小牛電動 (NIU) 2021 Q3 法說會逐字稿

Good day, ladies and gentlemen.

Thank you for standing by, and welcome to the Niu Technologies Second (sic) [Third] Quarter 2021 Earnings Conference Call.

(Operator Instructions) As a reminder, we are recording today's call.

(Operator Instructions) Now I'll turn the call over to Mr. Jason Yang, Investor Relations Manager of Niu Technologies.

Mr. Yang, please go ahead.

Thank you, operator.

Hello, everyone.

Welcome to today's conference call to discuss Niu Technologies' results for the third quarter 2021.

The earnings press release, corporate presentation and financial strategies have been posted on Niu's Investor Relations website.

This call is being webcast from the company's IR website, and a replay of the call will be available soon.

Please note today's discussion will contain forward-looking statements made under the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995.

Forward-looking statements involve risks, uncertainties, assumptions and other factors.

The company's actual results may be materially different from those expressed today.

Further information regarding the risk factors is included in the company's public filings with the Securities and Exchange Commission.

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

Our earnings press release on this call include discussions of certain non-GAAP financial measures.

The press release contains a definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results.

On the call with me today are our CEO, Dr. Yan Li; and the CFO, Ms. Fion Zhou.

Now let me turn the call over to Yan.

Well, thanks, Jason, and thanks, everyone, for joining us on the call today.

So in the third quarter, we have seen a strong growth again with our total sales volume reaching 397,000 units, a 57% year-over-year increase, making this our best quarter for sales in our history in terms of volume.

The sales volume in China market reached 392,000 units, a significant increase of 60% year-over-year, where the volume in the international market reached nearly 5,000, down 11% compared to last year, primarily due to the shipping issues that you are all aware of that continued to delay orders that we have received and manufactured but cannot leave the factory, and therefore, cannot be booked as sales.

In the first 3 quarters of the year, our sales volume totaled 800,000 units, an increase of 77% compared with the same period last year.

Now the strong Q3 growth in the China market showcases the strength of our growth strategy, which includes the expansion of our product portfolio to cover a wide range of electric scooters and the rapid expansion of our retail channels and geographic footprint.

As mentioned in the last earnings calls, starting this year, we have launched 5 new vehicles under the new brand and the 5 new vehicles under the global brand, which enabled us to have a wide range coverage of the consumer needs from mid- to high-end.

The new product design also takes into account preferences of both male and female customers, allowing us to attract a wider range of customer group.

In the electric motorcycle class, our entry model, Gova G3, has a starting price of RMB 306 -- of RMB 3,699, and our top of the range NQi GT has a price tag of RMB 20,299.

We have a total of 8 series and 22 electric motorcycle product offerings.

For the electric bicycle class, we have our entry-level Gova G0 with a price of RMB 2,499, and our top-of-the-line model UQi+ with a price of RMB 8,999.

We have a total of 12 series and 42 product offerings.

From the design style, we have 3 series, the G, F and C, each with distinctive design style under the Gova brand.

And under the new brand, we have the N, M and U series, each with a unique elegant style.

In terms of performance, we offer a drive range of 40 kilometers to 100 kilometers on one charge for both electric motorcycles and electric bicycles.

Since the rollout of the China regulations on electric bicycles over the past 2.5 years, we have quickly developed a full product portfolio to cover the mid- to high-end market.

The full coverage was the key to fast growth in Q3 and also set a solid foundation for future growth in 2022.

As we continue to expand our product portfolio this year, we are simultaneously expanding our retail store footprint across China rapidly.

Q3 is traditionally a peak season for sales but a low season for store expansion.

However, at this time, we are able to cover our best sales quarter ever, while also adding another 320 new branded stores across China, which is 1.6x of the expansion pace compared to Q3 2020.

As of September 30, we now have 2,686 stores operating in China.

We're well on track to have 3,000 stores in operation by end of 2021.

These stores will serve as a foundation to drive sales growth for 2022.

Now moving away from sales for a moment.

I'm very proud of the milestone we hit as a company last month.

On October 11, our more than 2 million users helped us reach the 10 billion kilometer riding mark.

It was the first time 10 billion kilometer has been recorded in 2-wheeler industry history.

To celebrate this awesome milestone, we launched a series of marketing campaigns with the slogan, ["I feel a bit proud, feel a bit new], starting September and that will run through the end of the year.

The brand of Niu represents style, technology and freedom, [along these brand values] we have selected a set of representative Niu users and share their story with Niu scooters over multiple channels.

These users include photographers, travel enthusiasts, talk show hosts and others.

Each story showed how riding a new vehicle has helped them with their daily urban commute and make their lives a little better, but feel a little bit pride -- or proud with Niu.

These stories and videos have been broadcasted over social media channels like Weibo, WeChat and our website.

And of course, many of the KOLs and KOCs have also created their own content around the theme, "I feel a little bit proud, a bit new, just further amplifying our message and reach.

In just a few short weeks of all those have achieved nearly 100 million views.

More importantly, it helps to convey our brand value to our users and potential customers.

The message position Niu not just as an electric scooter company, but also as a lifestyle brand.

Besides the user stories, we also launched a social media video campaign with a feature video of I feel a little bit proud, the video has been aired across social media off-line and also have been even showcased in ads for the new James Bond film, receiving more than 0.5 billion views.

So considering Niu has more than 2 million users, we also engage our users with a treasure hunt location-based game on our app.

Users received a raffle ticket if they ride in their Niu past the secret spot in their city.

These tickets can be redeemed for various prices like accessories and also enter them into a lottery for a [10 billion] kilometer limited editions.

In our initial rollout in 10 cities over the past month, more than 2 million digital raffle tickets have been collected by our users, showing just how engaged our users are with our brand, product and services.

All of those user-centric activities and marketing campaigns have improved our brand awareness significantly in the China market.

And those campaigns especially resonate with the Gen-Z users who are seeking brands that have deeper meaning.

And Niu's commitment to style, technology and freedom is something they value greatly.

The combination of marketing campaigns with our continued retail store expansion sets us up for another quarter of growth here in Q4.

Now looking at international sales for a moment here, our Q3 was a little below expectation as compared with the China market.

But this is not a result of decreased demand.

As many of you are aware, international logistics continues to create ever longer backlogs, and we're not immune from it.

In fact, our book orders were 50% higher than what we actually shipped.

And everything that is being shipped is typically on back order at any of one of our point of retail across the globe.

Despite the low season in Q3, we're, in fact, very optimistic with Q4 for the international market orders.

We're excited about tomorrow actually, on November 23, when we will launch several new product at EICMA, the largest 2-wheeler show globally held in Milan, Italy, including our most powerful 125 cc electric moped, the MQiGT-EVO; our first 150 cc hybrid moped, the YQi; and our upgraded e-bike, the BQi; and 2 additional KQi kick scooters.

Many of which will be shipped this quarter and in stores to kick off the sales season in February across Europe and Americas.

First, in the electric motorcycle multiclasses, we will launch the MQiGT-EVO.

EVO will be the mark of new performance line.

The MQiGT-EVO will be unveiled at EICMA and is the first product launching our new EVO series.

It has been redesigned inside out with the top speed of over 100 kilometer per hour and an exciting 0 to 60 kilometer for our track times in under 6 seconds, outstripping its gas-powered rivals.

We believe that this is a first electric moped that can really compete on price and outperform on power and speed with its petrol competitions in the 125 cc class of mopeds.

In addition to the performance, the MQiGT-EVO has added a number of features that include a keyless ignition, electric anti-theft locking and our [all-new TFT color] dashboard customizable via the user's app.

We have already received several thousand orders to be shipped in Q4, and MQiGT-EVO will be in stores in Europe and Americas as early as February with a price tag of EUR 5,000.

Besides MQiGT-EVO, we'll be also debuting our first 150 cc equipment hybrid moped, the YQi.

The YQi combined the best traditional [IC] engines and the lithium-ion battery-powered electric motors.

It comes with 150 cc IC engine coupled with a 2.4-kilowatt electric motors, providing acceleration that is much superior to even a traditional 250 cc moped.

The YQi is positioned as a gateway vehicle for EV for 2-wheeler enthusiasts who have not made the transition away from petrol.

It is still in development and will be available in Europe and Americas in late 2022.

Now with the addition of YQi MQiGT-EVO and also the upgraded [NGT S] and the RQi (inaudible) motorcycle, we have provided a full coverage of motorcycles from 100 cc to 150 cc, greatly expanding our traditional offerings of 50 cc equivalent electric moped internationally.

We believe this will further consolidate our leadership in the electric motorcycle market globally.

Now as we mentioned last earning call, we have entered the micro mobility market with the presales of our kick scooter product, the KQi3, on Indiegogo on July 13.

After a successful run on Indiegogo, we then have received more than 15,000 orders by the end of September 30.

Tomorrow, at EICMA in Milan, we'll bring 2 new kick scooter products to the market, something we call a KQi3 [Max], which will be upgrade of KQi3 Pro.

It is equipped with a more powerful upgraded 450-watt motor and with a larger lithium battery capacities, which can easily reach a speed of 35 kilometer power and have a dry range of 65 kilometers.

There is no mass market product like this in the market right now, and we're excited about it.

It will be priced at EUR 949.

We'll also bring an even more economical kick scooter into the family called the [KQi2].

The [K2] takes many design cues of [K3] and with more user customizable features.

The K2 has a top speed of 25 kilometer per hour and a riding range of 40 kilometers.

It will be priced at EUR 499.

And with the [fleet established] design, the K2 is expected to become a favorite urban mobility commuter globally.

The K2 will be shipped before the end of December 2021.

Now with the K3 and the K2, we have a robust lineup of kick scooter products with price starting at EUR 499 up to EUR 949.

We have a portfolio of offerings that meet the budget of wide range of customers who are looking for affordable solutions for their urban commute.

We have already received many orders.

And we expect to ship more than 20,000 units of kick scooters in Q4 to fulfill the first batch of orders.

We will also expand our offerings into the e-bike market.

Tomorrow at EICMA, we'll launch our new e-bike product called BQi that has established urban minimal design and is capable of extended ride range of 100 kilometers, thanks to its 2 removable batteries.

The BQi will be priced under EUR 1,500, making it the most powerful and affordable commuter e-bikes to hit the market in 2022.

The continued growth for e-bike demand across Europe and Americas is an exciting growth buzz for us in both those markets.

And with products like BQi, we think we can quickly tap into the demand of the next 12 months.

Now with the kick scooters and e-bikes to cover micro mobility market, we're also expanding our international sales channel.

Besides the current 153 flagship and premium stores and 1,000-plus authorized dealers, we have also established our e-commerce presence on channels like Amazon and also off-line channels, which will allow us to enter into consumer electronics store like the [medium market] in Europe and [mainly across] the U.S.

Supported by the diversified product offerings and channel expansion, we're quite optimistic with our international sales in Q4 and in 2022 beyond.

Now I'll turn the call over to Fion to discuss our financial results.

Fion?

Thank you, Yan, and hello, everyone.

Our press release contains all the figures and the comparisons you need.

And we have also uploaded Excel format figures to our IR website for your easy reference.

As I review our financial performance, we are referring to the third quarter figures unless I say otherwise.

And all the monetary figures are in RMB unless otherwise noted.

Our quarter 3 sales volume reached 397,000 units, representing a 58% year-over-year growth.

China sales volume increased by 60%, primarily driven by new product launches in the past 2 quarters and the continued retail network expansion, one new e-bicycle model, G0, and one upgraded e-motorcycle model, G3, were available on the market in quarter 3. These 2 models contributed around 16% of our total sales volume in the third quarter.

We opened 750 new stores in China during the first half of this year.

The newly opened stores not only contributed to our sales volume growth, but also played a critical role in promoting our brand and gaining our market share.

We opened another 320 new stores in the third quarter, which will help us with further steady growth in the future quarters.

International sales volume however decreased by 11% as a result of continued challenges from international shipping.

With regards to product mix, N-Series accounted for 6% of total sales volume, M-Series accounted for 6%, U-Series accounted for 13%, and global production accounted for 75%.

Out of the 75% from global products, 41% was from the low price model, G0, F0 and C0.

Remaining 34% was from other global models with relatively higher retail price.

The increased mix in Gova product was due largely to 2 reasons.

First, the new Gova product launches in quarter 2 and early quarter 3: F0, C0, G3 and F4 have been very successful and drove quite a bit sales growth in quarter 3. Second, during the third quarter, company provided promotional activities for the Gova series products in order to encourage faster adoption of compliant e-bicycles in China.

Total revenue increased by 37% to CNY 1.2 billion, slightly lower than guidance we provided earlier, primarily due to the lower-than-expected sales from international markets.

Revenue from China e-scooter sales remained strong and increased by 45%.

The accessories, spare parts and service revenue from China market also increased by more than 40%.

The decrease in international markets, we believe, is short term, and we are looking forward to positive growth in the future quarters.

Our ASP in quarter 3 declined by 13% year-over-year.

Let's look at the details.

In China market, the scooter ASP decreased by [9%] year-over-year, chiefly due to the sales from low price model, G0, S0 and C0, which accounted for 41% of total sales volume compared with 27% in the same time last year.

In international markets, the scooter ASP decreased by 18%.

As mentioned in the last 2 quarters' earnings call, the depreciation of U.S. dollar and the change in the way distributors placed orders are the key reasons for the decrease.

Compared with quarter 2, our international scooter ASP increased by 5%.

If we take out the impacts from kick scooters, the ASP increase is around 14% quarter-over-quarter.

The ASP of accessories, spare parts and services was CNY 267 per scooter, a 29% decrease mainly because of the decline in sales from international markets.

Gross margin was 20%, 0.9 percentage points lower than this time last year as a consequence of weaker international sales.

This has reduced our margin by around 1.1 percentage point.

However, 0.2 percentage point decline was offset by the increasing margin and increasing proportion of accessories, spare parts and services revenue from China market.

Therefore, net impact was 0.9 percentage point decline.

Our total operating expenses, excluding share-based compensation, were CNY 143 million, increased by CNY 46 million or 48% year-over-year.

The increase was caused by a CNY 25 million higher branding and advertisement in sales and marketing expenses, CNY 11 million higher depreciation expenses of new store openings and CNY 13 million higher staff costs.

As a percentage of revenue, our operating expenses, excluding share-based compensation, was 11.7%, 0.9 percentage point higher than quarter 3 last year, mainly due to higher branding and marketing expenditures.

Our net income was CNY 92 million, a 15% increase year-over-year.

The adjusted net income was CNY 102 million.

And the adjusted net margin was 8.3%, 1.8 percentage point decline compared to the same period last year.

As mentioned above, due to the 0.9 percentage point gross margin decline and the increase from operating expenses is 0.9 percentage of revenue.

Turning to our balance sheet and cash flow.

We ended the quarter with RMB 1.6 billion in cash deposits and short-term investments.

Our operating cash flow was positive CNY 402 million, much higher than our net income.

Our quarter 3 capital expenditures was around CNY 76 million, mostly related to capacity expansion of CNY 26 million and new store openings of CNY 50 million.

And now let's turn to guidance.

We expect the fourth quarter revenue to be in the range of CNY 840 million to CNY 908 million (sic) [CNY 910 million], an increase of 25% to 35% year-over-year.

With that, let's now open the call for any questions that you may have for us.

Operator, please go ahead.

(Operator Instructions) Your first question comes from the line of Vincent Yu of Needham & Company.

(foreign language) I have questions on these 3 topics.

One is on our overseas business.

How do we think about the shipping constraints will continue to impact our revenue in next quarter?

And then how we think this backlog will be realized in the next few quarters?

And a second question is on the supply chain.

How do we think about these rising costs and the parts costs impacting our operations?

And the third question is, I would like to management share some insights on the e-scooter replacement cycle, especially under current relatively soft macro condition.

Vincent, if you don't mind, I'll answer this question in English.

I think first one, with the shipping backlog, I think Q3 has been a bit tough.

Obviously, for international, Q3 used to be -- also if you look at it, it's actually historically has been a low season because whatever we shipped in Q3, it's actually going to be arriving in Europe and Americas in sort of Q4, it's actually the winter season, it's actually low sales.

So we actually expect the Q4 shipping start to improve, especially October, November is still a bit tough, but we start seeing actually capacity start to [empty out] in second half -- starting like November and also in December.

So we actually have a lot of orders in backlog and are supposed to be go on the ship in December, both from the motorcycle point of view, electric motorcycle and also the 20,000-plus electric scooters.

So I think that's for the international sales into our shipping backlog.

It wouldn't be necessarily a block issue in Q4.

Because demand side, we still see a strong demand for both motorcycles and also for the kick scooters.

Now on the supply chain issues, I think early this year, the supply chain issues was really a shortage of chipsets, especially the imported chipsets that -- we had -- that impact a little bit our business but not significantly.

And then we were able to actually redesign our [MCUs] on the stuff actually use the replacement -- the domestic China chipset to replace some of the imported ones, and that actually helped to reduce the impact.

Right now, it's actually -- the Q3 is nothing too much.

I think really, we're looking at Q4 and maybe next year, there might be pressure in term of raw material prices, in term of lithium batteries.

Early -- first half of this year, we actually see the pressure, not from lithium battery, but from like all other stuff like copper, steel.

So that actually impacts the cost for our chassis, also the cost for tires, all this stuff.

So we actually increased the product price basically in April this year to offset those -- the raw material price increases.

Now going into 2022, we actually think there might be a case that the lithium battery price will go up a bit, which many of the -- you guys already observe in the market because the EV industry in China is actually booming.

And so that actually will create cost pressure on our side.

And the remedy to that will be -- we're looking at a potential solution to increase the product retail price as well as the exit factory price in early 2022 to offset that.

And this is not really new to us.

So in fact, if we look at -- you follow Niu for a number of years, every year, we increased our product price by somewhere around 3% to 5%, even though the average ASP sometimes decline because of the product mix.

But if you look at the individual product-wise, the price actually goes up.

A lot of times because of CPI, also because we actually used to offset the cost increases.

Lastly, with the policy induced -- the replacement volume.

So we're actually starting to seeing some impacts start to kick in.

For example, it starts city by city.

Early in the year, we see some provinces now like Beijing.

Beijing just -- Beijing actually in November 2018, they start to issue what you call the temporary licenses until the April of 2019.

And then that temporary license is only good for 3 years.

So actually start in November 1 this year, city of Beijing actually will disallow the temporary licenses, the yellow license.

If you actually drive a yellow license electric scooter on the street, your scooter will get confiscated and then you actually got like RMB 1,000 fine.

So that actually drive a bit retail sales in October as well as I think going forward, even the winter season for Beijing wouldn't be that cold in term of sales because a lot of people actually need to buy replacement scooters.

And we start seeing for Beijing.

Now then the second, we start seeing for the entire [Jiangsu] province, they are rolling out something similar.

That will actually -- will probably be impact starting this -- basically this winter season, lasts until the next spring.

So obviously, you're not going to see a huge jump like 4x or 3 -- 3x or 4x jump into our retail demand, but it will still impact, I think, the overall market demand.

I think this is one of the reasons that even in Q3, we [do have] quite a bit Gova products.

And actually, during our call, you see the Gova product represents 75% of our sales in Q3.

A lot of times, because those replacements -- a lot of those replacements are not extremely high end, many of them mid-end products.

That's why our mid-end product offerings start to really take up some of the market share starting in Q3.

Hopefully, that address your questions.

Your next question comes from the line of Jing Chang of CICC.

And congrats to Fion to -- on [taking office].

Then I have 2 questions.

The first is about the average selling price of accessories.

So we can see that the average selling price of accessories and services fluctuated great on different quarters.

So are under -- or how much of the average selling price comes from overseas battery tax?

And thus, how much obtained from the subscription service fee and also other accessories?

And also how do we anticipate on the fourth quarter and also the future?

And my second question is, we can see that the sales volume of N, M and U-Series decreased a lot in the third quarter compared to last year.

So [ASM] of new products launched next year are mainly focusing on high-end models.

So first, how to look at the competitiveness of our new high-end products?

And also, if our peers products keep low prices in addition, obviously, of our sales growth momentum under such products next year?

Okay.

Then I will answer the first question.

Actually, in quarter 3, the accessory and spare parts revenue was CNY 90 million and services revenue was CNY 50 million.

And as we mentioned, the accessories and services revenue increased a lot in the China market.

And this quarter, we do see international market, and that's why the accessories and services revenue declined in the international market.

But with the recovery of the international sales in quarter 4, as Yan mentioned, and those kind of other revenues will recover with the same line as the international sales.

So we still rely on quite strong increase in the future quarters of this kind of revenue.

Okay.

And I think for your second question, yes, I think for Q3, as I mentioned, that the NMU, basically, the new branded products which we group the NMU and the new branded products, actually, the volume actually did decrease, partially because really in Q3 and the second half of Q2 is actually the May and the June, we rolled out like 5 new Gova products.

And that -- and with the marketing campaign, really tried to gain market share in the mid-end product replacement customers.

So I think that actually -- and if you look at our -- because our business is not exactly direct to consumer.

Our business goals is actually we sell to distributors and distributors sell to retail stores, then retail stores to consumers.

So along those lines, there are capital being used by the distributors and capital being used by the retailers.

To some extent, you can understand that as we have more new product in Gova, if there are distributors and retailers, they only have limited capitals, right?

So some of your capital will be occupied by the Gova product.

I think that's where it actually create a -- the capital drain is done by the distributors on the Gova product, less than on the NMU, that actually create a temporary decrease on the NMU.

Second is actually we haven't done too much in term of -- in Q3, we haven't really rolled out the -- a new, what we call the new product for NMU, except the [M2 S], which is a upgraded version for M2.

So I think that also create a little bit drag on NMU product.

But going forward, I think this -- in 2022, we have planned actually quite a number of new product under the NMU series.

And that will actually help to increase not only the percentage and also increase the sales volume of the NMU products.

So we're actually quite promising and quite hopeful about 2022 for the NMU series.

(Operator Instructions) Your next question comes from the line of Bin Wang of Credit Suisse.

I got 2 questions.

Number one is about your service income.

Is that linked to your low-end version of the Gova series, which means that Gova series naturally have less revenue income, that's why revenue growth has been lower compared to the scooter growth?

Just want to know the different products relate to the (inaudible), we see any difference.

That's #1 question.

Number two is about, can you elaborate a little bit about your -- the market dynamic of your new category because we're not very familiar with the kick scooter on your upcoming hybrid products?

You mentioned about cc (inaudible) hybrid, it means you will have an engine in [storage for] electronic scooter, different names.

All right.

So Bin, I think I'll address those 2 questions.

One, with the service income, yes, some of the Gova product are not -- doesn't have the smart IoT devices.

So to that extent, we're not going to see, what do you call it, connectivity income from those Gova products.

And -- but it's not all Gova product doesn't have the connectivities.

There are a portion of Gova products will have, what do you call, add-on boxes post the -- at the store.

So those Gova product actually, we're still able to charge -- the users still pay a connectivity fee along the Gova products.

So that maybe address some of the concerns here.

Second, we didn't mention explicitly, but really starting this year, we'll start getting service revenues from our sharing scooters.

So we're getting about $10 per month per scooter.

Not entirely on the entire fleet, some operators haven't started -- haven't paid yet, but approximately on half the fleet.

So I mean, as we have more sharing vehicles deployed globally, you're going to see that income -- that revenue stream come in nicely.

I think that's 2 part of services.

Now on the new categories, I assume you were asking about the hybrid products.

Yes, the hybrid products are first attempt.

We'll debut this product actually tomorrow at EICMA.

So you're going to see the news on the design.

It's actually a beautifully designed product.

What we see is actually, there is one part of motorcycle categories that we are not able to attack.

That's actually around the 150 cc to 250 cc motorcycles.

That part of motorcycle still represents roughly about 30% of the market in Europe and the United States.

But the reason being that it actually require a longer drive range.

If you simply just do electric, it will be too expensive for users to buy unless you go with the sort of -- the industry product is 0, which is like EUR 10,000 even more.

So what we have is this is actually a completely internal design technology that actually combine a combustion engine with the electric motor and with -- even with the battery into it.

So actually, it will allow user to have a limited drive range, well, limited by the gas tank.

But at the same time, when you do a city commute, we'll use more the electric motors such that it will actually give you a more environmentally friendly in term of usage, in term of gasoline usage per kilometer.

But this product will be probably available towards the second half of the 2022.

So this -- in EICMA, we're going to show the concept design and some of the technologies.

And the product is still in development and will be ready in the second half of 2022.

Your next question comes from the line of Wei Shen of UBS.

The first is about the margin.

Investors are concerned about the price war in this year and which was most severe in the third quarter.

We noticed from mid-November, YADEA and AIMA have raised price by 5%.

So can I have your view on the price war and the impact on margin trend in 2022?

This is my first question.

Maybe I'll mention first and then I'll have Fion talk a bit more on margin part.

Yes.

So to be honest, I think those 2 players have been involved in price war.

And we are not engaged in the price war, but we did a bit marketing promotion, our Gova product in Q3, because a lot of price war happened in really low end.

Even with our Gova entry product at CNY 2,499, we're still like a mid-end product.

We're not even at low end yet, right?

So to some extent, we see our margins still much, much higher than YADEA's and AIMA's margin.

And obviously, they start to raise price in September.

We haven't done that yet.

The reason we haven't done that yet because we did a little bit in April that helped to absorb some of the cost.

And we'll also carefully observe the market to see when is the right time to increase the price.

But as I mentioned earlier, with what we observed the trend of lithium battery prices, there is likely that we're going to increase price in early 2022.

And we usually do that during the holiday season -- well, the Chinese New Year season will have a less impact in term of -- from the retail.

Yes, I think that's my comment.

Yes.

I think you already addressed all the factors.

Okay.

Okay.

Also, because the margin, I know there are a lot of moving parts, including the price war and also the commodity price.

So what's your general view on 2022 margin?

Because I see there is some margin pressure in the third quarter.

And what's your view on the fourth quarter and 2022?

So maybe I can give some insights and then Yan will add extra comments.

And as Yan mentioned, actually, even though we consider about the retail price increase in early 2022, we're still facing the higher raw material cost problem.

And luckily though, we have made the cost optimization, and those initiatives begin to show positive effect.

And that's why we didn't see any -- the huge margin loss in this quarter.

And those cost optimization initiatives will bring benefit in the future quarters.

And with the strategy that we may increase the sale -- the retail price was around 3% to 5%, which will not bring the [active] feedback from the customers.

I think we can still remain the good gross margin.

And Yan?

Yes.

I think that's about it.

Really, on one hand, I don't see we're going to see a margin decline next year.

But on the other hand, I think we'll see a stable margin with a slight increase.

Okay.

And my next question about -- is about your new product.

You just mentioned that you have prepared a lot of new products, including the kick scooter, the electric motorcycle in 2022.

Can -- because we are not really familiar with these new market segments, can you give us more color, like the sales guidance in 2022 or 2023?

Which product line will become a significant contribution in terms of revenue in the next 2 to 3 years?

Because I think some of the products are mainly for brand building, it's not for volume sales.

Correct me if I'm wrong.

No.

Yes.

I think let me put this way, right?

So I think it's too early for us to give our guidances.

But I think there's 3 categories.

One, we're looking at the kick scooters.

The kick scooter, the entire market does about, I think, from what I read, probably like a 6 million to 8 million units per year.

It depends on whether you include some of the [kids ones] or not.

And this year, so 6 million to 8 million, mostly in United States and Europe.

So those 2 markets where we do have a strong brand in term of urban mobility.

And I think this year, we -- initially, we have our K3.

And now with the K3 Max and K2.

And potentially next year, we're going to have a couple of more kick scooter products, that will give us a wide range of products that help us to cover the entire product range spend for the -- that 6 million units of entire -- the entire market, 6 million units.

So we're actually quite optimistic with our growth in our kick scooter.

Now the e-bike, e-bike is also about 6 million units a year.

Roughly about 80% or -- actually, yes, about 80% in Europe and about to 15 -- 10% to 15% in the United States.

So we have 2 e-bike products so far.

We have our EUB-01 that we launched last year started to make some sales this year.

And we have our BQi to be launched at EICMA tomorrow, but that product wouldn't be available for sales until Q1 or early Q2 of 2022.

So -- but as we will actually start to actually generate more product along the e-bike categories.

Both the kick scooter and e-bikes, we'll have 2 dedicated team for it, and we're actually committed to those 2 product categories.

So I do think they are volume or revenue generators.

Now with the other motorcycle product, put this way, if you just look at the European market, then the -- not just look at the electric.

The entire European market, it's about 1.5 million units to 2 million units a year in term of motorcycles.

Majority of petrol at this point.

And then within that, the entire market, about 50% are 100 cc below and 50% are like 125 cc above.

Our product offering used to be 50 cc below.

I think 50 cc below means the drive speed is like 50-kilometer per hour.

And we start to have like a 70, 80 cc product like a drive speed of 70, 80-kilometer per hour.

So the MQiGT-EVO and also the upgraded NGT S and also our product, both at 90-kilometer power, 100 kilometers, 120 kilometers.

And those are actually really to attack the other 50% of the market, which is 100 cc above.

We never had product in that market.

So it's a white space for us.

And that you can see those market actually, I do think those product are also revenue generators.

As there are no questions, thank you.

Seeing no more questions on the queue, let me turn the call back to Mr. Li for closing remarks.

Well, thank you, operator.

And thank you all for participating in today's call and for your support.

We appreciate your interest and look forward to reporting to you again next quarter on our progress.

Thank you.

Thank you all again.

This concludes the call.

You may now disconnect.