NIU Technologies

NASDAQ:NIU

Earnings Call Analysis

Optimistic Growth and Stable Margins in 2024

For 2024, the company has set an optimistic target for growth. They expect to double the sell-out volume of kick scooters, implying a double in sell-in volume to distributors, aiming to hit between 200,000 to 250,000 units. The average selling price (ASP) is forecast to remain constant compared to last year, despite the introduction of new, diverse product lines. As for profit margins, a slight gross margin increase of 1 to 2 percentage points is anticipated, balancing cost efficiency gains with a strategy of sharing profits with dealers and supporting overseas expansion. The selling expense ratio is projected to be managed within 20% to 24%, consistent with levels seen during the second half of 2021 and the first half of 2022.

Overview of Company Performance

The company's Q4 sales volume was static compared to the previous year with a marginal 0.6% year-over-year drop, totaling 137,000 units. While China experienced a 6.4% sales drop to 110,000 units, overseas markets saw a robust 33% increase to 27,000 units. Despite consistent sales volume, Q4 revenue fell by 21% to RMB 478.7 million, and the yearly revenue also dipped to RMB 2.7 billion. The company attributes this decrease to the residual effects of the lithium battery price hike in the earlier half of 2023 and a consumption downshift in China's top-tier cities.

Product Strategy and Innovations

Amidst a challenging environment, the company continued to target the premium market segment, engineering a successful product line expansion. Noteworthy launches included the sporty Falcon series and the MQiL, revitalizing the M-Series with notable design and performance enhancements. The latter represented 16% of China's 2023 sales volume, while the newly introduced S-Series quickly became popular, accounting for roughly 35% of sales in China.

Branding and Market Presence

The company fortified its brand image by partaking in numerous exhibitions, events, and collaborations with brands like The North Face and at gaming expos. These activities aimed to enhance the brand's positioning and foster a premium reputation within the China market.

Expanditure into Overseas Markets

While facing some operational disruptions, the Micro Mobility segment managed a modest year-on-year growth of 0.5%. The company continued to launch new products like the RQI, a high-performance urban electric motorcycle, and the XQI electric dirt bike, which received acclaim and design awards. Furthermore, the company has launched a new battery swap initiative, expecting to work with 3 to 5 operational partners by end of 2024.

Strengthened Retail Presence

Doubling down on sales channel expansion, the company partnered with major retailers such as Best Buy in the US, MediaMarkt in Europe, and expanded into over 1,000 physical locations. This move, accompanied by a series of successful product launches including the classic UQI and the MQiL, is expected to stimulate sales growth in 2024.

Technological Advances in Product Line

2024 ushers in the launch of the NX Series, offering cutting-edge functionality with features like ABS, TCS, blind spot detection, and intelligent TFT displays. The NX scooters boast a maximum power of 20,000 watts, a top speed of 135 km/h, and rapid acceleration, contributing to the high-performance segment of the market.

Future Growth Prospects

Anticipating the impact of their strategic pivots, the company projects a significant sales volume increase in 2024, targeting 1 to 1.2 million units. They also expect Q1 revenue to go up by 5% to 15% year-over-year, with estimates between RMB 438 million to RMB 480 million.

Earnings Call Transcript 2023-Q4

[Operator]

Good day, ladies and gentlemen. Thank you for standing by, and welcome to the Niu Technologies Fourth Quarter 2023 Earnings Conference Call. [Operator Instructions]. As a reminder, we are recording today's call. If you have any objections, you may disconnect at this time. Now I'll turn the call over to Ms. [ Crystal Lee ], Investor Relations Manager of New Technologies. Ms. [ Lee ], please go ahead.

[Unknown Executive]

Thank you, operator. Hello, everyone. Welcome to today's conference call to discuss Niu Technologies' results for the fourth quarter 2023. The earnings press release, corporate presentation, and financial spreadsheets have been posted on our Investor Relations website. This call is being webcast from company's IR side as well, 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 provision of the U.S. 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 those 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 a discussion 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 CFO, Ms. Fion Zhou. Now let me turn the call over to CEO, Yan.

[Yan Li, executive]

Thanks, Crystal, and hello, everyone. In the fourth quarter of 2023, our total sales volume was 137,000 units maintaining the same level 1 year ago with flat year-over-year drop of 0.6%. Specifically, sales volume in the China market dropped by 6.4% to 110,000 units while sales in the overseas market had a significant increase of 33% to 27,000 units.

Total revenue in Q4 was RMB 478.7 million, a decrease of 21%. Those results wrapped up the financial year of 2023. In 2023, the total sales volume was 710,000 units. Total revenue for the entire year was RMB 2.7 billion. Now the year of 2023 present significant challenges for new operations. The linger effect of lithium battery price hike in 2022 continue to impact our sales in the first half of 2023 while the price of lithium battery returned to the normal levels in the second half of the year, our business faced additional due to consumption upgrade -- downgrade in the top-tier cities in China.

This trend is characterized by cautious spending behaviors among the premium market customers resulted in a slowdown in sales. Now in the international electric 2-wheeler market, we encounter challenges, both externally and internally. The decline of electro mobile market in the key European countries, such as Germany and the Netherlands, coupled with temporary operational disruptions due to issues faced by our distribution partners in Europe, further hindered our growth in 2023.

Despite the headwinds, our 2023 presented itself a year with opportunities to reflect and refocus our strategy. In the China market, our product strategy remains focused on the premium market segment enhancing our product line by growing our Classic series and also by successfully introduced a more sporty style, Falcon series. One notable product released in 2023 is the MQiL, the legacy return product updates our iconic M-Series with significant design and performance improvements.

In just 7 months of launch, the MMQiL sales volume in 2023 represents 16% of China's total sales. The FL consumers is also another popular series that we truly see 2023 that quickly become more about besides the classic halo light series. With the recent launch F400TF200S100 products. The new S-Series together represent nearly 35% of total China sales.

So our dedication to craft or premium product is complemented by our unwavering commitment to build a premium brand. Throughout 2023, we remain deeply engaged in branding and marketing activities leveraging various user events and cross-brand collaboration to strengthen our presence in China market. We actively participated in exhibitions and road shows collaborating with leading lifestyle brands such as -- the North Face Mountain Festival, [indiscernible] Fusion Gaming fat and designer toy export. These events provide us with value for opportunities to showcase our products and elevate our brand presence.

Simultaneously, we maintained a robust online presence through a strategic communication and marketing campaigns, predominantly on short video platforms like [indiscernible] Collaborating with over 600 KOLs and POCs, our content generated over 250 million views, further solidifying our brand's digital footprint.

Furthermore, 2023, saw us back on the impactful cross-brand collaboration such as our partnership with globally recognized IP [indiscernible] resulting in the launch of new craft [indiscernible] G100 scooters. Additionally, in Q4 2023, we established a significant official partnership with JD Gaming, a leading eSports team in China and the finalist in the League of Legends for 2023.

Moving forward, we'll continue to leverage our strategic collaborations and high-profile events to amplify our brand visibility and reinforce our position in the market. Now turning into the overseas market. In 2023, we encountered a mix of challenges and opportunities. Our electric 2-wheeler sales experienced a significant decline of 70%, primarily attributed to the operational disruption faced by one of our key distributors. However, our Micro Mobility segment saw a modest increase of 0.5% year-on-year.

Despite the decline in the electric 2-wheeler sector, we have initiated efforts to make operational adjustments to improve our performance since the second half of 2023. We continue to introduce new product in 2023 in the electric 2-wheeler market. In the fourth quarter, we introduced the RQI, a high-performance urban cap electric motorcycle, to the European market. Its cutting-edge design swift acceleration and integrate smart features such as keyless lock, GPS navigation, OTA updates have been met with the enthusiasm from the market. Alongside the RQI, we launched the XQI electric dirt bike, available in 2 variants, the XQI 3 Street for urban writers and XQI 3 wild for off-road adventures. The XQI quickly garnered a claims winning the 2023 gold winner of the New York product design awards.

Furthermore, 2023 market official launch of our new swap battery swapping solutions compatible with our newly introduced F600-[ EMOPet ]. This initiative inlet collaborating with partners across Southeast Asia, South America and Europe to revolutionize the way riders engage with our product by offering quick efficient battery swaps, thereby opening doors in the markets that we have previously yet to penetrate.

We officially kicked up a solution in Q4 2023 and expect to have better swapping capitals available by working closely with 3 to 5 operational partners by the end of year 2024. In the Micro Mobility sector, we delivered sales volumes slightly higher than the previous year, with an increase of 0.5%. However, the total activation number in 2023 grew by 2x compared to 2022.

In Product Strategy, we focused on running our product portfolio to cater a broader spectrum need to long premium KQI Air and the QIX air X models constructed predominantly from lightweight carbon fiber for incredible low weight of under 12 kilograms solidifies our range in micro mobility categories. With the [indiscernible], we now crossed the comprehensive lineup that spends from higher innovative design scooters in USD 1000 plus range to high-performance scooter in the $800 to $900 range to accessible entry-level options in the $300 to $400 bracket. This diversity laid a strong foundation for anticipated sales growth in 2024.

The expanded sales channel of our Micro Mobility product also play a big role in the growth. In 2023, we transitioned from focusing on online sales throughout Amazon and Shopify to a combination of online/offline sales by working with official retail partners like Best Buy, MediaMarkt [indiscernible]. Through those retail partners were able to place our products in more than 1,000 physical locations in the United States and Europe.

Our active participation in global exports and road shows, including the AM export in Las Vegas, [indiscernible] Berlin and Akamai in Milan and electric expo in various countries have significantly elevated new brand visibility. Moreover, our inclusion in popular media such as appearance in the movie Murderer Misery 2 and TV shows like [indiscernible] and the [indiscernible], has pleasantly surpassed our expectations, further enhancing our brand's presence on the global stage.

Now as we move into 2024, our optimism for growth is brought by strategy adjustment laid out in 2023 across our operations. In China, our commitment remains strong towards the premium market segment, focusing on premium product development, targeting very specific consumer segments, channel expansion into Tier 2 and Tier 3 cities and same-store sales growth via online offline traffic optimization.

In terms of product, back in 2022, we introduced our new classic UQI model upgraded U series featuring improved light design, smart control enhanced rider economics. This model quickly captures market attention and contribute to nearly 14% of total sales of 2022. Similarly, the MQiL introduced in Q2 2023 as the enhancement of all-time popular series present itself as a classic return with performance improvement. MQiL contributed to 16% of total 2023 China sales. Both models serve a clear testimonial to the consumer's preference for our classic design combined with upgrade technology both in powertrain and smart functionalities. Those design cells are deeply graded in the minds of Chinese consumers as premium high quality.

The successful launch of the UQI plus in the U-Series and MRL in M-Series set a foundation for our new products. Now on February 29, 2024, we build our newly designed NX Series, continues the design sale of our first legendary product, M1, which laid the foundation for our company back in 2015.

The online was our first electric moped in China and has sold over 0.5 million units since its launch. It has not only become the legendary design for new but also a classic sample of premium high-quality smart electric scooter in China. However, since 2019 with the new -- with the introduction of new regulations on China electric bicycles, the [indiscernible] standard and have to be sold as a motorcycle, leading to a decline in sales. Nonetheless, consumer has long been requesting an upgrade [indiscernible] that complies with both the regulation for electric bicycles and motorcycles.

Now in 2024, we finally [indiscernible] representing electric motorcycles and NXT as electric bicycle. Both models inherit design style of the original M1, but our refined upgrades modern look. The design stands out with a future style incorporating mathematic transparent panels to showcase [indiscernible]. The body's design will shop at smooth aerodynamic lines. Additionally, we have upgraded halo lights, a signature element shared across our most well-known scooters.

In [indiscernible] series, the halo lights embedded in the front panel, adding another futurists to the design. The NX or NXT are equipped with our most cutting-edge technology functions to date, making them the smartest electric scooters on the market. For driving safety, they are equipped with the full function ABS and TCS. Additionally, they feature the BST, the blind spot detection, and RCW, Rare cross traffic warning along with automobile grade dash cam in the front and the millimeter wave radar in the back.

To further enhance the riding experience, they are all fitted with the interactive TFT display serving as smart cockpit. This incorporate riding its features such as keyless start, navigation, remote access as well as interactive features, including lab timing, ready routes, locks and entertainment systems.

Also to seamless integrated with user smart device ecosystem, the update also incubate new smart features like map for navigation and compatible with Apple and Huawei Harmony system. The integration of [indiscernible] features such as voice control, shortcome display and device management, including Apple SunMine features.

Now as one of the highest performance electric motorcycle, we ever released the NX boosted maxim power 20,000 watts with top speed 135-kilometer per hour and accelerates from 0 to 50-kilometer her hour in just 2.5 seconds. The NXT is available immediately since its launch with pricing from RMB 6,000 to 12,500, where NX is available in May. The NXT were well received as evidenced by online preorders of NXT initially through live streaming of major platforms.

With the initial 2 weeks of launch, we secured more than 10,000 units in preorders generating sales revenue exceeded RMB 100 million. This amount is 40% more than compared to our initial crowd-funding campaign for the release of first M1. Those preorder results position as a top seller across all major e-commerce platform during the period.

Now with the successful launch of NX, NXT Series targeting the premium motorcycle consumer segments and performance-driven electric bicycle segments, we also plan to introduce several products to target diversified user group. For example, our recently upgraded U1 product launched just a [indiscernible], targeting female users with this new color scheme, argonomic improvement in handset position, easy-to-use smart functionalities and options to include baby seat and accessories. The key to our product strategy in 2024 is to build our product portfolio, targeting the premium consumer segment with diversified ease.

Supported with those new products, we also plan to restart channel expansion in Q2 2024, building up the channel coverage across Tier 1 to Tier 4 cities. We're initially focused on top 45 seats, which represent 80% of our sales with plans to build sales from in the lower-tier cities as well.

Now with addition of store counts, key focus for 2024 remains an improvement on same-store sales, leveraging the combination of online and off-line traffic. We initiated those efforts in the second half of 2023, conducting over 15,000 live stream sessions [indiscernible]. We have recorded some successful case achieving a GMV of over RMB 100,000 on live session, indicating a successful online to offline conversion model, we plan to further scale up.

Starting Q1 2024, we have continued live stream initiatives in 3 key CD markets, enabling those stores to sell directly through online live streaming on a daily basis. Additionally, we have planned to launch online sales campaigns and cocreate over 10,000 widespread in social media content. With this strategy in place, we anticipate to improve our same-store sales by 10% to 20% in 2024, driving significant volume growth for the company and enhanced store profitability.

Now with our product strategy and retail channel expansion in focus, we aim to further strengthen our brand through marketing and branding campaigns, a recent highlight with our collaborations with JD Gaming team, expanding our partnership from last year, we joined forces with JD Gaming team as their official electric scooter partner. This collaboration expands from social media engagement to product launches and seek to make a significant impact within the generation Z demographics.

The collaboration with JD Gaming marks beginning of series partnership planned for 2024, we intend to continue our co-branding effort with several strong IPs targeting specific user groups and leveraging social media platforms. Now in the overseas market, our comprehensive product portfolio, which includes the introduction of MTT100, RQI and SQI models in the fourth quarter of 2023 strategically bridge the gap between our product offering, a high-performance electric motorcycle market demand. The MGD-100 price at EUR 5,000 together with NGT provides a comprehensive coverage from 50cc to 125 cc [indiscernible]. The RQI targets electric motorcycle category offering a high-performance quad motorcycle option with price starting on Additionally, the new dirt bike, XQI, marks our debut product in the [indiscernible] motorcycle sector priced at EUR 6,000, the SQI model has garnered significant attention.

Our active engagement industry events such [indiscernible] Expo Las Vegas, Motor Reader in Dublin, Germany, has further amplified our brand visibility as those expos, we brought our latest bikes providing attendees, including influential KOCs with the opportunity to test drive and review product. The positive feedback and heightened interest from the diverse user group received as event has been instrumental in solidifying our presence in the market.

Most importantly, since the later half of 2023, we have undertaken a substantial adjustment in our business operations in overseas electric 2-wheeler sector. In some of our key markets, in addition to the existing distributors, we are established entities and the operation team for direct distribution of some of our products to retailers. We believe this direct distribution model will enable us to invest more in local branding and marketing, establish strong ties with customers and make us more adaptable to local market changes.

With those operational adjustments may initially delay the revenue recognition to products actually reached to individual retailer dealers that will help us create a strong foundation in each local market in the long run. With the comprehensive product portfolio and operational adjustments completed in Q1 2024, we are confident in kickstarting the growth beginning in the second quarter of this year.

Now in the overseas micro mobility sector, we have established a solid foundation for growth in 2024 over the past 2 years. Although the book sales volume has remained relatively flat compared to 2023 to 2022, the actual sale of volume to customers has doubled as suggested by the activation number increase and the trend continued at a 2x rate. We believe that our effort in product portfolio building and the sales channel establishment has positioned us well for the further growth this year.

On the product portfolio front, with the introduction of the [ KKR ] air a full carbon fiber lightweight, high-performance kick scooter in September 2023, we now boost the comprehensive product lineup. Additionally, in January 2024, marked the launch of KQI 300 Series, an enhancement of popular KQI 3 series designed for all time use. This Q300 series feature due to hydraulic suspension for better handling on uneven surface, promising up to 60-kilometer range per charge and starting at $700. We have several other product upgrade plans throughout the year of 2024.

Now with those product lineup, we made significant progress in entering retail channels in the second half of 2023, laid a solid foundation for growth in 2024. In the U.S. market, we are well positioned in over 800 Best Buy stores and advanced in our efforts entering retailers such as Walmart, Target and Costco. In Europe, our products are displayed in over 400 [ Mediamark ] stores in Germany, over 200 [indiscernible stores in France, and we are making progress in placing the nearly 100 core English stores in Spain.

Additionally, we are moving forward with new retail partnership with [ Mediaware ] in Italy and retailers in Australia and others. By the end of 2024, we plan to double the number of point of sales of micro mobility products by expanding the retail sales network.

So heading into 2024, we're optimistic about regaining growth. In the China market, the excitement surrounding our latest product release has been powerful, leveraging the momentum gained from the newly released product, we have also [indiscernible] our schedule prepared for all the other products throughout the year as well as the channel expansions.

In the overseas motorcycle market, with the ready-to-ship product and operational adjustments already in place in Q1, we're confident in the growth of 2024. However, those operational adjustments may temporarily result in decline in sales in Q1 as the sales are actually booked differently due to the model change. For the Micro Mobility segment, we anticipate fast growth in Q1 as well as throughout the entire year given that we have laid out our product portfolio and establish both online and off-line channels at the beginning of this year.

Now with those factors considered, we anticipated sales volume in 2024, reaching 1 to 1.2 million units. Now I'll turn to Wenjuan to discuss.

[Wenjuan Zhou, executive]

Thank you, Yan, and hello, everyone. Please note that our press release contains all the figures and comparisons you need, and we have also uploaded excel format figures to our IR website for your EV reference. As I review our financial results, I'm referring to the fourth quarter figures unless I say otherwise, and all monetary figures are in RMB, not specified.

As Yan mentioned, our total sales volume for the fourth quarter was 137,000 units, a decrease of 0.6% compared to the same period of last year, and specifically speaking, the China marketing sales volume was 110,000 units and overseas market 27,000 units. And for the full year 2023, the total sales volume was 710,000 units, including 601,000 units in China and 109,000 units overseas. And the total revenue in the fourth quarter was RMB 479 million, down 22% compared to the same period of last year to break down the scooter revenues by region.

The scooter revenue in China were RMB 355 million, down 21%. This decline primarily contributed to a shift in product mix, as the Chinese economy was still recovering. Our premium series showed a slower recovery rate compared to the [indiscernible] premium risk. As a result, the ASP reached to RMB [ 32.16 ] a 15% lower on a year-over-year basis. However, BSP in each category has increased. The premium ASP remained almost nearly almost 5,000 and mass premium ASP increased to nearly 3,000.

The overseas scooter revenue including kick scooters, [indiscernible] and e-motorcycles was nearly 60 million. The blended exclude ASP decreased to 22,00 down 49% year-over-year. Despite the higher sales volume contribution of kick scooter with the lower ASP, the new launched K1 and KU contributed to 22% of the sales volume, which targeted towards the use and the entry-level market and have lower retail prices.

Accessories, spare parts and services revenue were RMB 65 million, due to the decrease in the overseas spare parts and services, as we mentioned in the previous quarters. For the full year 2023, our total revenue decreased by 16% to RMB 2.7 billion, and China scooter revenue as a whole saw a 15% year-over-year decline to RMB 2 billion and the overseas scooter revenue decreased by 29% to RMB 349 million.

The total overseas revenue, including scooters and non-scooters contributed to 15% of the total revenue. And now let's look at the ASP in 2023. The overall scooter ASP was slightly decreased to 33.3%, 3% down year-over-year. While the domestic scooter ASP was 33.44, up 1%, and this minor growth was driven by higher ASPs in both premium and mass premium series despite a shift in the mass premium in overall product lease. And overseas blended scooter ASP was 3,200, 21% down as the proportion of kick scooters increased and also combined with the decrease in the newly launched lower ASP kick scooters in Q4.

The gross margin for the fourth quarter was 19%, 3.4 ppt lower than the same period of last year and mainly due to the product mix change in the domestic market. While for the year-end 2023, the gross margin was 21.5%, up from 21.1% representing a 0.4 ppt increase on an annual basis and mainly due to a reduction in raw material costs, especially in domestic new product lines. And talking about operating expenses, the fourth quarter OpEx was CNY 246 million, CNY 50 million higher than the same period of last year and mainly due to a lower revenue base. Selling and marketing expenses were CNY 191 million, CNY 84 million higher than the last year and primarily resulting from our expansion into the overseas market, out of which CNY 43 million was around the overseas micro mobility holiday business to options. And the other half spend from the rental expenses, largely driven by the inventory via resulting from geopolitical conflicts and early stocktaking for the expected peak season in 2024.

Additionally, the current warehouses are incurring higher units or area costs. since the micro mobility sector is still in the early operating stage and those expenses are expected to decrease in the subsequent quarters. R&D expenses were CNY 36 million, CNY 5 million lower than the fourth quarter of 2022 and mainly due to the decrease in staff costs and share-based compensation of RMB 8 million and partially offset by the increase in design and testing expenses of new models, which have been and will be launched in 2024 of RMB 3 million.

G&A expenses were RMB 90 million, RMB 28 million lower on an annual basis, mainly caused by the decrease in provision for credit losses of RMB 22 million and a decrease in dock related costs of RMB 5 million. For the full year 2023, the OpEx was RMB 891 million, 15% higher than 2022. And the increase was mainly due to provision for credit losses of RMB 114 million and the increased promotional activities and rental expenses in overseas markets of RMB 101 million, partially offset by a CNY 45 million decrease in G&A and also CNY 40 million decrease in domestic marketing and promotions.

Despite prudently raising provisions for credit losses on overdue payments, we retain a positive outlook on future receivables collection. Given our current partners robust financial standing and their ongoing payments continuously. Exclude the noncash expenses, such as the provision for credit losses, depreciation and amortization, and share risk compensation, the OpEx increased 2% year-over-year. The non-GAAP OpEx was RMB 845 million. In the fourth quarter, we had a net loss of RMB 130 million and the non-GAAP net loss of RMB 122 million.

On a full year basis, due to the factors including the lower-than-expected domestic sales and increasing overseas business expansion, as mentioned above. We had a net loss of CNY 272 million and non-GAAP net loss of CNY 224 million.

Turning to our balance sheet and cash flow. We ended the year with RMB 1,078 million in cash, restricted cash, term deposits and short-term investments. On annual basis, the operating cash flow was inflow CNY 96 million, primarily because we made a net income after adjusting for noncash items. And our Q4 CapEx was CNY 22 million. For the full year, the CapEx was CNY 79 million, CNY 56 million lower than the last year, as we cautiously opened up stores in domestic markets.

And now let's turn to guidance. We expect the first quarter revenue to be in the range of RMB 438 million to RMB 480 million, an increase of 5% to 15% year-over-year. And please be aware that this outlook will -- is based on the information available as of the date and reflects the company's current and preliminary expectations, which is subject to change due to uncertainties related to various factors. And with that, let's now open the call for any questions that you may have for us. Operator, please go ahead.

[Operator]

[Operator Instructions] Our first question comes from the line of Zijun Li from Citic.

[Zijun Li, analyst]

I'm Zijun Li from Citic. And I would like to be more interested in the following questions: first to more about us and ask to are more about our industry. The first one is this year's store expansion plan and the strategy, it means would we like to restore the already no channel or more to supplement the new thinking channel?

And the second question is about how to evaluate 9-volt aggressive sales target this year and rather would squeeze our sales targets. And the above 2 is about us and I wonder if you'd like to sort this to, and then I'm going to the [indiscernible].

[Yan Li, executive]

Right. So I'll talk about first on the store opening side. I think actually a mix of -- basically, I think we're still going to be focused on the top 45 cities as the first and with the option to expand into other cities as well. So notably, in the past, if you look at last couple of years because the lithium price hike, we have lost roughly about 500 stores. So I think the expansion for including actually, including the store we have lost and [indiscernible] back as well as opening new areas. So I think those are basically -- I think we had a clear road map, actually location map on where to open stores and based on our new product portfolios.

No, I think with the second question about competitors, I think overall, if you look at our product offerings, so our current product offering is basically the price range anywhere between basically $3,500 -- RMB 3,500 above to up to RMB 12,000. So if you look at the entire market, the volume above RMB 3,500, that volume basically somewhere around 14 million to 16 million units.

So within that, let's call that our addressable market, 14 million to 16 million units. And with that number, last year, we owned was 600,000. So even with this year's forecast, I think the market -- the addressable market is still a very significant large than our volume target. So in the sense that I think it's -- we're less worried about the competitors, but I think we're more focused internally on how to get in the best product out there and how to expand the channels, expand the stores, so the consumers -- the interesting consumers to actually have a location to acquire the product. I think that's sort of -- hopefully, that address your second question.

[Zijun Li, analyst]

It's quite clear, and I really hope that this year could be -- we could see a robust in our market. And the next few questions about the sector. First one is the [indiscernible] has attracted the attention of the society to the back -- to the batteries of 2-wheelers. What is overview of the impact to this sector? And the second is our users are more concentrated in high-tier cities, as you just mentioned. And also our users time of using our products is relatively long and has accumulated for a long time. So I'm very curious about whether we can -- we have ever done some analysis of our users' behavior or whether we can detect change in their consumption habits from this accumulated data such as changes in the cycle of changing costs or batteries. This is my 2 questions about sector.

[Yan Li, executive]

Sure. I think, first of all, address the issue with the fire accident. I think we're -- it's unfortunate -- so I think what it really costs us for high-quality product and I think that -- so in the case of what we observed in the market is many people who buy products, either low-quality or they buy product, then they buy the original scooters, but then they complement with a modified third-party lithium batteries. And usually, those third-party lithium battery or secondhand lithium batteries, it's poorly manufactured with low quality, that's where -- so I'm not sure with the -- actually the cost of [ 95 ], but our experience back then throughout the time, actually, the modest size lithium batteries like not original manufacturer ones are one of the main causes.

So I think from our perspective, I mean, we have actually taken many preventive measures, [indiscernible] scooters only work with our batteries, not necessarily -- not working with the third-party secondhand batteries, and I think with this, I think it's basically raised about, say, basically, I think people quite for I think is a high-quality product with original parts are necessary and to guarantee safety, right? So I think that's actually set advantage for us.

No, I think in terms of the -- your second question about user behaviors, I think typically we see that people test to keep these scooters. I guess for -- roughly about 3 to 4 years, I think 3 years roughly sort of the usage cycle. I think the -- for us, we're highly -- we're a bit too concentrated in the top tier cities. I think this year is actually what we're looking at is actually beyond -- besides getting market share in the top-tier cities is actually expand our footprint and getting more store coverage as well as market shares in the Tier 2 and Tier 3 cities with basically with products that are suitable for those markets.

[Operator]

The next question comes from the line of Yating Chen from CICC.

[Yating Chen, analyst]

My first question is about our sales volume target. As we can see the target growth for 2024 is more optimistic than last year. And so I'd like to know what is the target sales volume of kick scooters and about -- and what is the sales target for 2-wheelers especially for domestic and overseas market. This is my first question.

[Yan Li, executive]

No, I think for the kick scooters, we're looking at because -- in the past few years, even though the selling volume to our distributors remain roughly constant, but the sellout basically, the sell to the consumer has been doubled if I compare 2023 to 2022. So that's because the comprehensive product portfolio, also over the year, we're actually able to get to all these off-line channels. So we expect the sell-out volume this year, also doubled, which sort of implying the sell-in volume to the distributors actually double as well. So on the kick scooter, we're looking at somewhere anywhere between 200,000 to 250,000 units. So I think that on the key school market.

Then the rest is sort of the electric 2-wheeler -- and within like 2-wheeler market, I think majority of them are going to be in the China side where the international electric 2-wheelers actually motorcycles, probably somewhere around 20,000 to 30,000 units than the rest of it all China.

[Yating Chen, analyst]

And my first question, and my second question is about our profit margin. Especially, I'd like to know our product strategy in 2024 to achieve our sales volume target will the average selling price or profit margin will decline in 2024.

[Yan Li, executive]

All right. So I think basically, if you look at -- I guess, this question sort of relates to our first newly product launch, the NX, NXP in March so that's actually the more the premium high-end product for our case, the pricing -- retail prices between RMB 6,000 to RMB 12,000. But then you look at the another product we just launched, it's called UIE basically [indiscernible], which a few days ago, that retail pricing is around RMB 4,000. So if you look at across the board, we expect our average ASP to roughly remain constant compared with last year. So I'll let Wenjuan comment on the margin part.

[Wenjuan Zhou, executive]

Yes. Well, as Yan just mentioned, even though that we upgraded our classic N-series and we are about to launch products in the following months with a better price versus the product. But the ASP will stay at a relatively flat level in the domestic product line. Well, in the overseas product line, since we have a highly expectation on the motorcycle past recovery in the overseas market with -- those are almost 3 to 4x higher than the kick scooter ASP. So we will expect a slight recovery from the overseas scooters ASP in 2024. Altogether, we will give us a brand in scooter ASP almost at the same level in this year. Go back to the gross margin for the domestic scooters and the overseas quarters, we will expect a slightly gross margin increase to 1 to 2-point , 1.2 pp altogether. -- branded with the domestic and the overseas markets. We have already made the cost efficiency, those operational activities in 2023. And with the scale of the sales volume increase, we may get the benefit from the gross margin. But we didn't expect a higher gross margin increase because we feel consider to share the profit with our dealers and also the overseas market expansion with our partners. That's why we consider the gross margin altogether, we only increased by 1 to 2-point PPT for the whole year.

[Yating Chen, analyst]

And my last question I'd like to know, do you have any guidance for 2024 on the selling expense ratio? Or to say will it grow or remain steady comparing with 2023.

[Wenjuan Zhou, executive]

Well, 2023 is a very special case, since we have -- we are in the transition of the overseas expansion and also the [ heart ] in the domestic market. That's why the expenses ratio is pretty high. But I think the benchmark for the expenses as a percentage of revenue, we could use the benchmark in the second half 2021, first half of 2022. We may -- we will try to bring back the expenses as a percentage of revenue go back to that level, which means at least we will have a -- we will maintain the expenses within 20% to 24% since it's a slightly large range.

We are still in the transition for the overseas and the domestic market balance. But the first half of 2022 and second half of 2021 is a benchmark of the expenses ratio. So this is our target for 2023 expenses ratio.

[Operator]

[Operator Instructions] We have a question from the line of Michael Simons from Global View SA.

[Unknown Analyst]

I'd just like to ask a question about the balance sheet in these sort of slightly tough trading conditions. You and your team have done a good job sort of maintaining a good cash level on the balance sheet. Can you just give us a feel for looking forward this year, particularly as you've explained, you're going to be spending some money on your international expansion and also continuing to launch many new products. Can you just give some feel for what the balance sheet and the cash position is likely to look like going forward, please?

[Wenjuan Zhou, executive]

Well, this is beyond from you. I think I can -- I just can't give the trend of our balance sheet instead of the exact figures because the -- we are still at the very beginning of 2024. As Yan just mentioned, except for the operating activities and strategies we introduced. On top of that, we maintained higher CapEx on the store opening in domestic markets. I think this is based nonoperating consumption in the domestic strategy.

Well, in the overseas market, we didn't expect any large CapEx. The only operational activity will happen in 2024 is how we launched our own products in our strategic partner stores. So those are purely the operational activities were reflected in the operational cash flow. So this is the cash flow part and the CapEx part.

In the meantime, we didn't expect a huge increase in the receivables or the payables and the business model is very straightforward. And we also didn't -- and we didn't expect the higher increase in the inventory as well because right now, we already have enough inventory for the big season sales in 2024 and after that, we may remain a relatively secure level of the inventory, but will not reach to the higher one than 2023.

So I think the business model doesn't change. The only thing that if we want to expand the stores in domestic market, it will bring up the CapEx. While the current production has already reached to 2 million production capacity and we didn't expect the -- as high as this level of sales volume, so we don't have any further demand on the expansion on our facility. I hope that will address your questions.

[Operator]

With that, I would like to turn the call back to management for closing.

[Yan Li, executive]

All right. Thanks, everyone, for the 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.

[Operator]

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect your lines.