蔚來 (NIO) 2022 Q1 法說會逐字稿

Hello, ladies and gentlemen. Thank you for standing by for NIO Incorporated's first quarter 2022 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. Please go ahead, Eve.

Good morning and good evening, everyone. Welcome to NIO's first quarter 2022 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 the Chief Executive Officer, Mr. Steven Feng, Chief Financial Officer, Mr. Stanley Qu, Senior Vice President of Finance, and Ms. Jade Wei, Vice President of Capital Markets.

Before we continue, please be kindly reminded that today's discussion will contain forward-looking statements made under the Safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the Company's actual results may be materially different from the views expressed today. Further information regarding risks and uncertainties is included in recent filings of the Company with the US Securities and Exchange Commission and the Stock Exchange of Hong Kong 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 information. 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 first quarter 2022 earnings conference call.

In the first quarter of 2022, we delivered 25,768 premium smart electric vehicles, another record quarter with a growth 37.6% year over year.

Since the second half of March the new wave of coronavirus outbreak in certain regions in China has impacted our vehicle production and delivery. In April and May, we delivered 5074 and 7024 vehicles, respectively. Starting from June, while the supply chain and vehicle production have basically returned to normal, our vehicle deliveries have also gotten back on track in Shanghai and several other important markets.

We will continue to work closely with our supply chain partners to further improve the overall supply chain production capacity and accelerate vehicle delivery. We expect that the total delivery in the second quarter of 2022 to be between 23,000 to 25,000 units.

Despite the outbreak, our products have continued to witness a robust demand. Our order intake stays strong, especially for ET7, and reached a new high in May. We believe the launch of new products will drive continuous order growth. In the meantime, government at all levels in China have also introduced positive policies to encourage vehicle consumption and purchase of electric vehicles. This will further promote the up trading and new purchase of premium smart electric vehicles.

Going forward, we will further increase the overall supply chain production capacity, and we're confident of ramping up of deliveries at a much faster pace in the second half of this year.

In terms of vehicle gross margins, the whole industry is faced with the rising cost of batteries, raw materials and chips, which has also affected our vehicle margin. In the first quarter, our vehicle margin stood at 18.1%. As the battery cost continued to surge, and [tick] in April, the vehicle margin in the second quarter will be under even higher pressure.

To mitigate the impact of the rising material costs, we have taken a series of countermeasures, such as adjusting product prices. With the deliveries of new products, higher revenue per vehicle and increasing production output, we expect the vehicle margin to start bouncing back from the third quarter.

On 20 May 2022, NIO was listed on the main board of the Singapore Exchange, which marks another important milestone of NIO. With that, we have further enhanced our footing in the global capital market, which lets us better connect with the investors and to serve the investors from around the world. It is also of great [significance] for our global business development.

In addition, according to the announcement made by the Hang Seng Index Company Limited, NIO will be included in the Hang Seng Tech Index, and the Hang Seng Composite Index, starting from 13 June.

Next, I would like to share with you some updates on our recent operations and R&D.

Research and development of the new products and core technologies has been one of NIO's long-term strategic focuses. We have been making positive progresses on various related fronts.

On 28 March we started to deliver ET7, whose extraordinary handling and riding experience has been well recognized by the users and the media. Since the delivery of ET7, we have made fast iterations, and released more smart features via voter updates, on a continuous basis.

We have introduced over 200 new features on the NT2.0 platform, with the next generation voice interaction and emotion engine technologies now means the interactive experience is comprehensively upgraded. The driver assistance system, powered by NIO's full stack in-house algorithm, has achieved outstanding performance in external reviews and the [build tech].

In the third quarter we will release NOP Plus, based on the HD Map co-developed with our partner, enabled by the powerful software and hardware platform, full stack in-house algorithm, and end-to-end approach to data collection and operations capabilities.

NT2.0 is capable of fast iteration and upgrades, laying a solid foundation for releasing [NADX] services in more scenarios and providing the autonomous driving experience beyond expectations.

On April 29, the first ET5 tooling trial build drove off the production line in F2 at NeoPark. The team is working the final stage of mass production of ET5, and the delivery is expected to start this September.

This month we will unveil ES7, a brand new large five-seater SUV based on the NT 2.0 and will start the delivery in late August.

We will continue to step up our investment in battery-related fields. As of now, we have over 400 employees working on battery-related technologies, including battery material, cell and pack designs, battery management systems, and manufacturing processes. We aim to build an enhanced [of our] comprehensive battery R&D and industrialization capabilities to improve the competitiveness and the profitability of our product in the long run.

With regards to production, F1 has fully resumed its capacity to the level before the recent outbreak. In addition, we will further ramp up the production output on a gradual basis to support the mass production of the new product.

NEO-F2 and NeoPark has completed the production line installation and tooling and has entered into the production validation phase. It will be put into operation from the third quarter this year. It only took 12 months from kicking off construction to rolling off of the first tooling trial build in F2, which is a record construction speed in the industry.

In terms of the sales and service network, we now have 381 new houses and new spaces in 152 cities, as well as 247 new service centers and delivery centers in 149 cities worldwide.

With regards to charging and swapping network, we've installed over 960 battery swapping stations in 197 cities. So far, we have 829 supercharging stations and 1140 destination chargers.

The continued deployment of our sales, service and power network will bring long-term benefits to our brand awareness, user satisfaction rate and the sales growth.

With respect to the global market, while further expanding of our sales and service network and improving the user satisfaction in Norway, our team has been accelerating preparations to launch our products and services in Germany, the Netherlands, Sweden, and Denmark.

In terms of our mass market brand, our product development and production preparation are in steady progress. On May 10, NIO signed a strategic cooperation agreement with Hefei on the second phase of a vehicle production plant and the facility [inaudible] key component at NIO Park. The agreement marks the start of the planning and preparation of the production capacity of the new brand.

NIO originates from a vision filled with blue sky. We are fully committed to making continuous investment in environmental protection and social welfare and contributing to global sustainable development.

Since we announced Clean Parks, a global ecosystem co-construction initiated last December, NIO has been actively cooperating with several organizations to roll out various projects to support national parks and natural reserves. On April 22, NIO reached a strategic cooperation with the Worldwide Fund for Nature who has joined hands with us in establishing a clean and low-carbon energy circulation system in national parks and natural reserves in China and beyond.

Although we went through many challenges in the first half of 2022, 2022 is still a critical year for NIO to make committed investments and efforts in new products, core technologies, global market entry, and the mass market brand. In the second half of this year, we will accelerate our new product delivery and the capacity expansion. We are confident of and look forward to realizing satisfying 2results in 2022.

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.

Thank you, William. I will now go over our key financial results for the first quarter of 2022. To be mindful of the length of this call, I will refer to R&D only in my discussion today. I encourage listeners to refer to our [earlier] press release, which is posted online, for additional detail.

Our total revenue in first quarter was RMB9.9 million, representing an increase of 24.2% year over year and remaining stable quarter over quarter. Our total revenues are made of two parts: vehicle sales and other sales. Vehicle sales in the first quarter were RMB9.2 billion, representing an increase of 24.8% year over year and remained relatively stable quarter over quarter. Increase in vehicle sales year over year was mainly attributed to higher delivery.

Other sales in the first quarter were RMB0.7 million, representing an increase of 15.6% year over year and remained relatively stable quarter over quarter. The increase in other sales year over year was mainly attributed to the increased sales of service and energy packages and others in line with the incremental vehicle sales in the first quarter of 2022, which was partially offset by the decrease of revenues from battery upgrade services.

Gross margin in the first quarter was 14.6% compared with 19.5% in the first quarter of 2021 and 17.2% in the fourth quarter of 2021. The decrease of gross margin year over year was mainly attributed to the decrease on vehicle margin and reduction in other sales margin resulting from expanded investment in power and service network. The decrease of gross margin quarter over quarter was mainly attributed to the decrease of vehicle margin.

More specifically, vehicle margin in the first quarter was 18.1% compared with 21.2% in the first quarter of 2021 and 20.9% in the fourth quarter of 2021. The decrease of vehicle margin year over year was mainly driven by the lower average selling price due to changes in our product mix. The decrease of vehicle margin quarter over quarter was mainly attributed to the increased battery cost per unit.

R&D expenses in the first quarter were RMB1.76 million, representing an increase of 156.6% year over year and remained stable quarter over quarter. The increase of R&D expenses year over year was mainly attributed to the increased personnel cost in research and development functions, as well as the incremental design and development cost for new products and technology.

SG&A expenses in the first quarter were RMB2.01 million, representing an increase of 68.3% year over year and a decrease of 14.6% quarter over quarter. The increase in SG&A expenses year over year was primarily due to the increase in personnel costs in sales and service functions and the costs related to the sales and service network expansion.

The decrease in SG&A expenses quarter over quarter was mainly attributed to the decrease of marketing and promotion expenses, especially the marketing and promotion expenses occurred from the hosting of NIO Day in December 2021, as well as decrease of professional services expenses.

Loss from operations in the first quarter was RMB2.19 million, representing an increase of 639.7% year over year and a decrease of 10.5% quarter over quarter. Net loss in the first quarter was RMB1.78 million, representing an increase of 295.3% year over year and a decrease of 16.8% quarter over quarter.

Net loss attributable to NIO's ordinary shareholders in the first quarter was RMB1.83 million, representing a decrease of 62.6% year over year and a decrease of 16.3% quarter over quarter.

Our balance of cash and cash equivalents, restricted cash and short-term investment was RMB53.3 million as of March 31, 2022.

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

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Please limit to two questions at a time. If you have more questions, please request to rejoin. Our first question comes from the line of Jeff Chung from Citi. Please ask your question.

(Spoken in Chinese). So, I have two questions. One is the second quarter GP margin outlook. It looked like the high margin products as a percentage of sales in second quarter reach about 37% versus 17% in the first quarter. I think this one of the positives that may potentially lift up the GP margin trend. Secondly, there has been some MSRP hike recently and we would like to know how much of the sales volume from the second quarter has been price hikes versus the first quarter. Obviously, this the first question.

The second question is that our new model cycle suggests that our current aging products, three products is going to turn into six new products into the next 6 or 12 months. So, my question is whether the third quarter production capacity can reach above 48,000 units since by referring to Tesla we saw a strong week-on-week and month-on-month recovery from the past weeks. My understanding is that a lot of our suppliers overlap with Tesla, so if Tesla recover fast, would that mean that we are going to enjoy the similar pace into June and the third quarter? Thank you. Xie xie.

(Interpreted) Thank you for your question, Jeff. Starting from April, we actually updated our agreement with our battery supplier CATL and by now, our battery cost is connected with the raw material indexes. Basically, it means that in the second quarter, we can see the battery cost is going to significantly increase compared with that of the first quarter and this is going to affect our vehicle gross margin performance. But there is going to be some latency. The battery price increase in the prior month is going to be reflected in the battery cost of the later months, and this is going to be incorporated into our vehicle gross margin performance.

According to the current forecast and the market trend, we can see that the battery cost is going down a little bit starting from May, and we have also taken some measures, for example, increasing our product prices. This is going to help us improve our performance in the third quarter. Right now, we are still delivering vehicles without the price adjustment, and we expect to start to deliver the vehicles with the price adjustment starting from the third quarter because our business model is made to order, or order to delivery.

Just now, we have also mentioned that our products with higher gross margins is also going to kick in, in terms of the performance of the vehicle gross margin, just as the ET7 that is launched in the second quarter, and we expect the production of the ET7 is going to gradually ramp up starting from June, and then starting from the third quarter, is going to maintain at a normal level.

Overall speaking, we believe the other vehicle gross margin is going to face higher pressure in the second quarter. This is mainly due to the battery cost impact. The vehicle gross margin of the second quarter is going to be lower compared with that of the first quarter, but with the price adjustment, we expect we are going to start to deliver the vehicles with higher prices starting from the third quarter, which is going to contribute to our vehicle gross margin.

With the production capacity expansion in Half 1, we expect that this is going to start improving our production output starting from June. Of course, it will need some time to gradually ramp up the production, but we believe the vehicle production is not going to be a bottleneck, and the demand is not an issue for us. The main challenge that we are facing right now is the supply chain, especially in terms of the chipsets and also the production capacity of our suppliers. We are very confident of our delivery performance, starting from the third quarter. Thank you, Jeff.

Thank you. Our next question comes from Tim Hsiao from Morgan Stanley. Please ask your question.

(Spoken in Chinese). Let me translate my questions. The first question is about orders. Could you please provide further details (inaudible). The orders of ET7 dominate the current order intake, while the demand for [in carbon] SUV are falling more [meaningful] and are we going to have [a slip in] our current SUV margin in [unclear]. And you mentioned the back-order book, does that include orders of ET5?

My second question is about inventories. In the presentation, I think William mentioned NIO now has more than 400 really good battery-related technology, covering cell, pack, DMS and more. Will NIO consider developing more in battery production, or (inaudible) battery OEM vendors' help to produce the battery based on NIO's own patents and the technology? Those are my two questions, thank you.

(Interpreted) Thank you, Tim, for your question. Regarding your first question for orders, basically in May, our order growth is quite significant, and this actually includes the order intake for the existing ES8, ES6 and EC6. Our order intake performance of the existing ES8, ES6 and EC6 is quite steady, and we have witnessed certain growth.

You have also mentioned whether we are planning for some upgrade of our existing models. We are planning for incorporating some smart hardware and some new software features for the upgraded version of the existing models.

After we launched the ET5 at last year's NIO Day, we have witnessed steady growth of the order intake. Recently, because of the auto shows and exhibitions, we have witnessed a very positive order performance of the ET5.

Just now, for the 400 - this is actually about the R&D team focusing on the battery technology. We have over 400 employees. For this, we plan to leverage our R&D capabilities in terms of the battery to launch an 800-volt high-voltage battery pack, which will also support the battery swapping technologies in 2024. We understand that this is going to bring many innovative technologies and revolutionary solutions. We believe that this unified pack concept is going to redefine the battery technologies, in terms of the battery cost and the battery safety.

Our plan right now is to start the production of these new next-generation battery packs in the second half of 2024. Our long-term battery strategy is going to be a combination of in-house production and also outsourcing. We believe this long-term strategy is going to benefit the overall competitiveness and the vehicle gross margin as well as the profitability of NIO's products. This is also going to be (inaudible). Thank you, Tim.

Thank you. Our next question comes from Bin Wang from Credit Suisse. Please ask your question.

(Spoken in Chinese). I actually want to quantify the margin, because you actually said our second quarter will be a low margin. Can you say what's the level [inaudible] in margin, because you actually raise the price for current products by around RMB10,000 (inaudible) in the gross profit margin, a gross profit of RMB10,000.

You also mentioned that in the third quarter, we're back to normal. What's the back to normal that you're referring to? Are you referring to the 18% gross margin in the first quarter, or the last peak level of 21%? Meanwhile, I suppose you will further increase the price for the upcoming battery semiconductor (inaudible) product. Is there going to be another increase in the cost margin? Thank you.

(Interpreted) Thank you, Bin, for your question. Regarding the price increase for our products, I previously have also explained that this is going to be reflected in our vehicle gross margin in the third quarter, because right now, we are still delivering vehicles without the adjusted price. For the second quarter, the battery cost is higher than that of the first quarter, but the impact of this is still uncertain. Specifically, we believe it is going to be higher than the RMB10,000 you have just mentioned, but we believe that there are still many uncertainties that we need to wait out a little bit, because just like I mentioned, right now, the battery cost of our products is actually based on the raw material trend and the index.

It means that for third quarter, we will probably see some trend of the raw material cost going down a little bit, and with our vehicle gross margin improvement, based on the NIO technology platform 2.0, the vehicle gross margin in the third quarter, we believe it's going to bounce back. But there are still many uncertainties, because the battery cost is very difficult to forecast and to determine at this moment. Thank you, Bin.

Thank you. The next question comes from the line of Ming-Hsun Lee from Bank of America. Please go ahead.

(Spoken in Chinese). My first question, could you also give us some guidance regarding your potential product pipeline for 2023? Especially for the [ES6], will you consider to launch the new generation by next year.

Second question is regarding your services [other] business. First, revenue slightly declined QoQ. Is it because of the COVID impact? Secondly, the gross margin of this business is also not very good for the quarter. Is this because of the lower utilization when you build a new battery swap station. What do we expect the margin improvement for this business?

(Interpreted) Thank you, Ming, for your question. Of course, for the existing models, including the ES8, ES6 and the EC6 our plan is to upgrade all those models to the NT2 platform in the next year.

Hi Ming, this is Stanley. The other operating loss mainly because the increase in depreciation and also operating expenses relate to our Power Swap stations. In this year we will continue to build the battery charger and swapping network which can bring the unique experience to our users and can benefit the further improvement of our user satisfaction and also brand image.

So from a short term, I think the other loss will increase along with the expansion of the network. From the long run, as numbers of the delivery and also users grow, we will make our charging service, charging and swapping services more efficient. The losses arising from the charging and swapping service will gradually narrow down. Our innovative business models including NIO Life and also ADaaS can also bring extra gross profit and booked in this account. Thanks, Ming.

Thank you and next question comes from Nick Lai from JP Morgan. Please ask the question.

(Spoken in Chinese) Let me explain very quickly my two questions. First is related to supply chain. Can you give an update on chip supply condition in June as well as second half as well as the pricing is with especially the supplier? Has this impact [had] reflect the cost increase in the first half and will battery cost continue to rise in the second half? Are we going raise our price again in second half as well?

Secondly a quick update on mass market brand strategy, thank you.

(Interpreted) Yes, thank you for question. There are many uncertainties in terms of the chip supply because in our vehicle we probably have over 1000 chips and the chip shortage situation for those 1000 chips may vary from time to time. This totally depends on the upstream suppliers of the tier 1 suppliers of NIO.

Many of the chip shortage is actually caused by the basic chipsets used by those tier 1 suppliers or the upstream suppliers of those tier 1 suppliers. For example, the - like a TI and Infineon they provide various kind of chips to OEMs and it is very difficult to actually identify specific risky chips that we are going to face a shortage.

That is why we do have a chip list. Normally it includes probably around 1 to 20 different kind of chips, and this list may change month to month. Of course, we will try to mitigate all of the risks with different kind of measures.

Previously our plan is to expand our production capacity starting from the second half of this year. So that's why starting from last year we have already started to work closely with other suppliers to make sure we can secure sufficient supplies for our product. We have some risks in terms of the chip supply but we believe this is actually manageable and is under control.

For the production capacity in the month of June, this is actually not specifically related to the chip shortage or other supply chain risks. This is just a part of the normal ramp up process for the production capacity expansion.

Regarding the second question of the battery. Starting from April, our battery cost is linked together with the raw materials of the batteries in the market. We can see the raw material cost actually peaked in April and we started to see some trend of going down, specifically for the lithium carbonate. In China we have already started to see there are more resources in for the lithium and there are some companies that are trying to mine the lithium to make sure they can supply to the market and meet the demand.

So I believe that the general consensus of the industry is it already peaked in April. So it's going to gradually go down. But of course, people have different forecasts in terms of what is going to be the final cost of those raw materials. Some people may think that the lithium carbonate is going to go down to around probably [$30,000] per ton. This means that we are going to reduce the cost of the lithium carbonate by 20% to 30% and we also have a similar forecast for the nickel material as well. So we believe the general trend is the cost of those battery materials is going down and is not going to go up again.

The next question is about the mass market brand. Our plan is to start the delivery of the product, of the mass market brand starting from the second half of 2024. This product is going to be based on the new NIO Technology Platform 3.0. We believe the mainstream products of the mass market brand is going to be at the price range from RMB200,000 to RMB300,000.

Of course, the mass market brand product will also support battery swapping and we are going to use our in-house to develop and manufacture the batteries for the mass market brand product.

Of course, this (inaudible) is also going to support higher voltage technologies and we believe with all those advanced technologies and competitive pricing, those products under the mass market brand are going to be very competitive. Thank you.

Thank you. Our next question comes from Paul Gong from UBS. Please ask your question.

(Spoken in Chinese). Let me translate my questions. The first question is related to ES7. Why from unveiling launch until delivery it seems to be a lot faster than the previous ET7 or ET5 and how do you think about the cannibalization versus ES8, ES6 and EC6 given they are all SUVs of similar size?

My second question is regarding the supply chain preparation for the NT2.0 Platform. Currently it seems that the ET7 production remains to be relatively slow in terms of ramp up and with pretty long waiting periods. [Unclear] we're going to have ET5 with larger volume and ES7 in the pipeline, have we done enough work to ensure the key component supply to enable the ramp up of the overall NT2.0 platform model? Thank you.

(Interpreted) Thank you, Paul, for your questions. Regarding the first question, we have always been working on the development of new products and we have been working on the development of the ES7 for some time and the launch time of the ES7 is actually already planned, when we were developing the product.

It may seem that right now it's very close to the delivery of the ES7 but previously our plan is to launch the ES7 earlier. Due to the impact of COVID-19, we delayed a little bit. That is why it seems that it is much closer to the actual delivery of the ES7. But everything is actually going forward according to our plan.

ES7 is going to be based on the NIO Technology Platform 2.0, which is going to be offering higher and smarter technologies compared with the current NT1 Technology Platform and the current ES8, ES6 and EC6 are actually based on the NT1 Technology Platforms. There will also be some price differences. The price positioning of the ES7 is going to be between that of the ES8 and ES6.

We believe there is not going to be cannibalization between the ES7 and the existing models because we have different positionings and pricing strategies for those products. For example, the ES8 is mainly focusing on the six-seater and seven-seater market and the ES7 is positioned as a large five-seater SUV, which has higher pricing compared with that of the ES6.

For the second question, of course we have already actually started at a very early stage to plan for the production ramp up of products based on the NT2.0 platforms. We have already done this for some time. Of course, there are going to be some risks but because we have planned ahead, we believe it's still manageable.

Thank you, Paul.

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

(Spoken in Chinese). So I've got two questions. The first is to ask about whether our price hike in May is enough to cover the cost headwind from the battery side, aluminum body and also the chips alignment in the channel and what's the management thought about the actual cost and also the pricing strategy coming forward.

The second question is to ask about ET5 volumes and the margin conviction. We know there's a bit of (inaudible) splash on the entry luxury, which currently ET7 has been located within the segment and also previously we have designed 20% above margin, but back in a time we haven't considered -- we might not consider the cost headwind coming from the commodity side might persist longer.

(Spoken in Chinese)

Hi Yuqian, this is Stanley. For the cost increase (inaudible) I think William has given us a lot of guidance. Regarding the price increase of other material and also chip costs, I think we have absorbed through close cooperation with our partners and also internal efficiency improvements. Also, as William introduced, the whole market for the key raw materials are quite dynamic. At this moment we cannot give the precise estimation of the following months or quarters, the trend. So for the second question, William.

(Interpreted) For the ET5 because we have already accumulated a significant amount of reservation orders, so if we consider the production of the ET5 with the leads for year the production of ET5 will only be sufficient to meet the backlog for the ET5 orders. So this price increase of the ET5 is not going to have any impact of our vehicle gross margin performance this year.

Right, thank you. Our next question comes from Vijay Rakesh from Mizuho. Please ask your questions.

Yes, hi, I have a quick two questions. On your in-house capacity with Hefei, you have talked about 240,000 annual capacity. Do you think you will get to that 20,000 a month run-rate by end of Q3 of this year, Q3 '22?

The second question is on the NIO Park. That obviously has an incremental additional 300,000 per year capacity. You talked about ramp -- starting that in Q3. Can you walk through how that ramp should look? Will it be like 10,000 a month exiting this year and then gradually increase next year? That's it. Thank you very much.

(Spoken in Chinese).

Okay, so, Vijay, let's answer your question for the prime capacity of our first plant with JV NIO, as we have mentioned, we will continue to ramp up its production capacity in Q3. I think probably -- I think in the second half of the year our overall production capacity should reach 20,000 units per month. It can be -- it's now probably too early for us to say when.

Then for the F2 ramp up pace, actually first we will kick off the delivery of ET5 from this plant in Q3. So it will kick off production in Q3 and we try to reach 10,000 units within quite a short period, probably three or four months. I think that's our plan. But, of course, next year as we introduce more models into this factory, the overall production volume of F2 will continue to rise.

All right, thank you. Our next question comes from [Xue Deng] from CICC. Please ask your question.

(Spoken in Chinese) My first question is about it was reported in May that we have relevant recruitment information in the United States, so can you share more details about it? How do you see the breakthroughs in overseas market? Which potential market we think has more potential for us to deployment and what are the difficulties?

My second question is about NAD. Can you share now details about the current testing progress? (Inaudible), thank you.

(Spoken in Chinese).

Okay, [Deng Xue], thank you for your question. So first with regard to the US market, the short answer is we will definitely enter the US market and actually we've started a comprehensive study of the US market and have a dedicated team in charge of this plan for the market. We will tap into the US market in this manner but now it's still in the study phase, so we will share more information when it's appropriate.

Also, then for the difficulties or difference in the laws in European markets. First, actually there's a lot of commonalities between China and the European market, from the business model to the aspirations for green smart EV products. The Norwegian users also enjoy the concept of smart EV and even the price. But we do need to name some differences, of course, first the culture and also the cost structure. So in Europe surely the labor cost will be higher and also we need to be -- accumulate enough understanding of the local culture and get integrated into the local community.

William, back to you.

(Interpreted) For the second question regarding NAD, the current ADAS functions and features based on the NIO Technology Platform 2.0 is actually derived from the full stack technologies developed in-house by our own AD team. We have comprehensive full stack capabilities starting from sensing, algorithm and control strategy. Starting from the delivery of the ET7, March 28th we have witnessed the data closed loop management and production, which has helped us to achieve very fast iteration and up rates of the vehicle autonomous driving or ADAS experiences based on the NT2.0.

So for us we have witnessed many improvements in the last two months, because we can collect our data and we can actually see all those data, we can see that the performance of the NT2.0 is actually several times better than that of the NT1.0, because after we collect all those data, we can use the data to train our algorithm and over ADAS and AD technologies. So I have also just mentioned that we are going to release the NOP+. We are very confident of the performance of the NOP+. This NOP+ is going to be based on the high-definition map developed by ourselves, together with Tencent, and this is going to be an in-house high-definition map.

We are going to integrate all those different technologies, including the high-definition map, with over AD and ADAS closed-loop data management. So we are going to use the same kind of technology stack to improve our autonomous driving and ADAS features. That is why we're very confident with the [NAD] performance in the long run, based on our sensing capabilities, the closed-loop data management and also the fast iterations and the systematic capabilities.

Thank you.

Thank you very much for all your questions. We have reached the end of the question-and-answer session. I'll now turn the call back to the management team for closing remarks.

Thank you once again for joining us today. If you have further questions, please feel free to contact of any of the investor relations team through the contact information provided on our website. This concludes the conference call. You may now disconnect your lines. Thank you.

Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.

Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.