.56 billion or between $1.13 billion and $1.16 billion. This would represent an increase of approximately 438% to 451% from the same quarter of 2020, an increase of approximately 11.2% to 13.8% from the quarter of 2020. This reflects the company’s current and the preliminary view on the business situation and market condition, which is subject to change.

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