小牛電動 (NIU) 2020 Q3 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by, and welcome to the Niu Technologies Third Quarter 2020 Earnings Conference Call. (Operator Instructions) As a reminder, we are recording today's call. (Operator Instructions) Now I will 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 third quarter 2020. The earnings press release, corporate's presentation and financial press release have been posted on the Nius'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 that this discussion will contain forward-looking statements main under the big copper 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 differ from those expressed today. Further information regarding the risk factors is included in the company's public filing 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 and this call include discussions of certain non-GAAP financial measures. The press release contains the 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 our CFO, Mr. Hardy Zhang. Now let me turn the call over to Yan.

Thanks, Jason, and thanks, everyone, for joining us on the call today. We have had a strong growth in Q3 with our total sales volume reaching 251,000 units, a 67.9% year-over-year increase. The sales volume in the China market reached 245,000 units, a 70% year-over-year increase, where the volume in the international market reached 5,600 units, a 6.3% year-over-year increase. Now in the first 3 quarters, our sales volume reached 451,000 units, an increase of 43% compared with last year.

Now our strong growth in China was driven both by the market factor and our operational performance in the new product rollout, marketing and channel expansions. Now first, let me quickly comment on the overall market landscape in China. Now the overall electric bicycle market has increased by 30% to 22 million units in the first 9 months according to the Ministry of the Industry and Information Technology. This increase was driven by 3 factors: first, the post-COVID-19 settlement led to a high demand of individual mobility devices as more people find electric bicycle a more convenient, safer means for the daily commute.

The second was the adoption of 2019 China electric bicycle standard, started to regulate this industry with license plates, removal of uncompliant products and such created a safer environment for the users. And lastly, with the lithium-ion battery costs continue to decline, the electric bicycle with portable lithium-ion batteries become more affordable. It was estimate that 20% to 30% electric bicycle this year are lithium versus 10% to 15% in 2019.

Now amid the fast growth of electric bicycle market, and particularly the lithium-ion based ones, we also accelerate our effort in new product rollout, marketing and channel expansions. As we mentioned in the last earnings call, we introduced the M2 model in Q2 and the MS model in July. Both M2 and MS inherited the family design of our signature and product view as a full cover electric bicycle.

In Q3, M2 and MS series accounted for 18% of our total sales volume. Meanwhile, we also enriched the Gova series family with our G0, G2 and upgrade G3 series. G0 entry-level product was launched at the JV June '18 campaign. With G0, G1, G2, G3, the Gova series now serves the full range of customers' needs from electric bicycle to electric motorcycles in China, with prices starting at RMB 2,299.

The entire Gova's series sales accounted for 37% of our total sales volume in Q3. Now the successful launch of Gova series continues to demonstrate our strong capability in product design and rollout. Furthermore, with G-Series entry price at RMB 2,299, it allowed us to cover the mid-end consumer segment and open up more markets in the lower-tier cities, which accounted for more than 70% of electric bicycle market.

Now supported by the newly introduced product, we continue to expand our footprint through our store expansions and new market entries. Now in Q3, we increased our dedicated branded store to 1,266 stores, an increase close to 200 stores as compared with Q2. This quarterly new store ad was an all-time high as we significantly increased our effort in retail expansion. Now despite the fast increase of number of stores, our per store sales also increased by 40% to 50% in Q3 year-over-year compared with the same time last year. This demonstrates the healthiness of our retail operation as older to stores enjoy sales growth and were highly profitable. This is also a good indicator for future retail expansion.

We are accelerating new store openings in Q4 this year as well as in 2021. Furthermore, with the global series, we were not only able to consolidate our leadership position in top-tier cities, but also able to build a good retail presence in the lower-tier cities. To support the retail expansion, we also scale up our marketing activities in Q3. On the mass media front, we kicked off back to the street, this is a new campaign and partnered with the hottest online competition show called (inaudible) of China in Q3. This campaign was a coordinated effort of advertising in the online show with more than 200 million views, interaction with all social media channels like the WeChat and Weibo. And off-line advertising is subways and buses. It generated a total of 800 million brand exposures and continue to enhance our brand image as a cool lifestyle brand.

We also continue to build our brand image with co-branding efforts. This time, we work with the (inaudible), a popular Japanese cartoon in China and rolled out a (inaudible) special edition based on our MS product. This co-branding has received quite a bit market hype with close to 50 million views of new (inaudible) content across multiple channels.

Now let me turn over to the overseas market. Our overseas market reached to 5,600 units, a small growth of 6.3% year-over-year. While, in fact, we had about another 1,000 orders in Q3, not able to shift in time due to the scarcity of international shipping. Now even without the delayed housing orders, this demonstrates swing back to normality in the overseas market as our Q2 sales overseas were actually down by 62% year-over-year. This is only the start as most of the people in our core demographics are working from home. So as more individuals goes back to work, we will continue to see growth across our markets for individual mobility.

In Q3, we also increased our flagship and premium stores to 114 from 91 in Q2. And year-to-date, we have added 88 flagship premium stores. With now more than 40% of our sales from branded flagships and premium stores. Similar to China market, we will continue to expand our retail footprint with branded flagship and premium stores for Q4 and 2021. Along with our retail expansion, we have also up our effort in the social media with close to 800,000 interactions on Instagram and Facebook. Now while we are watching closely the COVID-19 situation globally, we're quite confident that our international sales will return to the healthy growth in Q4 this year.

Now I will turn the call over to Hardy to discuss our financial results. Hardy?

Thank you, Yan, and hello, everyone. Our press release contains all the figures and comparisons you need. We have also uploaded excel format figures to our IR website for easy reference. As I review our financial performance, we are referring to the third quarter figures, unless I say otherwise. And that all monetary figures are unless otherwise noted. Our Q3 sales volume reached 261,000 units, increased by 68% year-over-year. China sales volume increased by 70% as a result of retail sales network expansion and new product launch. International sales volume increased by 6%, lower than our expectations, mainly due to rebound of COVID-19 and difficulty to full containers for international shipping.

We expect some of these challenges continue into the fourth quarter. We are currently working on different initiatives in order to deliver continued growth from international markets. Regarding product mix, as we launched a few new products, the mix changed accordingly. M-Series accounted for 12% of total volume. N-Series accounted for 23%, U-Series accounted for 28%, and the global series accounted for 37%. Out of the 37% from Gova series, 27% is from the mid-end products, G0 model and the remaining 10% from G2 and other global models. The high percentage of G0 sales volume had a negative impact on our Q3 ASP and gross margin.

Total revenues increased by 37% to CNY 894 million, in line with the guidance we provided earlier. The increase was driven by higher sales volume growth of 68%. Partially offset by decreased revenue per scooter or ESC of 19%. There are a few key drivers for the ASP decline. First, sales of low-priced model G0 negatively affected ASP by around 11%. Second, the change in product mix in other models, especially lower percentage of sales from the high -- M-Series products negatively affect ESC by around 4%.

Third, the sales and promotion with directly end customers affected our margin by around 1%. The remaining 3% decrease is mainly due to slower growth in spare parcels from core operating share operators due to the impact from COVID-19. We expect that some of these drivers continue into fourth quarter. Therefore, the ASP was compared with Q4 last year, its factors decreased by similar percentage. Gross margin was 20.9%, 1.3 percentage points lower than this time last year.

The lower gross margin was mainly due to a few factors: First, the sales promotion and discounts we offer to end customers affect margin by 0.7%. Because we offer the sales discounts to end customers, we are able to see our marketing and sales expense. As a percentage of revenue, our sales and marketing spend reduced by 3%.

Second, we disposed discontinued products, the disposal price was below cost and hence negatively affected our margin by around 0.9%. Third, higher sales volumes from mid-end product G0, which has lower gross margins, the impact is around 4%. However, we are able to offset such negative impact from G0 by cost savings on battery pack and various components.

Overall speaking, the margin for the products are relatively stable compared with both last quarter and last year. The decline in gross margin in Q3 was mainly caused by (inaudible) and disposal, which total impact 1.6%, which are both specific to the (inaudible).

Our total operating expense, excluding share-based compensation, were CNY 97 million, increased by CNY 16 million or 20% year-over-year. The increase was mainly caused by the higher R&D expense of CNY 10 million for staff cost and design expense. Higher G&A expense was CNY 14 million, mainly related to foreign exchange loss, tax and surcharge and professional fees. Sales and marketing spend, however, decreased by CNY 80 million. As I mentioned earlier, we offered sales discount to end consumers, which affected our revenue and the margin by 0.7%. We are now able to reduce our marketing expenditures. As a percentage of revenue, the sales and marketing expense, excluding share-based compensation, was 5.4% compared with 8.5% in Q3 last year.

Our government grants were CNY 1.1 million in this quarter, significantly lower than the CNY 12.6 million in Q3 last year. The company is eligible for additional government grant, we have applied for RMB 10 million government grant, but the payment from our government was delayed. We will book government grant in our income statement only after we received in cash.

Our share-based compensation expense were RMB 10.6 million, almost the same as what we had in the second quarter. Compared with Q3 last year, it had an increase of CNY 4.5 million due to the new (inaudible) quarter.

Our GAAP net income was CNY 18 million, and adjusted net income was CNY 91 million, an increase of 25% year-over-year. The adjusted net income margin was 10.1%, 1 percentage point lower than Q3 last year. The 1% decrease was caused by a few factors.

Our gross margin was 1.3% lower, but it was offset by higher operating leverage, which is 1.6%. We have a lower government grant, which negatively affected our net margin by 1.8%. If we exclude effective impact from government grants, our adjusted net income margin has actually improved against the last year.

Turning to our balance sheet and cash flow. We ended the quarter with RMB 1.3 billion in cash, term deposits and short-term investments, an improvement of CNY 300 million compared with last quarter. Our operating cash flow was around CNY 300 million because of improved profitability, reduced account receivable, reduced inventory and increased account payable.

Our capital expenditure were lost CNY 30 million, mainly related to new store openings in China and international markets. Additional (inaudible) and R&D spending. We had a healthy balance sheet and a very strong cash flow in the third quarter.

Now let's turn to guidance. We expect fourth quarter revenue to be in the range of CNY 555 million to CNY 615 million, an increase of 5% to 15% year-over-year. We expect continued sales volume growth from both China and overseas market. The ASP will decrease year-over-year due to the change in product mix, similar to what we saw in the second and the third quarter.

In addition, in Q4 last year, we had a strong sales in (inaudible) to share more operators from overseas market. We do not expect such high sales in this quarter. Throughout this year, our orders from sharing operators has reduced significantly as a result of COVID-19. The revenue and ASP for sharing operations are usually much higher than other orders because they order not only scooters, but also manufacturers.

In the fourth quarter, we will continue expanding our own retail sales network in China. We expect to open more new stores at faster speed than what we did in Q3. We are also working on the construction of our new manufacturing facility in Changzhou. It's a little better for continued growth in 2021.

Our overseas market began to recover. We had a very strong order book for Q4, which is a good sign for demand recovery. With that, let's now open the call for any questions that you may have for us. Operator, please go ahead.

(Operator Instructions) We do have a first question from the line of Roger Duan.

I have 3 questions. First is, there are several international countries in which we have local dealerships have reentered lockdown. Can management share the magnitude of negative impact we can expect from these international markets for 4Q and potentially first quarter 2021?

And my second question is somewhat tied to the first one. How should we think about the ASP will trend for 4Q and 2021, given international markets continue to experience pressure and the lower price G-Series products continue to grow as a percentage or even sold?

And my third question is with regard to the competition, can management share any insights on how we're thinking about competitions with industry leaders? In the past, we have largely avoided competing directly with them by offering products in different price categories. But it has somewhat changed after our launch of G-series. What is our strategy to continue taking market share from these legacy e-scooter makers?

All right. Thank you. I think those are great questions. I'll try to cover, Lian, so I'll turn the cover question 1 and 3, and then I'll have Hardy to cover, too, on the -- basically on the ASP front. So I think on the international market, yes, I think our Q2 was worst case where we actually see a decline of 60-plus percent in Q2 because a lot of stores closed in April, May, all the stores are closed and then that give little confidence to our distributors in terms of ordering because you have to keep in mind that the Q2 sales, the quarterly sales we see on international, usually, there's like that's actually the time we ship the product. So in term of retail, it's basically like a quarter after.

Now what happened in Q2 is most of the stores are closed and that -- are actually not order anything. That's where we start seeing a huge decline. But as in -- starting in May, stores start to open, and then that gives distributors confidence. So we're seeing uptick orders in Q3, that's why see up to about 6%. But in reality, I think we should have been more because we had like 1,000 order of scooters not able to out of door because there's really a scarcity of international shipping with containers.

We are actually quite confident with our Q4 from a order book point of view, actually, a lot of orders are coming in. We expect a really healthy growth for Q4, now the issue is actually booking the international shipping containers. This international shipping, actually, the containers, at this point, seems to be a scarce resource that a lot of ports in Europe, they're not people working on the ports. But from an order perspective, we're actually seeing a huge order take-up in Q4 for the international market.

I think this is on the 2C side. Now a little bit on the 2B side. On the 2B side, we're not seeing a great year this year. But 2B, most of our orders are for the sharing operators. Sharing operators this year haven't really been doing well this year because with the colonizing situation, with people working from home, you're not seeing a pickup in the sharing operators. As opposed to last year where we see a lot of sharing operators order of scooters, both from the United States, that's from Europe. We are seeing some this year, but they -- the order has been slow. So but on this one, we're hoping that with Q4 and the next, basically, Q1 in 2021, where the sharing operators -- the orders from sharing operators will come in. Because I think we're already seeing a recovery, like, for example, (inaudible). They're already seeing a recovery in terms of the ridership in the United States. So I think for the 2B side, we're seeing probably this Q4, but most likely Q1 next year -- Q1, Q2 next year, where we're going to see quite a bit uptick on international markets.

Now lastly is actually we're -- we are -- as we put on the press release, we are basically starting a presales marketing campaign for the Indonesian market. This will be sort of our official entry to the Indonesian market. The actual sales or the revenue we won't see that revenue in this year because the trade sales will happen in December, but most order fulfillment will be in February and March-ish. But that actually will add a healthy growth in Q1 2021 and potentially the entire 2021, we're -- basically, this mark as our first step to enter the Indonesian market in South East Asia, the major country in Southeast Asia. So hopefully, that address your question number one.

I think, just lastly, I think on the question, I'll just question number three, then I will give to Hardy to add on question number two. I think, yes, with competitions, we are -- with the Gova series, we are entering into the mid-end market segment are mid to high, I think it's more or less mid- to high market segment, where I think the traditional players, like, yes, other brands have presence in that market. But so far, we have seen that our Gova series has been able to achieve quite promising results. With the entry price at CNY 2,299, I think we have price product in from RMB 2,299 up to RMB 4,000. And the Gova series in Q3 actually accounts for about like 37% of our sales.

And it basically demonstrates, we are able to -- when we compete with traditional brands in that market range. Used to be we're the only one sitting on the high end. But now we come to the mid-end with the mid-end product, still with a good-looking design and also a great writing experience. In terms of the product experience, we are able to gain huge gain market share from the traditional players. Now the issue is we are not -- this really marked the beginning of this journey, where if you look at Q3, we added about 200 stores. So even with additional 200 store ads, our per store sales actually went up by 40%. And this is particularly because with this mid-end product, the stores are able to use this product to gain market share from our competitors. And this also allows us to open more stores in our stronger cities like Tier 1 cities, Tier 2 cities, where we're able to approach basically target the mid-end market consumers in the cities as well as allow us to open more stores in the lower-tier cities, where we used to have little presence or 0 presence.

And so with that, I think we -- that's where we actually have more confidence looking at. We're going to accelerate the store opening efforts. I mean 200 store openings in one quarter has marked an all-time high, but we don't -- I think that's the historical time high, and we'll continue to beat our record into our store openings.

Now I'll pass to Hardy to address the pricing part.

Yes. For the ASP, as you already see in the third quarter numbers, the ASP in the third quarter was down by 19% year-over-year. In the fourth quarter, in short, we expect the ASP will compare with Q4 last year will decline at a similar percentage. However, we encourage you to look at the ASP by product segment. So the ASP for China scooter sales, ASP for international market and then ASP for spare part. If you break them down, and then you tell you a different story.

So the ASP for the China market, if you look at the third quarter, the price was down by around 18%. Of that 18%, around 13% was affected by higher percentage of sales coming from G0. Last year, there's no mid-end product G0. This year, G0 takes around 27% of total sales volume. That's the fact that China by around 13%. The remaining 5% came from the change in product mix from other models, especially we have a lower sales in the N-Series product.

If you look at this trend in China going forward, the G0 model will continue to be there. However, we do expect in the other models, we will see some improvement. Therefore, the ASP for the China market, if you compare year-over-year, will have some improvement in the fourth quarter. When we look at ASP for international market. If you look at the year quarter -- year-over-year change, actually, in this quarter, our ASP for international market increased by 27%. Product significantly improvement mainly because there's small sales volume, therefore, this big change in the ASP.

For the international market, our ASP has been relatively stable. It's always anywhere around 9,000 to 10,000. So for international market, we do see quite a stable -- relatively stable pricing. Then lastly, on the ASP -- accessory and (inaudible) services. This one for the China market, the price was relatively stable. However, for the overseas market, it was significantly affected by how much we can sell to the sharing operator.

As mentioned in the call, this year, we do not have as much as orders for sharing operators in Q3 and expected in Q4. Therefore, we do see some pressure for the ASP going down. However, for next year, with the recovery from the international market, we do begin to see some of the orders coming in, propose share more greater and also both service scooters and also for the sharing spare part. So for this part, we do see pressure in the Q4, but next year, we do see some potential full improvement. So in short, I think if you compare year-over-year in the fourth quarter, the ASP will decline similar percentage. But if you compare quarter-to-quarter, we do expect the fourth quarter will improve compared to third quarter.

If you look at next year, and I believe the Q3 and Q4 ASP will be quite positive. So how much do you have for next year. So this answer your second question.

We have our next question coming from the line of Alex Potter from Piper Sandler.

Great. I guess my first question is regarding capacity in Changzhou. You mentioned you're still in the process of expanding the capacity there. How -- what -- I guess, what's the update? How much is left to spend in terms of CapEx? And what is your annual capacity now versus what it will be next year?

Alex, let's me address your question. Currently, our design capacity around 1 million units, and new capacity, the new factory has another 1 million capacity and we plan to bring the new capacity on board some time during the second quarter next year because from the second quarter, the peak season started, the total CapEx for this new capacity will be anywhere between CNY 100 million to CNY 120 million, including the last. We started construction in October, and it may take us around 6 months -- 5 to 6 months to consider full construction. I hope this answers your question.

Okay. Yes, yes. Was wondering if you could talk a little bit about the promotions and some of the price discounting you talked about also in the quarter, which was an impact on gross margin and ASP. What were the -- what products were you promoting specifically? What promotions were you running? And how long do you expect to keep doing that?

Yes. I think a very good question. I think for Q3, we have a different format of promotion this year compared with both early years and also from last quarter. If we give cash coupon to our end customers, and they can use this cash to deduct the sales price therefore, we spend around 80 million for this promotion and direct reduction from our revenue and also our gross margin. And we have this kind of promotion, mainly because this Q3 means because of the COVID-19 people are more sensitive for price. Therefore, we believe we will direct the end consumers is better than we spend money in different ways. However, from Q4 this year, we have no such promotion plan. Therefore, we more attribute to this kind of promotion on kind of one-off promotion in the third quarter.

Okay. And was this specific for any certain types of products or was it broad?

No, it's broad. So basically, the customer -- end consumer, the end customer go to the store. Then (inaudible) model that they like, then they go through a loss in system. And everyone will win, we will get something -- someone gets 100 cash flow cost and a direct reduction for the sales price, someone can get (inaudible) cash flow on which can be deducted rightly from the sales front.

And then the last question from me is on the regulatory change. Can you remind us when exactly the new regulation will be enforced? And it sounds like you do think that you're getting some demand because I know people are obviously going to be forced by the new regulation to replace their scooters. Do you think that people are doing that now? When do you expect to see most of that demand to materialize?

I think, Alex, it depends on city by city. First of all, the new regulation, basically, the temporary regulation was announced in 2018 is starting to enforce on April 15, 2019, a different city actually different -- give different years. For example, (inaudible) they gave temporary license plate in 2018. And as I said, basic -- the temporary license play, you can have -- you can use the scooter for 3 years, which essentially means some of the scooters will be out by end of 2021 or I think early 2022. So which would expect to see, what they call, a replacement uncompliant temporary license scooters starting -- actually starting next year.

So I think this is also an indicator -- I think this is actually a driver for us to quickly expand -- add more stores in those cities in highly regulated cities. And the good thing for us is actually our market share and our presence is actually much, much stronger in the highly regulated cities because most of the highly regular cities are the Tier 1, Tier 2 cities, where in the Tier 3, Tier 4 cities, I think, the regulation is still be enforced very -- some places very loosely where you won't see this uptake internal replacement yet.

We have our next question coming from the line of Bin Wang from Crédit Suisse.

I actually also got three. The first one is about a very top-down angle about the overall market because if you see number from MIT in the number three quarter, the overall production in China increased by 61% year-over-year. And for you actually outperformed yes. If you really, excluding the G-series actually in the high end, it's only around 11% growth. So can I jump to the conclusion is that the high-end market is actually as much slowing down? And (inaudible). Can I have that conclusion? And meanwhile, actually, because the duration is timing regulation really just have some impact on the high end and (inaudible) people don't care. So how to elaborate, if I understand the different segment has quite a big difference growth as number one.

And number two is about the guidance. Basically, can you explain why the our (inaudible) so bad and why a huge rebound in the growth in December? So based on your guidance in the revenue, we cannot get a number, let's say, 150,000 net of cash. So it means that November and December happened more than 50% growth. So can you elaborate where the market ratio is correct or not about November, December growth? If it was correct, why the (inaudible) have such high growth after a big dip in October.

Meanwhile, was the guidance for next year, 2021, based on the November, December momentum. The second one. And third one is about new products and new store because if you see in the past 1 year, you have been launched quite a few showcases called MRI and RI, doesn't see this new product really bring any volume. So and number one will be next products, volume products and why this nuclear didn't really bring in volume. So how we think about your new product plan for the coming years?

I mean what was your store guidance for next year or maybe end of this year and next year.

I think your first question is about the volume (inaudible). I think if you look at the information published by the Ministry of Information Technology -- Information Industry Technology, there Q3 electric bicycle would not go is anywhere between 40% to 50%, depends on which mark are talking about, our growth certainly is much higher. We are going -- about 70%. You're also correct that the G0 is a key driver for us to grow in the China. And our high-end U-series has grown of around 11%.

I think one of the key reasons is the confident new regulation will be in force. The new regulation side of the top also gave some great limit to the electric bicycle. Therefore, a lot of functions, also including (inaudible) functions, we were not able to pass to this electric bicycle because of that, then definitely, customers do not want to pay high price for the extremely high price models. So I think that's one of the key reasons why the high price model (inaudible) growth rate compared with the the one (inaudible) electrical bicycle category.

And for your second question about the sales volume in October, November and December. I think you have reached roughly -- roughly -- okay. I think in October, (inaudible) we already mentioned in our earnings release, is parts because of the operational disruption in our factory because in September, we used up to the user to have a full usage of our organization of factory because of the huge demand in the third quarter. Therefore, we have to make some maintenance for our machineries through our factories and make sure we have a safe environment to produce -- to prepare for November and December. Because of that reason, some of the sales volume shift to November and also to December. This is one reason that why you see the higher volume in November and December.

Second reason, as we already mentioned, we continue to (inaudible) in China as we already see our -- (inaudible) placement for us to over new stores as we launch the G0 model -- media model. So we have opened a mall. We have accelerated our opening process, it will also help us to increase our sales volume (inaudible) to increase our sales volume for (inaudible) volume growth in November and December. For next year's guidance, we are making it in early next year. We want to mention for during this call.

In terms of new product launch, I think, I will comment a few words, then I will leave to Yan to comment on next year's plan. For the new products, the Q1, our Q1 and also the EUV product to be launched in early this year, they are not -- they have not entered into mass production yet. Therefore, they are not to want to drive our volume growth for this year. The reason is the (inaudible) we have (inaudible) overseas market. They still price also much higher. This year, because of the COVID-19, the overseas market, for different regions, we are not able to achieve very high-volume growth. Therefore, we postponed the mass production of some of the models for the multiple will be.

For next year, we do plan to launch additional models to the China market and the new products will launch (inaudible) second quarter. We believe some of the new models results in China will be (inaudible) production and continue to drive our volume growth in China.

For the overseas market, what we are doing is we began to use our own (inaudible) products to launch to the Southeast Asia market, especially Indonesia market. In December -- right in December this year, we are going to launch on the motorcycle models in Indonesia market, and we began to (inaudible). We believe that it will help us to drive the volume growth in Southeast Asia market. So in some of the comments on the new product launch and how they can drive our quarter growth in the next year.

We have our next question from the line of Jing Zhang from CICC.

Basically, I have 2 questions. The first one is about the store and channel expansion. So what's our target next year for store expansion? And we see other competitors opening stores at higher speed. So I want to know what are our major concerns, our difficulties in terms of opening stores?

And my second question is, we are going to sell e-motorcycles in Indonesia. So can you share some details on our strategy in terms of like production? So whether you export or do the factories there and our channels and also our -- our product compared to the local brands motorcycles. And also maybe our long-term sales target.

No, thanks. I think great question. First of all, on store openings. So as I mentioned earlier, so in Q3, we're able to add about 200 stores. And so keep in mind, Q3 usually this year, Q3 usually has been our busy sales quarter where our distributors are not willing to open stores. But this year, actually, with the effort, we see we actually have a capability to open 200 stores in 1 quarter. And now we're actually thinking about after game in Q4, opening more stores than Q3, and we actually have the higher ambition for next year. So we don't it depends -- I guess it really depends on how we wrap up the Q4 this year, we'll have a more relative growth for next year.

So I think that's basically on the store expansion. And more importantly, if you look at the data here, it's actually we have the capability to open factor more because even with Q3 witness 200 stores, our per store sales still went up by 40%. So that means there's actually a lot of room to open new stores at this point. So you can the people can actually get to 200 or 300, 400 stores in Q4, and we'll see how that depending on how fast that construction can be finished. And that actually will serve the guidance for next year as well on a quarterly basis.

Now with the Indonesian market, I think it's -- yes, one, we will have to -- initially will be local -- it will be on sort of a (inaudible) because Indonesia has a huge tariff. If you shift the entire product from China, I think the tariff is about 40%. So that will make the pricing not relevant. We want to actually enter the Indonesian market. No. We have a high-end product, but we want to enter -- affordable product level, affordable price range product. So which actually will ensure we're not being viewed as a luxury product, but more a mass daily commute product.

So this is actually -- right now, we have a basically manufacturing partner in Indonesia, will help us to assemble the product. Even with some of the parts being locally sourced, and that will actually get to a lower tariff, initially about 8% to 10%, less than 8% to 10% because it's mostly on parts. And that probably will happen for next year. In the later half of next year, we'll see depending on how the sales volume grows. We are -- we might have to actually invest to build a factory in Indonesia. Hopefully, that answers your questions.

(Operator Instructions) We have our next question coming from the line of Sebastian Veteran.

With the upcoming importance of the Gova series, to what extent do you intend to use after sales to protect your margin?

I think even with Gova series, I think the after sales will be still conducted by our branded retail stores. So from using aftersales to protect margin, I think, it's a similar method as with other series. I think the question, we look at the actual margin of the Gova series is actually slightly less than our new series, but not significantly less. It's probably just a couple of percentage less. Because even though it's actually marked at the lower prices, someday because it's using a -- the battery uses, it's not a (inaudible) batteries. It's actually SP batteries, which actually an alternative, but it's actually cheaper than the NCM, NCA batteries. And some -- the lower end of Gova series doesn't have the smart IOT, the smart IOT is add-on. So for people who actually take a series that the basic level it doesn't have the smart IOT, so that actually helped to reduce the cost of the reduced the price set as well. But our app does support the product where the users can actually -- with or without IOT, the user can download the app and then actually register the scooter on the app and be able to receive the same level of after sales services on the app as well.

We have our next question from the line of Paul Gong from UBS.

I should have one question. You mentioned the tariff between the retail market is 40%. So that's why you decide to build structure over there. So in view of the IOT and how should we foresee the tariff going forward? And the local factory, is that still required?

No, I think that's a great question. So I think we are actually looking -- we saw the news as well also, but we haven't really get sort of the detailed information yet. So this is the actual detail information, basically like motorcycle, electric motorcycles actually covered by the (inaudible) then actually, that will solve a lot of our issues as well. Let me put this way. Frankly, we'd rather have everything manufacturing in China where we have a really tight control with our own factories, into our quality insurance, everything and from management complexity is actually much easier to get manufacturing in China versus shipping parts of Indonesia and have a locally assemble the manufacture there. We understood why the tariff was there because a lot of motorcycle brands are locally manufactured there. So there is actually sort of a locally protection there in term of that industry. But if that opened up where the tariff is being reduced significantly, actually -- that actually will change our manufacturing planning.

That's one of the reasons right now we don't actually we decide not to, for example, buy a land or build our own factory in Indonesia, we're simply still watching out to see by using it more flexible, being partner as a simple option at this point because that gives us the flexibility depending on out how that whole trading thing goes.

Thank you, seeing no more questions in the queue, let me turn the call back to Mr. Li for closing remarks.

All right. So thank you, operator, and thank you all for participating on 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.