NIO Inc. (NIO) Earnings Call Transcript & Summary

Hello, ladies and gentlemen. Thank you for standing by for NIO Inc.'s First Quarter 2025 Earnings Conference Call. [Operator Instructions] Today's conference call is being recorded. I will now turn the call over to your host, Mr. Rui Chen, Head of Investor Relations of the company. Please go ahead, Rui.

Good morning, and good evening, everyone. Welcome to NIO's First Quarter 2025 Earnings Conference Call. The company's financial and operating results were published in the press release earlier today and are posted on the company's IR website. On today's call, we have Mr. William Li, Founder, Chairman of the Board and CEO; and Mr. Stanley Qu, Chief Financial Officer. Before we continue, please be kindly reminded that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the views expressed today. Further information regarding risks and uncertainties is included in certain filings of the company with the U.S. Securities 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 news press release, which contains a reconciliation of the unaudited non-GAAP measures to comparable GAAP measures. With that, I will now turn the call over to our CEO, Mr. William Li. William, please go ahead.

Hello, everyone. Thank you for joining NIO's 2025 Q1 Earnings Call. In Q1, the company delivered 42,094 smart EVs, up 40.1% year-over-year. This includes 27,313 deliveries from NIO and 14,781 deliveries from ONVO. Since Q2, the company's deliveries have picked up pace month-over-month, supported by a solid start of delivery in ET9 and FIREFLY and growing demand for ONVO L60. In April and May, the total deliveries were 23,900 and 23,231. In late May, we successfully launched and delivered the new ES6, EC6, ET5 and ET5T. We expect total deliveries in Q2 to be between 72,000 and 75,000, representing 25.5% to 30.7% growth year-over-year. On the financial side, the company continued the cost of reduction efforts on all fronts, achieving year-over-year growth in both vehicle gross margin and overall gross margin. Now I'd like to share some updates on our products, R&D and operations. For the NIO brand, the deliveries of ET9, NIO's executive flagship van surpassed BMW 7 Series and Audi A8 in China in the first 4 delivery months. This marks the first time that a Chinese brand has made a breakthrough in a premium executive segment long led by BBA. On May 16, we launched the new ES6 and the EC6 and started delivery on May 20. On May 25, the new ET5 and ET5T were launched and delivery started on May 27. This upgraded models deliver greater perceived value and the product trends, along with major improvements in cost. For the NIO brand -- for the ONVO brand, since April, ONVO has rolled out a service operational and organizational adjustments, significant improvement in the productivity and operational efficiency of the sales force. Such change also shifted ONVO towards a positive cycle of brand awareness and product reputation. With that, ONVO's orders have been rising steadily since late April. ONVO's second product L90, a smart large space flagship SUV made its debut on Shanghai Auto Show. With the class-leading space, ultra-low energy consumption and the extensive charging and swapping network, ONVO L90 has grown strong increase from 3-row SUV buyers. This model will be launched and delivered in Q3. The smart electric high-end small car brand, FIREFLY has started product delivery in late April, engineered for the 5-star safety in China and Europe and with the thoughtful space, smart digital experience and vivid driving dynamics, FIREFLY stands out in its segment. In terms of tax innovation, NIO's smart driving chip NX9031 has been deployed in the flagship model ET9 as well as the NIO ES6, EC6, ET5 and ET5T and will be rolled out on new -- more new models of NIO. These new models are also equipped with NIO's full-domain vehicle operating system, SkyOS and the intelligent chassis system. Such innovations not only enhance the product competitiveness and also improve the vehicle cost structure. As for smart driving, the first NIO World Model based version has been rolled out to vehicles on the Banyan platform since late May. The NIO World Model or NWM provides full upgrades in active city urban and highway driving as well as parking, especially in key areas of active cities, NWM brings enhancements, enhancing driver emergency, mitigating and preventing real collisions and recognizing general objects. Based on NWM's comprehensive understanding and reasoning of [indiscernible] model information in real time, Navigate on Pilot Plus or NOP Plus can guide cars through toll gates across China with automatic navigation to frequent parking spots as well as mapless and nonmemory-based way finding in parking lots. NOP Plus also delivers a seamless point-to-point smart driving experience. NIO's Word Model will continue to iterate bringing safer and smarter driving across all scenarios. So far, NIO operates 184 NIO houses and 461 NIO spaces and ONVO has 445 stores in China. On the service side, the company operates 391 service centers and 66 delivery centers. We will continue to improve efficiency and resource allocation through better operations and performance evaluation across the sales network. As of now, the company has 3,408 power swap stations worldwide, including 989 stations on highway in China and has provided over 35 million swaps to users. Besides, NIO has installed over 26,000 power charges and the destination charges. To date, NIO's Power Swap network has achieved a country-level coverage in Beijing, Shanghai, Jiangsu, Zhejiang, Guangdong and Tianjin. Next, we will continue to expand the coverage through partnerships with site operations, great companies and the capital investors. In international expansion, NIO has partnered with more than 2 -- more than 10 local partners in over 15 core markets world wide and is onboarding more partners. In Q3 FIREFLY will roll out in various markets, delivering global user experience beyond the expectations. On April 7, NIO completed a share offering in Hong Kong, raising over HKD 4 billion. This financial round was oversubscribed multiple times and has brought in a number of global long-term investors. 2025 is the hardest year for products as much core models are to be launched in the second half. The company's deliveries are set to accelerate from Q3 with stronger sales, lower supply chain costs and better BOM efficiency from new products and technologies, both vehicle and overall gross margin will keep improving. In improving operational efficiency, since Q1 we have implemented strict investment and the return reviews across R&D, supply chain, sales and service functions under the [indiscernible] business unit mechanism. We have set clear goals for operationals and ROI. We started the organization and consolidated teams, prioritized high-value projects and introduced the plans to improve productivity and cost efficiency. These measures have taken hold in Q2 and will continue through the year. With growing sales, improving margins and better cost control, we are confident in improving the company's financial position starting Q2 and meeting our full year business targets. Thank you for your support. With that, I will now turn the call over to Stanley for Q1 financial details. Over to you, Stanley.

Thank you, William. Let's now review our key financial results for the first quarter of 2025. Our total revenues reached RMB 12 billion, increased 21.5% year-over-year and decreased 38.9% quarter-over-quarter. Vehicle sales were RMB 9.9 billion, up 18.6% year-over-year and down 43.1% quarter-over-quarter. The year-over-year growth was mainly due to higher deliveries partially offset by a lower average selling price from product mix changes. The quarter-over-quarter decrease was mainly attributable to fewer deliveries impacted by seasonality. Other sales were RMB 2.1 billion, grew by 37.2% year-over-year and decreased 5.9% quarter-over-quarter. The annual growth was from increased sales of parts after sales vehicle services and provision of power solutions along with a rise in sales of used cars and technical R&D services. The decrease quarter-over-quarter was due to decreased sales in technical R&D services and auto financing services. Looking at margins. Vehicle margin was 10.2% compared with 9.2% in Q1 last year and 13.1% last quarter. The year-over-year increase was mainly due to lower material costs per unit, partially offset by changes in product mix. The quarter-over-quarter decline was mainly due to the increased manufacturing cost per unit from lower production volume. Overall gross margin was 7.6% compared with 4.9% in Q1 last year and 11.7% last quarter. The year-over-year increase was mainly driven by: first, higher sales of parts, accessories, after sales vehicle services and technical R&D services which carry relatively higher margins. Second, higher vehicle margin; and third, the reduced gross loss rate from Power Solutions as our user base grew. The decrease quarter-over-quarter was mainly attributable to lower vehicle margin. Turning to OpEx. R&D expenses were RMB 3.2 billion, increased 11.1% year-over-year and decreased 12.5% quarter-over-quarter. The year-over-year increase was mainly due to the incremental design and development costs for the new products and technologies as well as the increased personnel cost in R&D functions. The quarter-over-quarter decrease was mainly driven by decreased design and development costs resulting from different stages of development, partially offset by increased personnel costs. SG&A expenses were RMB 4.4 billion, up 46.8% year-over-year and down 9.8% quarter-over-quarter. The year-over-year increase was mainly driven by the increase in personnel costs related to sales functions and the increase in sales and marketing activities. The quarter-over-quarter decrease was mainly due to the decrease in sales and marketing activities and professional services, partially offset by the incremental personnel costs. Loss from operations was RMB 6.4 billion, up 19% year-over-year and 6.4% quarter-over-quarter. Net loss was RMB 6.8 billion, showing an increase of 30.2% year-over-year and a decrease of 5.1% quarter-over-quarter. That wraps up our prepared remarks. For more information and the details of our unaudited first quarter 2025 financial results, please refer to our earnings press release. Now I will turn the call over to the operator to start our Q&A session. Thank you.

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

This is Tim from Morgan Stanley. I actually have two questions. The first one is about the volume sales. Because if you look at the announcement, the NIO's second quarter volume guidance of 72,000 to 75,000 vehicles. I think that implies a more moderate sales increase despite the recent launches of 4 new models. So looking forward how could NIO give the sales [indiscernible] 5 and 6 Series and extra push in the following months to achieve our previous target of 30,000 monthly sales for the NIO's main brand by year-end? That's my first question.

[Interpreted] Thank you for the question. As we have stated, our quarterly guidance for the [Technical Difficulty] is 72,000 to 75,000 units. In that case, we expect to deliver around 25,000 to 28,000 units in June. And in terms of the core volume driver for the NIO brand, as we have just recently upgraded and launched our NIO 55 and 66. These are our NIO EC6, ES6, ET5 and ET5T in late May, and we have just started delivery of this 4 new models, then they are going to experience their first full delivery month in June. As you can tell from their MSRP, there is actually no changes with the selling price of these 4 models, yet considering that before the launch of these 4 models to clean up the inventories, we had provided some promotions on these 4 models in the previous generation. With that, the actual price increase is around 10% from last generation to this generation. So for the next step, we are going to stabilize on the prices of these 4 new models. And looking at the vehicle gross margin, actually the improvement is more than 10% from last generation to the model year '25. And also, the bigger principle for us is to realize a good gross profit than simply looking at the vehicle sales volume. As we also look at our overall performance from the P&L perspective, in that case, we really need to strike a balance between the sales volume and also the selling prices of our products. And also in the meantime, we will keep improving our operational efficiency and the system. And going into the fourth quarter, we are going to introduce our all new ES8, the next generation ES8, which is a highly competitive product. With that, we believe that in Q4, for the NIO brand, the monthly delivery will be around 25,000 units. That's around 20% year-over-year growth from last year's Q4, which was around 20,000 units a month. In that case, while improving the sales volume, we are also going to improving our vehicle gross margin significantly for the NIO brand to be above 20% in Q4.

My second question is about the cost reduction. Because we noticed that NIO has implemented a series of cost-cutting measures over the past 6 months. So when are we going to see more meaningful contribution from such cost reduction effort and could you please quantify and specify which categories we could probably see more significant improvement into second half? That's my second question.

[Interpreted] Thank you for the question. As you've mentioned, since March, we have conducted a series of cost control and efficiency improvement measures. And here, I would like to further elaborate on that from the following aspects. The first is regarding our short-term work. Basically, we review and sort out all the key matters, projects and organizations and to look at the things that are not going to generate positive return on investment within the year, and we have made the determined actions in terminating or postponing them for the short-term return. And the second is regarding the efficiency improvement. This is also mentioned by William in his prepared remarks. In terms of improving efficiency, we also conducted the actions in the following aspects. The first is from the R&D perspective. We have established a new mechanism called Veeco product line. With that, we have majorly merged the R&D resources of the NIO brand, ONVO brand and FIREFLY brand to further improve the overall efficiency of our R&D activities. And the second is regarding the improvements in the industrialization cluster, we have optimized and restructured the logistics functions, quality functions and also supply chain functions by streamlining the team and also merging repetitive roles. And certainly, we have also made improvements in the sales and the service side. For the nonfrontline teams, we have also made major improvements and also consolidations on the teams, including their roles and also positions to better improve the efficiency and the productivity of the teams, especially the back-end teams. With that, we are going to witness the savings from the operating spending perspective and such savings will be reflected in our Q2's earnings and also the corresponding results. And more specifically on the tighter control over the spending, regarding the R&D spending, in Q2, our target is after excluding the one-off impact, we would like to achieve a 15% improvement or actually R&D spend reduction. And in Q4, as we also have the breakeven target, we aim to control our R&D expenses to be within RMB 2 billion to RMB 2.5 billion per quarter. That represents a 20% to 25% year-over-year decrease from last year. And regarding the SG&A expenses, this is also relevant to the marketing activities and also the tightened competition in the market as well as our sales performance. So we will also manage the SG&A expenses in a very careful and prudent way, carefully balancing the return and also the investments on all these campaigns and activities. The target is to reduce the SG&A expenses quarter-over-quarter from Q2 this year. And by Q4, considering the breakeven target as well, our target is to control our non-GAAP SG&A expenses to be within 10% of the sales revenue.

Your next question comes from Ming-Hsun Lee with Bank of America.

This is Ming. I also have 2 questions. My first question is related to your NIO World Model. So after you launched the NIO World Model in May, what is the feedback from your users? And also compared to your original rule-based autonomous driving solution, how more advanced after you launched your World Model? And for your -- because right now, in certain models, you are using your own design chip. So you already saved some cost. Do you also give up those benefits to the users? In the future, will ONVO also use the same chips? That's my first question.

[Interpreted] Thank you for the question. In late May, we have started to release and roll out our first smart driving version based on the Nio World Model, NWM to the Banyan users. Those are the users who are running on our second-generation platform product. And actually, in the previous versions, we have already released a series of active safety features based on our end-to-end architecture and solutions. With that, we also see a significant decrease in the accidents and also the awareness of the accidents and a better driving safety with our active safety features. For example, for the Nio World Model, we have also released the emergency safety pullover. This also is one of the first in the industry. Overall speaking, our vision for smart driving is to reduce traffic accidents. And in that case, our active safety and our smart driving future in general has been leading in the industry. And the second key vision of our smart driving is to release the driving pressure and stress. In that case, NWM-based version has also provided better experience across all scenarios. For example, we have -- we are also one of the first to release the point-to-point smart driving and also parking. Our overall experience is better than our peers in the industry. With NWM, we have achieved a better experience in highways and also urban express ways. Our original experience based on the previous version was already good. And right now, we have made the overall smart driving experience even more seamless. For example, automatic pass-through of the toll gates on highways. And in terms of the smart driving in urban roads, we have also achieved very good point-to-point smart driving. That's basically smart driving from a parking lot to a parking lot with a high usability and good experience. So basically, we have achieved a good smart driving experience across 3 key scenarios of our users. For example, we have released this automatic way finding in the parking lots where our users can provide natural language comment to ask the car to navigate to a parking space across different floors or even regions within the parking lot. And this is just one of the many new features that we are going to release based on the NWM enabled smart driving features. And with that, we also see the possibilities in improving the experience with NWM. So overall speaking, this is a version that we have restructured the entire smart driving with our data closed loop and also feature closed loop. For the next step, we will keep improving and iterating this feature based on the feedback provided by our users to make the overall experience more seamless and also more useful. So that's the NWM-based smart driving version released to the Banyan system. And in the meantime, as our third-generation platform, [indiscernible] and also the new [indiscernible] ET9 and also the 55 and 66 products, they are running on our in-house developed smart driving chip NX9031. And the NWM-based version running on NX9031 will be released in late June. That's our expected release date. But that is around one month later than the release to Banyan platform and the specific release date will also be dependent on the actual approving process and the reporting process. The R&D process is actually in good progress. And for the long term, ONVO products will also switch to the in-house developed smart driving chips.

So next question is related to ONVO brand. So after you have some management change, what is the strategy to enhance the volume sales of L60? And also, what is your expectation of L80 and L90?

[Interpreted] Thank you for the question. In April, we have made major organizational and operational adjustments to ONVO, including the adjustments to the core management team, sales team as well as the regional teams. As we were making major investments, the good sign is that we didn't see major impact or a negative impact on the sales volume of L60. Actually, in late April, we witnessed the growing order momentum of this product. And in May, the monthly delivery of L60 is more than 40% higher than in April. And these are the positive changes that we've seen. And if we look at the actual product performance and competitiveness in the market, regarding L60 in the first 4 months of this year, among the battery electric vehicles priced between RMB 200,000 to RMB 300,000, ONVO L60 has been the top 3 best selling products in that segment. And we also expect its performance to continue to pick up in May and June. And this has also demonstrated the strong product performance and strength in the market. However, the product competitiveness and performance is just one of the foundations. In the meantime, we also see the maturity with our sales and service network. ONVO now have more than 440 stores, and many of the stores, including the frontline and the fellow teams are also getting more mature and adapted to the job. In that case for the next step, we will also -- as they are making major contribution or growing contribution to the sales volume for the next step, we will also keep improving the operating efficiency and also productivity of the teams and stores. And the third key driver is regarding our battery swap and also hybrid charging and swapping network, mainly the battery swapping network. Right now, in China, more than 1,900 power swap stations are available for ONVO users with more -- a lot more batteries available or circulating in the power swap system for the ONVO users. And in the meantime, we are rolling out this Power Up contest plan where we are increasing the county level coverage of our power swap network, so far in Beijing, Shanghai, Jiangsu, Zhejiang, Guangdong and Tianjin, we already see the county level coverage of our power swap network. And for the next step, we will continue to increase such coverage across more provinces and counties, which will be actually even more important for the ONVO users and products. And in the meantime, in lower-tier cities like third or fourth tier cities, we are also trying to use a power swap station as a window of opportunities or point of sales for the Southern operations but of lower fixed costs than physical stores. So to put it simple, basically in some counties and also [indiscernible] cities, we don't need to open up the actual stores or showrooms. Instead, we can use the power swap station as a point of sales to present our products, provide experience and trust drive sessions for our users supported and facilitated by the local sales team. This is actually a unique advantage of NIO as the entire company, especially to boost the sales in the lower-tier cities. This will be very important and also a systematic approach to boost the sales of ONVO. With that, we are confident that the monthly sales volume of ONVO L60 will be bouncing back to more than 10,000 units. And in the meantime, the second product of ONVO L90 will be released and delivered in Q3 this year. Since it's debuted at the Shanghai Auto Show, we have also brought the product to several cities for the showcasing, and our users are actually looking forward to this product as L90 comes with a huge frunk. This has also solved one of the biggest pinpoints of a 3-row SUV without enough space for storage and luggages. And also in the recent information released by the MIIT, ONVO L90 also boasts impressive energy consumption and energy efficiency within its class. So basically, we believe that L90 will be a game changer in the large space, SUV or 3-row SUV segment. And in Q4, we will also release the L80 product. Then by end of this year, there will be 3 products under the ONVO brand. And these 3 products will all be targeting family segments with high good qualities and experiences. And this lineup will also better -- will also provide better synergies. And in that case, our target is to realize a monthly delivery of 25,000 units of these 3 products in Q4.

Next question comes from Bin Wang with Deutsche Bank.

[Foreign Language] My first question is about second quarter because you've got a [indiscernible] at higher price and in-house semiconductor. Is any chance you got further margin expansion in the second quarter for the vehicle margin, which will help the overall gross margin back to double digit?

[Interpreted] Thank you for the question. As in Q2, we have completed the product transition for the NIO brand, we have successfully launched and started to deliver our NIO ET5, ET5T, EC6 and ES6. With that, we also witnessed the increase in the average selling price of the NIO models and also as the NIO models are equipped with the in-house developed chip, this can also contribute around RMB 10,000 savings and cost reduction per unit. With that in Q2, the vehicle gross margin of the NIO brand will be improved to around 15%. And for the ONVO brand as in the second quarter, it will still only have one product, L60, as the L90 will be released in Q3. Then with -- as we expect the growing volume for the L60, we also expect certain improvements regarding the manufacturing costs driven by the volume increase. But as it is only contributed by one model, the improvements from the manufacturing cost perspective will be limited. And the major gross margin driver for the ONVO brand will still be happening in Q3, driven by the launch of the NIO model. With that, we believe that the overall gross margin in Q2 will be coming back to double digit. That's our target. And a little bit more information on the NIO products. As our core volume products, 55 and 66 were having the vertical product transition during the April and May with that to clean up the inventories for the previous generations, we offered promotions with that, the actual vehicle margin for that generation was relatively low. But starting June as we are rolling out and delivering new products, we also witnessed better or improved margin on this product. For ES6, the vehicle gross margin will be around 20%, EC6 slightly higher than the S6 and also for the ET5 and ET5 Touring, we also expect improved vehicle gross margin. So overall speaking for the NIO brand, the vehicle margin improvement is on the right track.

[Foreign Language] My question is about the number 4 quarter breakeven assumptions. Basically, you just guided NIO brand will reach 25,000 in the #4 quarter this year. Similarly, ONVO brand will also have a 25,000. Let's assume they can sell 130,000 in the #4 quarter, we have RMB 250,000, roughly, we can reach RMB 35 billion on top line. So if we assume we got 18% gross margin, we can reach roughly RMB 6 billion gross profit. You have mentioned you [indiscernible]. You also actually guided in the same [indiscernible] will be around 10% of the top line. So overall, the total OpEx will be around RMB 6 billion. Can I assume this is roughly the assumption to reach a breakeven in #4 quarter?

[Interpreted] Thank you for the question. Actually, the equation you have mentioned is more or less our operational target internally as well. Regarding the monthly sales volume slightly over 50,000 units a month, vehicle gross margin 17% to 18% combined margin and SG&A expenses within 10% of the sales revenues and for the R&D expenses also achieving that level of management and control. With that, we are able -- where we have the confidence of achieving the breakeven as we see also our peers who achieved the profitability running on a similar scale and also the similar numbers. Back in 2021, when we just had one NIO brand, we also managed to achieve a vehicle gross margin of over 20%. But back then, we haven't started the major investment in the R&D or the multi-brand strategy. As starting recent years, we have witnessed quarter-over-quarter losses, mainly because of our intensive investment into the R&D of the NIO products and technologies, multi-brand strategy and also the network development, especially infrastructure network. But starting Q2 this year, we are also starting up a year of a harvest or a period of harvest where we are going to see the tangible results starting Q2 and then towards Q4 this year, the results from our brand development, product development, network and also network development as well as the cost reductions and efficiency improvements. With that, I think your equation or your assumption is kind of also a guidance for us to achieve our operational target and also profitability in Q4 this year, and we are confident in that.

Your next question comes from Paul Gong with UBS.

My first question is regarding the market feedback after the delivery of the 5 Series and 6 Series. I have seen some positive comments, but also have seen some disappointment among some of the car buyers saying it is still using like 400-volt battery instead of like the 900 volts like the ET9. Do you have any plan to switch into the 900-volt battery system at certain point? And what other feedback have you received from the car buyers? That's my first question.

[Interpreted] Thank you for the question. Since the launch of our NIO ES6, EC6, ET5 and ET5T in late May, we have received quite a lot market feedback and mostly positive as people do see significant improvement in the product competitiveness, especially for the chip technologies, SkyOS vehicle operating system and also active safety features we have debuted on the ET9 are also now available on the 5 and 6 Series models. And regarding the high-voltage platform for the 55 and the 66, they are still running on the 400 volts. The overall feedback is also okay as we not only have improved the energy efficiency of these 4 models for extended driving range than the previous generation, we also have our power swap network that can ensure a good experience for our users, especially we have dischargeable, swappable and upgradable network enabled by the power swap. We also provided the flexible battery upgrade vouchers to our users for the NIO 55 and 66 models. In that case, they have the flexibility to upgrade to 100-kilowatt hour battery for longer range. And if they would like to have an even longer range, they can also choose to upgrade to 150-kilowatt-hour battery with more than 1,000 kilometer driving range. So overall speaking with improved energy efficiency and also chargeable, swappable network, the feedback on the high-voltage system is fine. And for the short term, we don't have plan to upgrade these 4 models to the 900-volt architecture platform.

My second question is regarding the channel network. Right now, you have the NIO, ONVO two networks and FIREFLY is sold within the NIO system. And just now you have mentioned that there is some innovative and NIO exclusive solutions by leveraging with battery swap station and to do the product demo and show up. Do you foresee at certain points that you could further reform the channels and by leveraging with the synergies between the two networks and perhaps some cross-sell or [indiscernible] like merger of the network? How do you think about the channel management?

[Interpreted] Thank you for the questions. Regarding the point of sale for the ONVO and the NIO brands, we will still keep them separated. But in the mid and back end, we are leveraging the synergies and also better integrate between these 2 brands, both in the headquarters and also in the regions. As actually, in many regions, the general managers of those regions are taking the concurrent roles to manage the sales of both NIO and the ONVO brands. So overall speaking, we will better integrate these 2 brands from the mid and back-end perspective for better efficiency and synergies. But in the meantime, we will also need to strike a balance between efficiency and the brand differentiation. So the longer term is to further integrate and leverage the synergies that will not be combining the point of sales. Regarding using power swap stations as a point of sales, we are doing some demonstrations and the pilot rounds in certain regions where we will not open the stores, but use the power swap stations as a window to get -- to reach out to our users and demonstrate our products and services. In that case, we will have the sales team and follows on site, but they will promote the product without having the stores. This is actually a unique selling point where a unique advantage of the NIO company by leveraging the power swap stations. And especially for the ONVO users in our survey, we have found that around 60% of ONVO users actually think power swap station where the capability of doing power swap is the top purchasing reason for them to buy the ONVO product. This is also another demonstration of the significant value of the power swap for the ONVO products and ONVO sales. And the same actually happens to the NIO brand as there is a small county in Shandong called Xingfu county. And in that place -- actually there's a town in Shandong called Xingfu town. And in that place, we have no stores or showrooms but only several power swap stations, yet in that place, we have more than 1,000 NIO users. This is also a lively case showing how power swap station can contribute to the sales volume. In that case, we are doing a series of systematic measures and also design centering on using power swap as a point of sale.

Your next question comes from Yuqian Ding with HSBC.

I got two questions. The first is on the continuous ONVO model. So the 2 new models is actually at a higher pricing point. What was the key selling point against the current backdrop that seems to be a little bit consumption downgrade this year? And roughly what's the mix between 60, 80 and 90 expectation, especially into -- by the end of the fourth quarter?

[Interpreted] Thank you for the question. ONVO L90 is a smart large space flagship SUV. It's a 3-row SUV and the L80 is a large 5-seater SUV, and both models are for -- mainly for the family users. And overall speaking for the ONVO's products, it is based out on NIO's technology and innovation with targeted design for the family users. And with that, we actually studied the mainstream family users in the Chinese market, and we have developed a value equation for the product definition and also development of the ONVO brand. With that, our design and also functionalities of the projects will mainly serve the value creation for the family users. And as we have debuted the L90 at the Shanghai Auto Show, we have demonstrated how large the space is with this model, especially with its big frunk with 6 occupants on board, the cars is still enough to accommodate 10 suitcases. Actually, this is an unprecedented functionality for a 3-row SUV, be it running on batteries or ICE or range extender. This is actually a product innovation driven by our tech innovation and space innovation. And in the recent information released by the MIIT, people is also impressed by the low energy consumption and the energy efficiency of L90 because it's such a big 3-row SUV and running on 85-kilowatt hour battery, the car still manages to achieve 600-kilometer driving range. This is actually an impressive result achieved on this model and also a very important advantage for the family users considering the overall driving range and also the cost of their ownership. And actually driven by the tech innovation and also the lowering lithium price or in general battery costs, we are seeing a turning point for the growth of the mid and large SUV -- battery electric SUV. If you look at the first 4 months of this year regarding the growth rate in the mid- to large and also large SUV segments, the growth rates for the above models is actually 63% year-over-year. For the range-extended version is only 1%. For PHEV, it's also roughly 60%. With this as a backdrop, we believe that L80 and L90 will be 2 game changers in this segment. And we have confidence for that as we are creating better experience and also more user value through our tech innovation and product innovation. Plus, we have our nationwide available power swap network to help relieve the range anxiety of our users. With that, we believe that this year, we'll also witness the turning point for the growth of mid and large battery electric SUV segment.

The second question is while the company is heading towards the fourth quarter breakeven target, we're also conscious that gearing ratio is also running high. Could you share a little bit more about the cash flow improvement and the cash management?

[Interpreted] Thank you for the question. In Q1 this year, we see the lowering of our cash position. This is partially due to the seasonality of the car sales as in Q4 last year, our sales volume was 72,000 units, while in Q1, it's 42,000 units. That has actually caused the outflow of the working capital of more than RMB 10 billion. And in the meantime, we also have some capital expenses as well as the one-off expenses, for example, the put option for our convertible bonds, which is around RMB 2.7 billion. But in the meantime, we are also raising funds. In late March, we have completed the fund raisings through our -- in Hong Kong Stock Exchange and raising around HKD 4.03 billion, yet this part of the fund raising was not recognized until early April. So it was actually not recognized in our Q1's financial results. But as we have shared, starting April, we are seeing our sales volume to pick up the pace. With that, this will also help bring our operating cash flow to the normal track. And as we have mentioned, our volume guidance for Q2 is between 72,000 to 75,000 units. This will help improve -- further improve our operating cash flow. And in Q3 and Q4, we have a higher expectation and targets for the sales volume, which will help our operating cash flow to continue to grow and improve in Q4 this year. And for the full year, we also see the possibility of achieving positive free cash flow. In the meantime, we will continue our cost reduction and efficiency improvement efforts to have a tighter control over our OpEx and the CapEx to make sure that our expenses are necessary.

The next question comes from Jing Chang with CICC.

I will have one question about overseas market strategy target and especially for the FIREFLY global expansion. So regarding to the overseas market, I think that last year, we have already achieved sales volume of several thousand units, especially in European market. So in this year, from the beginning, we see that several brands in U.K. market, they expand a lot and grow rapidly. And also considering the potential adjustment of the tariff policies, will UK market or overseas expansion become a strategic priority for 2024 and what's our overseas sales target for this year? And also, we see that we have mentioned the FIREFLY's global expansion. So could you share more details, including the timing of also region priority and also the pricing strategy?

[Interpreted] As mentioned, staring this year, we have started to change our global expansion strategy. Before in Europe, we mainly relied on our own sales and service network via the direct sales model. Starting this year, we started to switch to look for local partners for each country. And as I've mentioned, we have already partnered with more than 10 partners in more than 15 markets, and we are bringing more partners on board for more -- or for broader market entry. And regarding the overall global expansion and the strategy, we actually have a pretty long-term view for our international development. For the FIREFLY brand, it will be rolled out to several European countries as well as several other countries this year. And regarding the product from the ONVO and the NIO brands, depending on the demands of the markets, we will also see if there are good products for some countries and regions worldwide. But overall speaking, we don't have a very aggressive volume assumption or target for the global market because we mainly look at this for a very long-term perspective.

Your next question comes from Tina Hou with Goldman Sachs.

I have two questions. The first one is as we are targeting to reach the more than 50,000 monthly volume at the 4Q of this year, how are we planning our production capacity? What kind of production capacity do we have now? And then what level will we reach by 4Q? And then are we adding new lines or adding double shift to achieve that?

[Interpreted] Thank you for the question. Our current production capacity will be enough to support our delivery assumptions for Q4 this year. We are preparing our third factory and it will be put in operation starting September this year. And for certain production lines in some factories, we also have the flexibilities to arrange double shifts. In that case, production capacity won't be a problem for us.

And then my second question is regarding our working capital, our cash conversion cycle, because we have observed that both -- if we look at full year 2024 versus 2023, the account payable days, account receivable as well as inventory days have actually gotten longer. And if we look at 1Q '25 versus 1Q '24, these days also got longer on a year-over-year basis. So going forward, I think for the full year of 2025 and maybe longer term, how should we think about this cash conversion cycle? What is the like optimal days for these working capitals?

[Interpreted] Thank you for the question. As you have mentioned 2 key parameters: inventory level and also the account payable. Regarding the inventory level, as we see growing intensity in terms of the market competition, we are also switching our sales model from OTD, that's order to delivery model to more inventory-based. In that case, this is also a better practice to cater to the demand of the consumers where many of them would like to pick up their cars as soon as possible. So as now we are switching to the inventory-based sales model, we also are seeing higher inventory levels regarding the vehicles as well as the production materials in comparison to the OTD mode. If we would like to continue to keep up the sales volume against the growing fierce competition, then we will also see the growing level of the inventory, but we will have a very strict and tight control over the inventories of both vehicles and the materials. Basically, the reasonable inventory level of vehicles will be around 1/3 to half of the monthly sales volume of each brand. And regarding your second question on -- or the second parameter on the account payable, actually, the payment duration we set for our suppliers has always been the same. That's around the 90 days. But due to the accounting and also financial releases quarter-over-quarter, there are certain fluctuations that is also mainly related to the use of the track for the payment. Within the 90-day payment duration, we normally will ask -- normally, we will pay half in cash to our suppliers and another half in check. But depending on the supply of the goods and also the urgency of the supply or the types of suppliers, they will also have a various terms and conditions for the payment. Certain receive 100% payment only -- 100% payment in check and certain will only receive or allow for a 100% payment in cash within 60 days. So the payment terms and conditions also vary from supplier to supplier. But the overall duration is consistent. As we see growing sales volume in that case we will also see growth in the purchasing value of these commodities and goods from our suppliers multiplied by the volume and also the duration, we will also see the rising level with our account payable. But overall speaking, that's actually normal as it's relevant to the volume -- the soft volume of the product.

As there are no further questions, now I'd like to turn the call back over to the company for closing remarks.

Thank you again for joining us today. If you have further questions, please feel free to contact our IR team through the contact information on the website. This concludes the conference call. You may now disconnect the line. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]