蔚來 (NIO) 2020 Q3 法說會逐字稿

Hello, ladies and gentlemen.

Thank you for standing by for NIO Inc.'s Third Quarter 2020 Earnings Conference Call.

(Operator Instructions) Today's conference call is being recorded.

And I will now turn the call over to your host, Mr. Rui Chen, Director of Investor Relations of the company.

Please go ahead, Rui.

Thank you.

Good morning, and good evening, everyone.

Welcome to NIO's Third Quarter 2020 Earnings Conference Call.

The company's financial and operating results were published in the press release earlier today and are posted at the company's IR website.

On today's call, we have Mr. William Li, Founder, Chairman of the Board and Chief Executive Officer; Mr. Steven Feng, Chief Financial Officer; Mr. Stanley Qu, VP of Finance; and Ms. Jade Wei, AVP of Capital Markets and Investor Relations.

Before we continue, please be kindly reminded that today's discussion will contain forward-looking statements made under the safe harbor provision 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 Securities and Exchange Commission.

The company does not assume any obligation to update any forward-looking statements, except as required under applicable law.

Please also note that NIO's earnings press release and this conference call include discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial measures.

Please refer to NIO's press release which contains a reconciliation of the unaudited non-GAAP measures to comparable GAAP measures.

With that, I will now turn the call over to our CEO, Mr. William Li.

William, go ahead, please.

(foreign language)

[Interpreted] Hello, everyone.

Thank you for joining NIO's 2020 Q3 earnings call.

(foreign language)

[Interpreted] In the third quarter of 2020, NIO delivered 12,206 ES8, ES6 and EC6, representing a strong growth of 154.3% year-over-year and 18.1% quarter-over-quarter.

In October 2020, we delivered 5,055 vehicles, achieving another monthly delivery record.

(foreign language)

[Interpreted] ES6 has been the best-selling electric SUV in China for 13 connective months.

ES8 has reached the #1 in sales this year in the premium electric SUV segment, priced above RMB 400,000 in China.

Our third product, EC6, has started deliveries in September.

We have gained and maintained a great word-of-mouth reputation for our product quality and service and continuously received a positive feedback from our users.

In the 2020 China New Energy Vehicle Experience Index released by J.D. Power in September, NIO has once again ranked highest in NEV new vehicle quality among all brands.

(foreign language)

[Interpreted] After the launch of Battery as a Service or BaaS, NIO's products and services have been increasingly accepted by more users.

The new order intake in October broke the historic record and exceeded all expectations.

In the fourth quarter, we are confident that the deliveries will further grow to between 16,500 and 17,000 units.

(foreign language)

[Interpreted] In terms of gross profit, supported by the steadily growing quarterly deliveries, increase of high-margin products in our product mix as well as continuous improvement on material cost and manufacturing efficiency, our gross margin in the third quarter has continued the upward trend with the vehicle margin and overall gross margin reaching 14.5% and 12.9%, respectively, surpassing our previous expectation.

(foreign language)

[Interpreted] NIO's system efficiency is getting more and more self-evident.

The operating loss has further narrowed to RMB 946 million in the third quarter of 2020, representing an 18.4% decrease [quarter-over-quarter] (corrected by the company after the call) and a 60.7% decrease year-over-year.

In addition, we have achieved a positive cash flow from operating activities for the second sequential quarter in Q3.

We are confident to achieve a positive operating cash flow for the full fiscal year 2020.

(foreign language)

[Interpreted] Next, I would like to share with you some key tasks of the company.

(foreign language)

[Interpreted] With respect to R&D, we've released the Navigate on Pilot feature or NoP to users via FOTA in October, which has further boosted the competitiveness of NIO Pilot, our ADAS systems and received rave reviews from users and the media.

Through fusing the environmental data from the sensor suite with high-definition map, NOP can guide the vehicle to follow the navigation route, automatically drive from on-ramp to off-ramp and overtake slower cars.

It can engage not only on highways but also urban expressways with optimizations based on specific use cases in China.

(foreign language)

[Interpreted] We are accelerating the development of the second-generation technology platform, NT 2.0.

The core of NT 2.0 is industry-leading mass production autonomous driving system.

We will share more details of NT 2.0 at NIO Day 2020.

(foreign language)

[Interpreted] On November 6, NIO launched a 100-kilowatt hour battery pack.

It features a highly integrated cell-to-pack architecture with 37% energy density increase, which significantly extends the drive range of our product lineup.

It has also adopted other advanced technologies including thermal propagation prevention design, all-climate thermal management and the bi-directional cloud BMS to make the battery safer and better.

The 100-kilowatt hour battery pack will begin deliveries in December.

Together with the launch of the 100-kilowatt hour battery pack, we also provide permanent upgrades and flexible upgrades by month or by year to users of the 70-kilowatt hour battery pack.

As of today, we have successfully closed the loop for our innovative BaaS model through vehicle battery separation, battery subscription and chargeable, swappable and upgradable battery solutions.

(foreign language)

[Interpreted] As for production capacity, our overall supply chain production capacity has already reached 5,000 units per month in September.

The teams are working diligently together with our partners to further elevate our production capacity.

We target to expand the overall supply chain production capacity to 7,500 units per month in January 2021 to meet the growing user demand.

(foreign language)

[Interpreted] In regards of the sales and service network, NIO has opened 22 NIO houses and 159 NIO spaces in 106 cities and 159 power swap stations in 70 cities in China.

Moreover, we are developing the second-generation power swap station with lower cost and better experience and are planning to deploy the second-generation swap stations in the first half of 2021.

(foreign language)

[Interpreted] As our user base continues to expand, the NIO user community is becoming ever more vibrant.

November marks the second anniversary of the NIO user volunteer Initiative.

As of November 10, 2020, there are 3,101 user volunteers from 118 cities.

They take it upon themselves to promote NIO and contributed to the community at the showroom, auto shows, live streaming platform, delivery centers and the NIO Day.

Users' trust and support have always been the biggest motivation for NIO to do more and be better.

(foreign language)

[Interpreted] On November 26, 2020, NIO will embrace its sixth anniversary.

With users' support and the team's efforts, we have achieved a milestone performance.

But we are still a start-up with a rather short history.

In the face of a fierce competition and intense challenges, we will remain committed to making decisive investments into products and core technologies and offering the best service and holistic user experience to live up to the expectations of our loyal user community.

(foreign language)

[Interpreted] Thank you for your support.

With that, I will now turn the call over to Steven to provide you the financial details for the quarter.

Steven, please go ahead.

Thank you, William.

I will now go over our key financial results for the third quarter of 2020.

And to be mindful of the length of this call, I encourage listeners to refer to our earnings press release, which is posted online for additional details.

Our total revenues in the third quarter were RMB 4.53 billion or USD 666.6 million, representing increase of 146.4% year-over-year and an increase of 21.7% quarter-over-quarter.

Our total revenues are made of 2 parts: vehicle sales and other sales.

Vehicle sales in the third quarter were RMB 4.27 billion or USD 628.4 million, accounting for 94% of total revenues in this quarter.

It represented an increase of 146.1% year-over-year and an increase of 22.4% quarter-over-quarter.

The increase in vehicle sales year-over-year was primarily due to the increase in sales of ES6 and ES8.

Other sales in the third quarter were RMB 259.2 million or USD 38.2 million, representing an increase of 150.7% year-over-year and an increase of 11.3% quarter-over-quarter.

The increase in other sales year-over-year was mainly attributed to increased revenues derived from the home chargers installed, service package and energy package subscribed, and accessories sold, which were in line with increased vehicle sales in the third quarter of 2020.

Cost of sales in the third quarter was RMB 3.94 billion or USD 580.3 million, representing an increase of 91.4% year-on-year and an increase of 15.7% quarter-over-quarter.

The increase in cost of sales year-over-year was mainly driven by the increase of delivery volume in the third quarter of 2020.

Gross profit in third quarter of 2020 was RMB 585.8 million or USD 86.3 million, representing an increase of RMB 807.4 million from a gross loss of RMB 221.6 million in the third quarter of 2019 and an increase of RMB 272.7 million from the second quarter of 2020.

The increase in gross profit was mainly contributed by increased vehicle sales and increased vehicle margin.

Gross margin in the third quarter of 2020 was 12.9% compared with negative 12.1% in the same quarter of 2019 and 8.4% in the second quarter of 2020.

The increase of gross margin was mainly driven by the increase of vehicle margin in the third quarter of 2020.

More specifically, vehicle margin in the third quarter of 2020 was 14.5% compared with negative 6.8% in the same quarter of 2019 and 9.7% in the second quarter of 2020.

The increase of vehicle margin was mainly driven by the decrease in purchase price of certain materials and lower unit manufacturing costs attributed from increased production volume of ES6 and ES8 in the third quarter of 2020.

R&D expenses in the third quarter were RMB 590.8 million or USD 87 million, representing a decrease of 42.3% year-over-year and an increase of 8.4% quarter-over-quarter.

The decrease in R&D expenses year-over-year was primarily attributable to higher design and development costs incurred in the third quarter of 2019 for EC6 and all-new ES8 launched in the fourth quarter of 2019 and the company's overall cost-saving efforts and improved operational efficiency in R&D functions since the fourth quarter of 2019.

SG&A expenses in the third quarter were RMB 940.3 million or USD 138.5 million, representing a decrease of 19.2% year-over-year and an increase of 0.4% quarter-over-quarter.

The decrease in SG&A expenses year-over-year was primarily driven by the company's overall cost-saving efforts and improved operating efficiency in marketing and other supporting functions.

Loss from operations in the third quarter was RMB 946 million or USD 139.3 million, representing a decrease of 60.7% year-over-year and a decrease of 18.4% quarter-over-quarter.

Share-based compensation expenses in third quarter were RMB 49.2 million or USD 7.3 million, representing a decrease of 30.1% year-over-year and an increase of [8.6%] (corrected by the company after the call) quarter-over-quarter.

The decrease in share-based compensation expenses year-over-year was primarily due to less options granted driven by the decline in numbers of employees and impact of part of the share-based compensation expenses being recognized by using the accelerated method, under which the expenses decrease gradually over the vesting period.

Net loss in the third quarter was RMB 1.05 billion or USD 154.2 million, representing a decrease of 58.5% year-over-year and a decrease of 11% quarter-over-quarter.

Net loss attributable to NIO's ordinary shareholders in the third quarter was RMB 1.19 billion or USD 175 million, representing a decrease of 53.5% year-over-year and a decrease of 1.6% quarter-over-quarter.

Basic and diluted net loss per ADS in the third quarter were both RMB 0.98 or USD 0.14 per ADS.

Excluding share-based compensation expenses, and accretion on redeemable noncontrolling interests to redemption value, non-GAAP adjusted basic and diluted net loss per ADS were both RMB 0.82 or USD 0.12 per ADS in the third quarter.

Our balance of cash and cash equivalents, restricted cash and short-term investments was RMB 22.2 billion or USD 3.3 billion as of September 30, 2020.

Additionally, we achieved positive cash flow for operating activities for the second sequential quarter.

And now for our business outlook.

As William mentioned, for the fourth quarter of 2020, the company expects deliveries to be between 16,500 and 17,000 vehicles, representing an increase of approximately 100.6% to 106.7% from the same quarter of 2019 and an increase of approximately 35.2% to 39.3% from the third quarter of 2020.

The company also expects the total revenues of the fourth quarter 2020 to be between RMB 6.26 billion to RMB 6.44 billion, or between USD 921.8 to USD 947.9 million.

This would represent an increase of approximately 119.7% to 126% from the same quarter of 2019 and an increase of approximately 38.3% to 42.2% from the third quarter of 2020.

This business outlook reflects the company's current and preliminary view on business situation and market condition, which is subject to change.

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

(Operator Instructions) The first question we have is from the line of Tim Hsiao from Morgan Stanley.

This is Tim from Morgan Stanley.

Congratulations on the strong result.

So I have 2 questions and will quickly go through them in Mandarin first.

(foreign language)

So my first question, we saw NIO making solid operational progress this year at all fronts.

For example, like the launch of EC6, BaaS and the 100-kilowatt hour battery pack.

So looking into 2021, in addition to the fourth model launch and ongoing investment in autonomous driving, what else would be our key focuses for R&D investment?

And if possible, could management share any rough guidance regarding the overall R&D spending versus 2020.

My second question is about BaaS, Battery as a Service.

Could you please share some market feedback on the Battery as a Service program?

And with the launch of the 100-kilowatt hour battery pack, what's your expectation of the take rate of BaaS services for 2021 and beyond.

These are my 2 questions.

(foreign language)

[Interpreted] Thank you for your question.

Regarding the R&D focuses for next year or over recent focus, just like I mentioned in my prepared remarks, the NT 2.0 is the focus in terms of the core technologies.

The core of NT 2.0 is industry-leading mass production autonomous driving system.

Of course, we also have other ongoing projects.

In terms of the vehicle models, we have already successfully launched 3 SUVs.

For the next product we are going to launch, it's going to be a sedan on the NT 2.0 platform.

It means that we're going to enter the sedan market.

At the same time, we are also developing other vehicle models.

For example, the second NIO product in the pipeline is also going to be a sedan.

So with the launch of the next 2 new products, we believe we can complete our product portfolio.

(foreign language)

[Interpreted] In terms of the BaaS take rate, after we announced BaaS in August, we are very happy to see the increase with the take rate every week.

And in November, we can see that among all those new orders, the take rate of BaaS is around 35%, which is faster and better than our previous expectations.

Because our model is make to order, so this will be reflected a little bit later in our deliveries.

We are very happy to see this BaaS take rate momentum, and we believe that this is also going to improve in the future.

BaaS can help us to lower the initial purchase price and eliminate the users' concerns regarding the battery degradation and also provide flexible upgrade services to the user.

The purpose of BaaS is to convert more gasoline car users to EVs.

After the launch of the 100-kilowatt hour battery pack, we believe the competitiveness of BaaS has been significantly enhanced.

And as the users can get much better understanding about the benefit of BaaS, we believe this take rate will increase in the future in the long run.

And the next question we have is from Ming Lee from Bank of America.

(foreign language) So my first question is regarding the margin expansion.

From second quarter to third quarter, your gross margin improved around 5 percentage points.

Could you give a rough breakdown of how do you improve your gross margin?

And do we also see any extra contribution from the sales of NEV credit?

So this is the first question.

(foreign language)

Ming, this is Stanley.

The vehicle margin increased in Q3 compared with Q2, mainly contributed by 2 factors.

The first is the average selling price increased by RMB 10,000 per vehicle, mainly because the more ES8 with higher price are sold in Q3.

Second is BOM cost reduced by RMB 7,000 per vehicle.

Also -- which are contributed by the cost reduction of battery pack and also EDS.

You mentioned the revenue from selling dual credit points.

We received the revenue in Q4 with total amount of RMB 120 million, and we will recognize this as other revenue in Q4.

So in Q3, we've not included in the financial results, yes.

So that's your question about the vehicle margin.

And regarding the service revenue, I think we are continuing to working on to improve the -- like the service margin to reduce the loss.

So I think the trend will be positive in future.

Okay, that's it for me.

(foreign language)

[Interpreted] Overall speaking -- regarding the gross margin of other service and sales, we believe it will be further optimized as our user base continues to expand.

And this is going to be reflected with the growing economies of scale.

In the Q2 and Q3, the change is not very evident.

But we are quite confident that this is going to have a continuous optimization in the future.

(foreign language)

(technical difficulty)

The participant's line got disconnected.

(Operator Instructions) I will move on to the next one we have Bin Wang from Crédit Suisse.

Operator, let the management to answer the question first.

(foreign language)

Just to recap a little bit on the question.

Basically, the question is about the average selling price.

And in the fourth quarter, it seems that the average selling price will increase compared with the third quarter by around CNY 12,000 to CNY 13,000 then.

So we would like to know whether this is driven by the EC6 or the 100-kilowatt hour battery pack.

And we also would like to know, for the battery pack, what is the take rate ratio between the 100-kilowatt hour battery pack and the 70-kilowatt hour battery pack.

(foreign language)

[Interpreted] In terms of the sales revenue guidance, we would like to clarify a little bit, just like Stanley mentioned, for the dual credit revenue, this is going to boost the revenue for the other sales.

And in our guidance, we don't actually consider the increase of the average selling price as a part of the target.

We believe the average selling price in the fourth quarter is going to be at the similar level as the third quarter's according to the orders we receive right now.

And we just started the deliveries of the 100-kilowatt hour battery pack in the fourth quarter.

So we believe that this is not going to have any impact on the gross margin in such a short time.

But we are very confident to continuously improve our gross margin throughout the fourth quarter.

The next question is from Bin Wang from Crédit Suisse.

(foreign language) Actually I just want to know what's the margin factors?

Going forward -- in the past.

Going forward, we see a few factors, for example, the BaaS adoption, 100-kilowatt hour battery and some removal of the interest rate subsidy for the previous deployed battery.

Any one-off factors for impact the margin in the past?

That's about the margin.

Second, about new products because we've seen the next two products will be the sedan, next it will be lower pricing or maybe lower margin.

So do you see any plan for even bigger SUV or even bigger one because, for example, maybe the name is the ES9, we've seen other peers actually planning for a much bigger one.

So basically, what's the upcoming plan for even bigger products.

This is Stanley.

I will break down into the factors to further explain the gross margin improvement.

The first you mentioned is about the subsidy.

We further reduced the subsidy to the end users in Q3 with the launch of our BaaS model.

And so in Q3, there's a little bit by factor can -- like to -- due to the subsidy reduction.

And the second is the scale of the economy.

As you can see, the production volume in Q3 is 12,000 vehicles and almost over 20k increase compared with Q2.

As William mentioned, also priorly we invest more to improve our production capacity in September to 5,000 units.

So the manufacturing cost, I think, almost all the same with the second quarter, yes.

And about the BaaS and also the 100-kilowatt impact, I pass to William to answer this question.

(foreign language)

[Interpreted] I would like to add some points regarding the manufacturing cost and the efficiency.

In the long run, of course, we will further improve our manufacturing efficiency and the cost.

And we believe this is going to reduce gradually, but we are going to stop the reduction at a certain point.

Of course, we can see more contribution in the [second] (corrected by the company after the call) quarter compared with the [third] (corrected by the company after the call) quarter, but this is going to diminish in the future.

But we will continue to work on the optimization of the manufacturing efficiency and the cost.

(foreign language)

[Interpreted] For the battery as a service, we will sell our cars to the users and the battery to the battery asset company under the BaaS model.

So it means that this is not going to affect the vehicle gross margin, but with our battery upgrade service, this is going to provide some good benefits to other revenues.

So in the long run, this is not going to have any significant impact on the vehicle gross margin, but it will give some incentives to other revenues.

(foreign language)

[Interpreted] For the dual credit, we actually include this in other revenues or other sales.

We have different approaches compared with Tesla because Tesla considers the revenue of the credit in the vehicle sales margin, but we include that in the other revenues.

(foreign language)

[Interpreted] For the new product planning, we have a very comprehensive product and market entry planning.

This is going to be carried out step by step.

For example, we started with our flagship SUV ES8 in the mid and large segment, then we entered the mid-sized SUV segment with the ES6 then the -- coupe SUV with the EC6.

This is a very systematic approach.

For the next step, we are going to enter the sedan market.

When selecting different market segments, we need to balance the size of the segments and the volume objectives.

At this moment, the niche markets are not going to be our focus.

I think Bin also mentioned the one-time factors in Q3.

We did not receive a significant like sales rebate from the suppliers in Q3.

So I don't think, yeah, we have also the material factors, yeah.

Okay.

Okay.

Can you also answer me about the 100-kilowatt hour battery, whether that were improving your margin?

Also, I think in the disclosure, you also mentioned about 150-kilowatt-hour battery are coming.

So did you think that margin for the upside from the battery upgrade?

(foreign language)

[Interpreted] For the 100-kilowatt hour battery pack, the users can purchase the battery pack as an option, which is going to improve the vehicle gross margin, but at the same time, we also provide flexible upgrades, which can contribute to the gross margin of other services and sales.

These are 2 different stories and approaches.

After the launch of the 100-kilowatt hour battery pack, we have seen some users choose to install the 100-kilowatt hour battery pack as an option.

And at the same time, we also provide the flexible upgrades.

So we also have some users opt to the flexible upgrades by month or by year.

We believe this is going to improve the gross margin of the company.

But in terms of the new car gross margin or new vehicle gross margin, we think it's not going to have a significant impact.

But in the long run, this is going to give us some boost to the gross margin of the other sales and revenue.

(foreign language)

[Interpreted] Our logic for this approach is basically the 70-kilowatt hour battery pack can meet the daily needs of the users.

And if the users need to travel for long distance, then they can subscribe to the bigger batteries or the batteries with higher density or capacity.

Users can choose this service on demand.

This is quite flexible, and this is the advantage of our service.

We believe that this is also going to contribute to the possibilities of gross margin growth in the long run.

And the battery pack is going to provide a very good opportunity for us to improve the gross margins among the existing users.

And this is a very unique advantage of our business model.

(foreign language)

[Interpreted] The 100-kilowatt hour battery pack or the future bigger battery pack can, in the end, improve the attraction of the 70-kilowatt hour battery pack because the users of the 70-kilowatt hour battery pack will have the opportunity to upgrade the battery pack on demand.

They don't actually need to have the 100-kilowatt hour battery pack or 150-kilowatt hour battery pack right from the beginning.

They can just use the 70-kilowatt hour battery package to make -- to meet their daily usage needs.

Then when it's needed, they can upgrade to the bigger batteries.

And we believe that this is going to significantly improve the competitiveness of our 70-kilowatt hour battery pack.

(Operator Instructions) The next one is from Edison Yu from Deutsche Bank.

First, can you talk a little bit about the plan -- the operational plan to boost the production target in January, what needs to get done just on the ground?

And then secondly, as it relates to the next-gen autonomous platform, can you talk about your latest thinking in terms of in-sourcing the chip design, maybe the implications for Mobileye in that relationship and how you think about the use of LiDAR?

Thank you, Edison.

(foreign language)

(foreign language)

(foreign language)

[Interpreted] We have always been emphasizing the overall supply chain production capacity not just about the production capacity of our own plants.

We would like to work together with all the supply chain partners to make sure they can support us to boost our production capacity.

The users right now will need to wait for some time to pick up their cars because of the production capacity constraints.

We are also trying to speed up the deliveries to satisfy the users' demand.

So right now, we are working on our own plant production capacity expansion and also working together with the supply chain partners to improve their production capacity.

We're very confident to be able to improve our production capacity to 7,500 units.

(foreign language)

[Interpreted] The second question is about the chipset of the NT 2.0.

We understand this attracts a lot of attention in the industry and in the market, but we still need some time to disclose the specific information at the NIO Day 2020.

It's still too early for us to share those information.

Of course, we have already made our decision internally.

We believe we should be able to provide the most advanced chipset with the best performance in the industry.

And this can also help us to guarantee our leading position in the industry for the coming years.

(foreign language)

[Interpreted] For the LiDAR question, I would like to share some thoughts on the autonomous driving direction first.

When thinking about autonomous driving, we should evaluate 2 aspects.

The first one is how much time we can free up for the users.

This is a question of the availability or usability.

The second question is how many accidents can we prevent with the autonomous driving system.

This is a matter of reliability.

So we need to think about these 2 aspects when we evaluate the strategy of autonomous driving.

We believe LiDAR should be able to help with both aspects.

This is a very simple math.

But we will need to tackle the issue of cost when it comes to LiDAR, and we need to balance this out with our product strategy.

In the future with the improvement of cameras and the compute powers, we do believe that LiDAR can play a role in some cases and the domains because it can help us to reduce the accident rate in some corner cases.

So LiDAR is a very good addition to the technology competence.

(foreign language)

[Interpreted] If a company puts users' interests first, then they should find ways to tackle the technical issues in terms of cost and performance.

We have the next question from Nick Lai.

(foreign language) Let me translate my question very briefly.

The first question is regarding the cash burn and the CapEx and the investment in the next 1 year.

For instance, William just mentioned that our monthly capacity can ramp up to 7,500 in January.

And would that mean that in the next 1 year also, we need to expand our capacity at the Jianghuai plant?

On top of that, how should we think about the CapEx needed to build swap station as well as NIO space?

So the first question is about cash burn and CapEx related.

And second question on longer-term autonomous driving solution or strategy, based on what William's -- chairman's comment just now, is it correct to understand that our long-term strategy is to procure chips from top vendor, but at the same time we will do most of the algorithm capability or solution in-house?

So Nick, with regard to the CapEx to improve our production capacity, most of the CapEx will be covered by JAC.

Of course, NIO will spend very little CapEx on our own, but the majority will be covered by JAC.

Yes.

And we also will invest more in the expansion of the sales and service network and also the power swap station.

But we will manage well the progress.

So I don't think there will a very big cash burn in, I think, next year.

So yes, that's about the question about the CapEx.

(foreign language)

[Interpreted] Of course, for the current development plan and the cash position, we believe we have no need for financing in the short term.

We should be able to have sufficient resources to support the business development of the company.

With respect to autonomous driving directions, our objective is to build in-house full-stack capabilities for autonomous driving.

Of course, we have always had this capability in our company in-house.

Recently, we have even enhanced our capabilities in terms of the algorithm and the system development.

Starting from 2016, we have developed the NIO Pilot first generation by ourselves in-house.

But for the first generation NIO Pilot, chipset is closely bundled together with the algorithm.

For the second-generation NIO Pilot, we would like to make sure we can have the in-house capabilities, especially in terms of the algorithm, data and system development.

We have the next question from the line of Jeff Chung from Citigroup.

(foreign language) So my first question is about first quarter next year, so sales volume outlook, whether they can still expand Q-on-Q.

And second question is about the differences between vehicle GP margin and non-vehicle GP margins growth outlook and forecast.

(foreign language)

[Interpreted] Thank you for your question, Jeff.

It's very early to provide the guidance for the first quarter of 2021.

But of course, we need to be fully prepared in terms of the production capacity to make sure we can meet the user demand and the order backlog according to the current order momentum and the current backlog, we will need to have a sufficient production capacity for the first quarter of next year to meet the order backlog right now.

So in our company, our business model is made to order.

So we would like to focus on the level of orders.

For other companies, they talk about the inventory level, but we focus on the order level.

We would like to control the order level within a reasonable range, so users don't need to wait for a long time to pick up their car.

We would like to improve our production capacity to make sure we can control the order level within 1 month.

It means that from the order placement to the user delivery, the lead time should be between 3 to 4 weeks.

Then we can achieve a good user experience.

At this moment, we still need a long time to meet this target.

But we will need to ramp up our production to make sure we can improve the customer experience, and we're quite confident that we can achieve this target in the future.

(foreign language)

[Interpreted] The gross margin has been on the rise.

In the past, we have -- we made a consistent trend that is that non-vehicle gross margin is lower than the vehicle gross margin.

In the past few quarters, we have seen both the vehicle gross margin and the non-vehicle gross margin have been increasing.

Just like I've mentioned, the carbon credit revenue will be included in the non-vehicle gross margin in the future.

And this year, we can see the value of the carbon credit has become more and more evident in China.

In the coming years, going forward, we believe that the carbon credit is going to contribute to the improvement of the non-vehicle gross margin.

At the same time, the revenue from our services and the power swap can also help us to narrow the operating loss.

So this is going to improve together with the expansion of our user base.

Overall speaking, the non-vehicle gross margin is going to improve in the long run and the Battery as a Service, BaaS, can also improve the non-vehicle gross margin.

Everything is going according to the plan.

(foreign language)

[Interpreted] In the fourth quarter, we're going to receive the revenues on the carbon credit, which is generated by the vehicles sold in 2019.

In this year, because of the sales increase, the carbon credit number has increased by over 2.5x.

And we believe that the piece price of the carbon credit will also double next year.

So the overall revenue on the carbon credit will be 4 to 5x more next year compared with this year.

Now a lot of OEMs are in discussion with us about the purchase of the carbon credit.

So we believe that this dual credit system and mechanism is going to be very beneficial to the development of the EV industry.

(foreign language)

(foreign language)

(foreign language) So my last 2 question is about the carbon credit, will it be impacting on our P&L next year in 4Q as well rather than spread evenly throughout the four quarter?

This is number one.

Number two is about the attach rate on our NOP and BaaS right now and going forward.

(foreign language)

[Interpreted] The confirmation of the carbon credit revenue is quite flexible.

We are not going to put the revenue confirmation in a specific quarter next year because this depends on the specific market conditions.

If we sell too early, maybe it's a little bit too cheap.

For the BaaS take rates, just like I mentioned, in November, the take rate of the BaaS has reached 35% among the new orders.

Going forward, we believe this is going to further improve in the long run.

And the take rate of the NIO Pilot is around 50%.

After the launch of Navigate on Pilot, we believe this is going to have a much better performance.

We have the next question from the line of Mei He from U.S. Tiger Securities.

A great quarter guys.

My question, first is could you please comment on your thoughts about Tesla's made in China model Y. Will it impact your order momentum?

And secondly, could you please give us some updates on your internationalization plan?

For instance, do you have a time table for multiple steps of going global?

And where could be your focus market?

What kind of models are you going to introduce to international market and how to hire a local and competent team?

(foreign language)

(foreign language)

[Interpreted] Thank you for your question, Mei.

Tesla has officially announced that they are going to have the local production of the model Y. We believe that this is actually good for the users because if we have more options for the users, this can help us to accelerate the popularization of the EVs in the market.

Of course, we believe that Tesla's strategy is quite different from NIO.

Starting from last year, Tesla has cut their price multiple times.

And they basically have the pricing strategy based on the cost.

At the end of last year and the beginning of this year, their price cuts has affected us for about 1 week.

But afterwards, our order intake bounced back very quickly.

After this price reduction, they also had several runs of price cuts.

The most recent one is around the 1st of October, the price cut is around 10%.

We didn't see any specific impact on our order intake.

Actually in October, our order intake has broken the historic record and exceeded our expectations.

Our transaction price is around hundreds of thousand RMB higher than Tesla's average selling price.

So we believe this proves that we have our own unique advantages with our products and services.

Model Y's introduction to the China market is going to be beneficial for the overall market.

But we believe the competition is more about the competition between Model Y and Model 3 because we have our own unique advantages regarding our products and the services.

For the market situation, basically, we believe the pie is growing bigger, and our main competitors in this market should be the gasoline cars.

The China premium market is a very big market with the volume of millions, and this gives us great confidence that we can have a sustainable growth in the long run.

(foreign language)

Yes.

This is Steven, and I'll give you some high-level update of our globalization efforts.

First, we have a very concrete short-term target.

That is we will enter EU market in the second half of 2021.

At the same time, globalization is the long-term vision for NIO, so NIO is a global brand, and we will reserve patient to implement this strategy step by step.

And so we have 3 principles.

First, we will stick to our user enterprise business model.

We believe it's a global and universal business philosophy.

Second, we will repeat our premium brand positioning, so our key competitors are BMW, Audi and Tesla.

Third, our sales and service must be localized to the European customers' need.

That's the update of our globalization efforts.

Thank you.

That will be the last question for today.

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 any further questions, feel free to contact NIO's Investor Relations team through contact information on our website.

So this concludes the conference call.

You may now disconnect your lines.

Thank you.

Thank you, everyone.

Thank you, everyone.

Thank you, everyone.

That will conclude our conference for today.

Thank you all for participating.

You may now disconnect.

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