NIO Inc. (NIO) Earnings Call Transcript & Summary

Hello, ladies and gentlemen. Thank you for standing by, and welcome to the NIO Inc. First Quarter 2023 Earnings Conference Call. [Operator Instructions] Today's conference call is being recorded. I would now like to hand the conference over to your host, Ms. Eve Tang from Capital Market. Please go ahead.

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 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 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.

[Interpreted] Hello, everyone. Thank you for joining NIO's 2023 First Quarter Earnings Call. In the first quarter of 2023, NIO delivered a total of 31,041 smart electric vehicles, up 20.5% year-over-year. 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. As we ramp up the production of the All-New ES6 and other NIO models, we are confident in continuously driving up our delivery volume. Next, I would like to share with you the recent highlights of our products, R&D and operations. On May 24, we launched the All-New ES6, an all-round midsized 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. 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 a flagship coupe SUV, EC7, inherits NIO's high-performance DNA and both ultimate riding and handling experience. NIO's product quality and safety are also recognized by authoritative institutions. On April 24, NIO ET5 was rated good, the highest safety level by China Insurance Automobile Safety Index, or CIASI. In J.D. Power's 2023 China New Energy Vehicle Initial Quality Study released on June 1, NIO ES6 won first place in the premium BEV segment for the fourth consecutive year. Also in J.D. Power's 2023 NEV-APEAL study, which evaluates new energy vehicles performance, execution and the layout, NIO ET7 ranked #1 among premium BEVs. We plan to launch the NIO ET5 Touring on June 15 and started the delivery in the same month. As the world's first smart electric tour, 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. Besides NIO's flagship SUV, the All-New ES8 will also commence delivery in the [ NIO 10 ]. The new EC6 of our second-generation mid-sized smart coupe SUV will be launched and delivered in the third quarter. As we proceed with the product platform transition, NIO's complete NT 2.0 lineup featuring 8 different products will form a combined force to better cater to the diversity in the premium smart EV market and provide users with more experiences beyond expectations. 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 NIO Power Cloud and comprehensive power infrastructure, it can let users plan for charging and swapping along the navigation route for long-distance trips with just one tap. In terms of intelligent driving, NIO has released Navigate on Pilot Plus Beta or NOP+ Beta to all NT 2.0 users. Based on in-house developed NIO intelligent driving technologies and closed-loop data management, NOP+ Beta has made a significant improvement in making users' journeys more reassuring, comfortable and efficient. In Banyan 2.0, NOP+ will be using new proprietary BEV model and occupancy network for perception and the large language model trained with a large-scale data set 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 will 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 [ simulated ] Navigate on Pilot experience from point A to point B on highways. 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. In terms of the charging and swapping network, on April 13, the first batch of NIO Power Swap Station 3.0 started operation. The Power Swap Station 3.0 features the synchronization of the 3 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. In fact, our power map has also been connected to over 1.1 million third-party chargers globally. On April 17, 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. 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 the common growth. On March 25, further deepening of our partnership with World Wide Fund for Nature, WWF, NIO announced to join the science-based target initiative and plan to set a science-based target within the next 2 years with the goal of contributing to global sustainable development and leading up to the Blue Sky commitment. In the face of the changing market situation, we will timely adjust our sales and the marketing priorities to ensure the market competitiveness of our products and services. In the second half of 2023, with the entire NT 2.0 product lineup, entering the premium battery electric vehicle market and 1,000 NIO 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. 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.

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 RMB 10.7 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 2 parts: vehicle sales and other sales. Vehicle sales in the first quarter were RMB 9.2 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 prices as a result of higher proportion of ET5 and 75 kilowatt hour standard-range battery pack deliveries, partially offset by increase in delivery volume. The decrease in vehicle sales quarter-to-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 hours standard-range battery pack deliveries. Other sales in the first quarter were RMB 1.5 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 provision 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 2022 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 the 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 of ES8, ES6 and EC6, which was partially offset by the inventory provision, accelerated depreciation on production facilities and losses on purchase commitments for the previous generation of ES8, ES6 and EC6 in the fourth quarter of 2022. [ Current ] expenses in the first quarter were RMB 3.1 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 increased personnel costs in research and development functions and increased share-based compensation expenses recognized in the first quarter of 2023. The decrease research and dividend expenses quarter-to-quarter reflected fluctuations due to different design and development stages of new products and technologies. SG&A expenses in the first quarter were RMB 2.4 billion, representing an increase of 21.4% year-over-year, 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-to-quarter was mainly due to decrease in sales and marketing activities and professional services. Loss from operations in the first quarter was RMB 5.1 billion, representing an increase of 133.6% year-over-year, a decrease of 24.1% quarter-over-quarter. Net loss in the first quarter was RMB 4.7 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 RMB 4.8 billion, representing increase of 163.2% year-over-year, a decrease of 17.8% quarter-over-quarter. Our balance cash and cash equivalents. Restricted cash, short-term investments and long-term deposits was RMB 37.8 billion as of March 31, 2023. Now this concludes our prepared remarks. I will now turn the call over to the operator to proceed with our Q&A session.

[Operator Instructions] Your first question comes from Tim Hsiao from Morgan Stanley.

[Foreign Language] So my first question is about what are your cost control because NIO has been investing more aggressively since 2021 on new models, sales, 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 new flagship models? And separately, does NIO still stick to the regional schedule to launch our mass market brand out this next year? So that's my first question.

[Interpreted] 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 8 products based on the NT 2.0, and these 8 product 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 marketing strategy for all the products 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 the target group. So the current challenge for us is to make sure our marketing and the sales team can be more dedicated on these 8 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. Just like I mentioned, the focus for us now is to make sure we can have a more dedicated resources for the 8 products separately and to make sure they can achieve a good market share in terms of their specific segments. Yes, of course, we need to be more agile in terms of 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 it 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 product 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.

[Foreign Language] So my second question is about the new ES6. The second quarter guidance is getting stronger than market expectation, which could [indiscernible] like 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 it's launched today? And is there 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 a month? And when do we expect to achieve that target? So that's my second question.

[Interpreted] 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 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 targets 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 teams and other teams are making all sorts of preparations to make sure we can achieve this objective. Regarding the ET5, ET5 Touring and the ES6 overall volume, we believe there is an opportunity for us to still achieve 20,000 units in 1 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 RMB 12,000 subsidies for the users. And this is -- 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 is probably like RMB 20,000 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 the demand. 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 15. This is going to help us to improve our 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 competitive -- our product competitiveness in this specific market segment.

Your next question comes from Bin Wang from Credit Suisse.

I've got 2 questions. Number one is about the margin outlook. We reached the 10,000 per month for ES6 in the third quarter. So what's the gross margin expectation we can have for the third quarter second half. That's number 1 question about gross margin guidance. [Foreign Language].

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

Okay. Great. My second question about any further [ fundraising ] demand are needed because [indiscernible] people worry about your net cash position, which declined quite fast. And so can you provide some update about your potential fundraising, especially on NIO China IPO. [Foreign Language].

[Interpreted] 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 that 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 position. 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. For example, for the countries we have already entered in Europe. So if we have any kind of plans in the capital markets, we will, of course, let everyone know.

Your next question comes from Ming-Hsun Lee from BOFA.

Thank you, William and Steven. So I also have 2 questions. My first question is, what is the battery price decline in 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 the third quarter's battery price trend? That's my first question.

Ming, generally, the price of lithium carbonate decreased a little bit from Q1. So this leads to a certain increase of our gross profit margin. Regarding amount wise, I think the [ 205,000 ] per car. But recently, I think we can also see the lithium carbonate price also recover a little bit to [ 310,000 ] per ton. So the volatile change of lithium price will bring uncertainty to our gross profit margin. Generally, that's generally the impact of lithium.

And 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 for some long term investments. But are you able to give some new guidance, if there's any? I remember last year, the CapEx is around RMB 10 billion. So I want to know your guidance for this year for CapEx and OpEx.

Yes, Ming. Our CapEx will still concentrate on the construction of power source stations, charging network, sale 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 a clear guidance of CapEx investment for this year. We will make adjustments dynamically in line with the spending and also the status.

Also any guidance on operating expense, sorry.

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 RMB 3 billion to RMB 3.5 billion per quarter. Yes, we will also manage the spending curve and also keep improving our system efficiency. And for SG&A expense, yes, we can see a decline in Q1. The main reason is because of 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 products will be launched and more volume will be realized. I mean, that's the guidance for the OpEx of next quarters.

Your next question comes from Yuqian Ding from HSBC.

[Foreign Language] So I got a question. The first is, do we have plan to introduce any budget version of our existing model, especially 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?

[Interpreted] Thank you, Yuqian, for your question. We understand that there are many different kind of pricing movements in the market. But for us, regarding ET5, we don't think it's reasonable for us to have a budget version of the ET5 because our philosophy is that we believe the different configurations or the important configurations should come as a standard for all of our NT2 products. For example, the [indiscernible] and other important functions and features. We believe those standard package philosophy can serve the long-term interest 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 adjustments, 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, 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 of a breakeven point to within 1 year. And we think this is probably a reasonable assumption.

Your next question comes from Nick Lai from JPMorgan.

[Foreign Language] My first question is really following up the previous question regarding cash burn and CapEx cycle and so on. [indiscernible] just mentioned that will push back the R&D expense and so on. And 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?

[Interpreted] 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 keep the 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 need of NIO brand and ALPS brand. So it means that in terms of production facilities and the capacities, there is no need for big CapEx investments. 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 the U.S. dollar capital market. 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.

[Foreign Language] My second question is really about the product mix. The new product supplies is going to account for a meaningful portion of the volume? And how should we think about the conditions from this full major module? And how should we think about the product mix going forward?

Nick, regarding the volume percentage of ET5, ET5 Touring and EC6 I think, from the long run, the percentage will be 80% around, yes. But from -- and from the long run, as I mentioned earlier, this year, I think with all the NT2 products 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 development. We -- the NT2 product gross profit margin target will be -- still be 20% from a long run, yes. Thank you.

Your next question comes from Paul Gong from UBS.

[Foreign Language] So my first question is regarding the NIO model sales trends. It seems that a few recent NIO models [indiscernible] similarity with strong start. But after a few months, it subsequently declines. Does our ES6 also face such kind of challenges? Or how should we avoid this happening again.

[Interpreted] Thank you, Paul, for your question. Last year, we launched 3 products, ET7 , ES7 and ET5. To be honest, in terms of the recent performance of these 3 products, including the second quarter, we understand the market performance of these 3 products is lagging behind of our expectations. If we look at the factors that affecting the performance of these 3 products, just like I mentioned before, last year for the users who purchased those 3 products, they have more user rights and benefits, and they can enjoy the national subsidies. But this year, for the users purchasing these 3 products, apple-to-apple comparison, the cost increase is around RMB 10,000 to RMB 20,000. So at the same time, if we look at the macro 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 of our product. This is one factor. And another factor is internal cannibalization or competition. For example, some ES7 users may decide to choose ES6 instead of the ES7 and therefore some 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 to probably -- we are 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 marketing strategy and policies. But for the 5 new products based on the new 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 are 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 this 5 new products based on the NT2 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.

[Foreign Language] So my second question is regarding the margin outlook of the high end NIO brands versus low-end ALPS brands. NIO brands remains to be relatively expensive, thanks to the branding and the excellent service that our company has been offering, but yet to achieve a satisfactory or kind of like excellent margins. So when you are moving towards the ALPS to the relatively lower end, how do you foresee the margin would be like, especially compared to the high-end one?

[Interpreted] Thank you for your question. Regarding the brand positioning, I believe right now, it's a very [indiscernible] period for the brand positioning. For the users -- for most of the users in the majority of the times, they choose the products based on the price. So right now in terms of our product, our service as well as our technology and experience, we believe we are much better than others in those different areas. But the values of our products and services and the technologies are not reflected in the perceived value and the price of the product. This is the reality that we are facing right now, but we believe for the long run, the value of our products and services will be recognized by the users and by the market. At the same time, we do face some challenges in the macro environment. For example, the lithium carbonate cost has significantly impacted over 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% vehicle gross margin. And 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 that in terms of the vehicle's gross margin, it's actually more about how you define the products and how we 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 RMB 200,000, 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, over 1,000 top the 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 is different. When we define our business products, of course, the target is to achieve reasonable vehicle gross margin. And we believe it is reasonable and is possible for us to achieve the 20% of vehicle gross margins.

Your next question comes from [ Jin Zhang ] from CICC.

[Foreign Language] My first question is about our [ NOP+ ] has been open for 3 or 4 -- several years -- several months. So can you share the -- some users' data such as usage time or accumulated mileage or average takeover mileage during this period? 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, you have seen that highway navigation function to swapping stations will be further launched. So what do we think of improvement of customers' experience with this new function? And last one is, is there any time plan for our city [indiscernible] in the second half year?

[Interpreted] Thank you for your question. I will answer the NOP+ related question and then 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 -- the accumulated mileage of the NOP+ is over 41 million kilometers. And every week, the mileage is around 2 million kilometers. We have already started the test of the 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 NAD, we are also doing some test and if in the future, the regulations and the laws are in the right place for the NOP+ release, then we will release the -- sorry, we will release the NAD for our users when the regulation is in the right place. And we believe that this is probably -- right now, all the R&D of our NOP+ and NAD is basically on track and according to our schedule.

[Foreign Language] So my second question is about the battery-swapping station. You can see you have got nearly 1,500 stations at present. And nearly, we can see 200 stations have been added since this year. So have you seen that a denser of our battery-swapping stations network has been built and it's quite good for our sales of our new models, especially for our penetration of lower-tier cities.

This is Steven. I think the short answer is a very clear, yes. We think we have seen a very clear [indiscernible] effect between the Power Swap station network and our sales growth. As I 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 of power swap source to our users. So in average, every day, 1 Power Swap station offers 40 to 50x of power swaps to our users. So that means, on one hand, our users rely on Power Swap station as their favorite charging [ measure ]. On other hand, the Power Swap stations are very efficiently utilized. So that's why we see a clear [indiscernible] effect, and that's why we are very determined to accelerate our Power Swap station deployment and also, we are very confident that more Power Swap stations will lead to more sales growth. And actually, in the [indiscernible] and some Tier 1 cities, we have seen that after all the charging experience improves, the -- our sales volumes also grow. So that's why we are very confident that more and more Power Swap stations penetrate into the low-tier cities. Naturally, NIO sales will lead to a very strong momentum, a solid growth in the low-tier cities. Not the least, I think looking forward, as more and more OEMs [indiscernible] look at Power Swap stations and more or less [indiscernible] way, the Power Swap stations will become more and more convenient way for one more mono EV users.

Your next question comes from Vijay Rakesh from Mizuho Securities.

Just a quick question. Given some of the new ramps of the 5-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? I'm just wondering what the expectation is on second half to first half deliveries?

[Interpreted] 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.

Got it. And just one other question. If you look at on the subsidies -- if you look at some of the subsidies moving to Tier 2 cities, is that a near term -- could that be a challenge for NIO Q1, you don't have enough swap stations, et cetera, on the Tier 2 cities, et cetera?

[Interpreted] This year our target is to deploy 1,000 additional Power Swap stations, and majority of those Power Swap stations will be deployed on highways and some of them will be installed in the Tier 3 and the Tier 4 cities. We believe 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 are going to speed up the deployment of the Power Swap stations.

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

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. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]