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NIO Inc
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Hello ladies and gentlemen. Thank you for standing by for NIO Incorporated’s Second Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. Today’s conference call is being recorded and will last approximately one hour.
I will now turn the call over to your host, Ms. Jade Wei, Senior Director of Investor Relations of the company. Please go ahead, Jade.
Good evening and good morning, everyone. Thanks for joining NIO’s second quarter 2019 earnings conference call. The company’s financial and operating results were published in the press release yesterday and are posted on the company’s IR W[Author ID1: at Thu Sep 26 11:28:00 2019
]w[Author ID1: at Thu Sep 26 11:28:00 2019
]eb [Author ID1: at Thu Sep 26 11:28:00 2019
]site at ir.nio.com.
On today’s call, we have Mr. William Li, Founder, Chairman of the Board, and Chief Executive Officer; Mr. Louis Hsieh, our Chief Financial Officer; and Mr. Nick Wang, our VP of Finance. Before we continue, please be kindly reminded that today’s discussion will contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties.
As such, the company’s actual results may be materially different from the views expressed today. Further information regarding risks and uncertainties is included in certain filings of the company with the U.S. Securities and Exchange Commission. The company does not assume any obligation to update any forward-looking statements except as required under applicable law.
Please also note that NIO’s earnings press release and this conference call include discussions of our[Author ID1: at Thu Sep 26 11:30:00 2019
] un[Author ID1: at Thu Sep 26 11:30:00 2019
]audited GAAP financial information, as well as unaudited non-GAAP financial measures. Please refer to NIO’s press release, which contains a reconciliation of the unaudited non-GAAP measures to comparable GAAP measures.
With that, I will now turn the call over to our CFO, Louis Hsieh, for opening remarks. Louis, please.
Thank you, Jade. And good morning, and good evening everyone. Before we get started, I would like to take this opportunity to explain our decision to cancel the original call scheduled on September 24th and why we are having this call now.
We have made significant positive progress in NIO's China funding projects with certain parties. As you can imagine, we are in a very sensitive period during which we are not at liberty to disclose the confidential information related to those projects, which led us to initial decision to cancel the original call on September 24th.
Further, we believed the Q2 earnings release distributed yesterday provided a good update on the company’s operations and financial performance. This is a very fast moving and fluid situation with many advisors helping to navigate this period of time and it has not been easy to find a path that is best for everyone. However, after receiving numerous investors' inquiries since the original call cancellation, we ultimately decided that resuming our original plan to hold the call provides more transparency and serves the interest of our investing community better.
As it relates to the call, please understand that we will not be able to disclose any specific information or answer any questions regarding the NIO China funding projects today. We will disclose further information when the projects reach a stage that would subject us to a disclosure obligation.
With this, I will turn the call over to William Li for our business highlights. William?
Thank you, Louis. Thanks to everyone for joining our call today. I will speak mainly in Chinese and Ms. Eve Tang will interpret for me.
[Foreign Language]
In the second quarter of 2019, NIO delivered 3,553 vehicles, including 3,140 ES8s[Author ID1: at Thu Sep 26 11:38:00 2019
], our 6 and 7-seaters high-performance electric flagship SUV and 413 ES6s, our 5-seater high-performance premium smart electric SUV, which commenced user deliveries in late June.
In the third quarter, we expected[Author ID1: at Thu Sep 26 11:41:00 2019
] to deliver between 4,200 and 4,400 vehicles and bring our cumulative deliveries of ES8 and ES6 to over 23,000 by the end of September to users in over 270 cities throughout China. As of today, our ES8 and ES6 users have driven more than 250 million kilometers. And to support our users on the road, NIO Power has completed more than 200,000 charges through our one-click-for-power services.
[Foreign Language]
We achieved our second quarter delivery results against to the backdrop of four factors; first, continued overall weakness in the Chinese auto market, which saw a 14.3% drop in passenger vehicle wholesale sales from a year earlier; second, fierce competitive discounting among premium auto brands, with data showing that average selling price in this segment has dropped to 20% to 25% compared to its peak levels; third, electric vehicle subsidy reductions starting from late March, and again in late June, which affected demand for electric vehicles; and lastly, slowing consumer discretionary spending as a result of macro-economic uncertainties surrounding U.S.-China trade tension.
[Foreign Language]
Despite the overall environment, for the first eight months of 2019, sales of our ES8 ranked first in China’s premium electric SUV market. ES8 was the only electric vehicle among the [Author ID1: at Thu Sep 26 11:47:00 2019
]other nine ICE models in top 10 of the overall premium mid to large SUV market.
[Foreign Language]
We started deliveries of our ES6 in late June. Since then, we have received broad-based, positive reviews on the ES6 from both media and our users, particularly for its outstanding driving experience, extended driving range and competitive design features. We have seen growth of our order backlog accelerating in the last four weeks as we started to roll out a more expanded sales network, a[Author ID1: at Thu Sep 26 11:48:00 2019
]nd [Author ID1: at Thu Sep 26 11:48:00 2019
].[Author ID1: at Thu Sep 26 11:48:00 2019
] [Author ID1: at Thu Sep 26 11:48:00 2019
]A[Author ID1: at Thu Sep 26 11:48:00 2019
]nd[Author ID1: at Thu Sep 26 11:48:00 2019
] [Author ID1: at Thu Sep 26 11:48:00 2019
]more importantly, as more and more ES6 users act as our unofficial brand ambassadors and spread favorable word of mouth.
From the production perspective, we will begin producing and delivering the ES6 standard version at [Author ID1: at Thu Sep 26 11:51:00 2019
]a[Author ID1: at Thu Sep 26 11:51:00 2019
] more competitive retail prices at the end of September. In addition, starting in October, we will begin delivering the ES6 and ES8 with an 84-kilowatts per hour battery pack, extending their NEDC driving range to 510 kilometers and 430 kilometers, respectively. Going forward, we will continue to enhance product competitiveness and strengthen sales by further advancing our software and autonomous driving technology.
[Foreign Language]
We believe in the commitment to long-term competitiveness, supported by cutting-edge technology, outstanding products and excellent services. NIO continues to invest in leading technology and currently has filed over 4,200 patents, and [Author ID1: at Thu Sep 26 11:52:00 2019
].[Author ID1: at Thu Sep 26 11:52:00 2019
] [Author ID1: at Thu Sep 26 11:52:00 2019
]A[Author ID1: at Thu Sep 26 11:52:00 2019
]nd [Author ID1: at Thu Sep 26 11:52:00 2019
]in Q2, our NIO Pilot has achieved a comprehensive Level 2 plus ADAS after version release and updates[Author ID1: at Thu Sep 26 11:53:00 2019
]. Furthermore, as of August, NIO and the ES8 both ranked first in brand and the product quality according to research by J.D. Power on China’s New Energy Vehicle user experience. Our users have given us an average rating of 4.9 out of 5 for[Author ID1: at Thu Sep 26 12:17:00 2019
]w[Author ID1: at Thu Sep 26 12:17:00 2019
]i[Author ID1: at Thu Sep 26 12:17:00 2019
]th[Author ID1: at Thu Sep 26 12:17:00 2019
] hundreds of thousands services received.
[Foreign language]
In response to these challenging market conditions, we are aggressively expanding our sales efforts to accelerate orders, taking comprehensive measures to reduce our costs across the organization and improve overall operational efficiency of the Company. Louis will share more details on these initiatives later in the call.
Louis, please go ahead.
Thank you, William. Facing the challenges in China’s auto industry, we are focusing our sales initiatives in three areas: creating retail points of sales, called NIO Spaces, strengthening regionally driven promotions and implementing commercial leasing options for corporate users and fleet operators.
First, NIO Space. We are expanding our sales network through NIO-branded sales zones, called NIO Spaces. NIO Spaces, which are normally less than 200 square meters, will allow us to quickly, cost-effectively and meaningfully increase the number of sale points in the market. They will be primarily located in shopping centers and malls, communities with high traffic-flow. The majority of the NIO Spaces will be invested by our selected partners.
By the end of 2019, we aim to have established around 200 NIO Spaces in over 100 cities across China. These will vastly expand our sales footprint throughout China where more potential users can see, touch, feel and drive, and truly enjoy the exhilarating ES6 and ES8 driving experiences.
Second, we are significantly strengthening our sales approaches by encouraging more regionally driven promotions. In September, we introduced the free battery swapping policy and it is attracting a large group of potential users to the cities with existing swapping stations. In Beijing, ICE vehicle users have opportunities to buy an ES8 or ES6 with extra incentives. In addition, we offer more than eight different auto financing programs with seven banks to our users, which significantly diversifies the solutions available to meet different users’ cash needs.
With these actions being implemented, we have seen order growth accelerating significantly since September -- beginning in September. We are also driving sales through selling cars to corporate users and fleet operators. Moreover, we've also introduced the membership subscription program, in which users have opportunities to rent and drive our products for one month or more, to fully experience the product and services.
In addition to these sales initiatives, we are implementing comprehensive cost control measures across the organization. These measures primarily focus on increasing efficiencies and streamlining operations within our sales and service network and our R&D functions, as well as reducing our headcount,[Author ID1: at Thu Sep 26 12:58:00 2019
].[Author ID1: at Thu Sep 26 12:58:00 2019
] F[Author ID1: at Thu Sep 26 12:58:00 2019
]f[Author ID1: at Thu Sep 26 12:58:00 2019
]irst, our sales and service networks. As mentioned previously we are expanding our offices' sales network by adding NIO Spaces. NIO Spaces are a cost-effective way to implement significantly enlarge our footprint in the market and much less capital intensive compared to our flagship NIO Houses.
Turning to R&D. We remain committed to advanced driving technologies and the development of our second generation platform, NP 2. In the future, our R&D investments will focus on mass-production applications, and we will actively seek strategic partnership opportunities in advanced technology development as a means to prudently manage our spending in this category. We will also be reducing costs by further optimizing the size of the workforce. After extensive internal reviews, we have determined that our headcount can be further reduced. We target to reduce our headcount to around 7,800 by the end of the third quarter from over 9,900 in January 2019 and we expect further headcount reductions by the end of this year, through both restructuring and spinning-off some business units.
With this, I will now turn the call over to our Vice President of Finance, Nick Wang, to provide the financial details for this quarter. Nick, please go ahead.
Thank you, Louis. I will now go over some of our financial results for the second quarter of 2019. To be mindful of the length of this call, I will address financial highlights here and encourage listeners to refer to our earnings press release, which is posted online for additional details.
Our total revenues in the second quarter of 2019 were RMB1.5 billion, or $219.7 million, representing a decrease of 7.5% from the first quarter of 2019. Our total revenues are made of two parts; vehicle sales and other sales. Vehicle sales in the second quarter of 2019 were RMB1.4 billion, or $206.1 million, representing a decrease of 7.9% [[Author ID1: at Thu Sep 26 13:03:00 2019
]from][Author ID1: at Thu Sep 26 13:03:00 2019
] first quarter of 2019, mainly due to the decrease in sales volume caused by the electric vehicle subsidy reduction announced in late March, and the slowdown of macro-economics in China, which has been exacerbated by the U.S.-China trade war.
Other sales in the second quarter of 2019 were RMB94 million, or $13.7 million, representing a decrease of 2% from the first quarter of 2019, mainly attributed to the sales decline in charging piles, which was in line with decline in vehicle sales. Cost of sales in the second quarter of 2019 was RMB2 billion, or $293.2 million, representing an increase of 8.8% from the first quarter of 2019, mainly caused by accrued recall costs in relation to the company’s voluntary recall of 4,803 vehicles announced on June 27, 2019.
Total recall costs accrued in the second quarter of 2019 were RMB339.1 million, or $49.4 million, including RMB283.3 million, or $41.3 million recorded in cost of vehicle sales and RMB55.8 million, or $8.1 million, recorded in cost of other sales, respectively. Excluding the accrued recall costs, cost of sales in the second quarter was RMB1.7 billion, or $243.8 million, representing a decrease of 9.6% from the first quarter of 2019.
Gross margin in the second quarter of 2019 was negative 33.4%,[Author ID1: at Thu Sep 26 13:17:00 2019
] compared with negative 13.4% in the first quarter of 2019. Excluding accrued recall costs, gross margin in the second quarter was negative 10.9%. More specifically, vehicle margin in the second quarter of 2019 was negative 24.1%, decreased from negative 7.2% in the first quarter of 2019, mainly driven by the accrued recall costs. Excluding accrued recall costs, vehicle margin in the second quarter was negative 4%.
Research and development expenses in the second quarter of 2019 were RMB1.3 billion, or $189.4 million, increasing 20.6% sequentially, primarily attributed to an increase in rigorous testing activities of the ES6 before its mass production in second quarter of 2019.
Selling, general and administrative expenses in the second quarter of 2019 were RMB1.4 billion, or $207 million, increasing 7.7% sequentially, primarily driven by the company's marketing expenditures on the Shanghai Auto Show and ES6 test drive campaign in the second quarter.
Loss from operations in the second quarter of 2019 was RMB3.2 billion, or $469.9 million, increasing 23.2% sequentially. Excluding accrued recall costs and expenses, loss from operations in the second quarter was RMB2.9 billion, or $418 million.
Our net loss was RMB3.3 billion, or $478.6 million, in the second quarter of 2019, increasing 25.2% from the first quarter of 2019. Basic and diluted net loss per ADS in the second quarter, were both RMB3.23, or $0.47. Our balance of cash and cash equivalents, restricted cash and short-term investment was RMB3.5 billion, or $503.4 million, as of June 30, 2019.
And now for our business outlook,[Author ID1: at Thu Sep 26 13:20:00 2019
];[Author ID1: at Thu Sep 26 13:20:00 2019
] for the third quarter of 2019, the company expects deliveries of vehicles to be between 4,200 and 4,400 units, representing an increase of approximately 18.2% to 23.8% from the second quarter of 2019; total revenues to be between RMB1,593 million or $232 million and RMB1.663 billion or $242.2 million, representing an increase of approximately 5.6% to 10.3% from the second quarter of 2019.
This concludes our prepared remarks. I will now turn the call over to the operator to facilitate our Q&A session. Please.
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session [Operator Instructions]. First question comes from the line of Feng Wei from CICC. Please go ahead.
Thank you for taking my questions. I have two questions. The first question is about your cash flows from financial activities. Would you please share t[Author ID1: at Thu Sep 26 13:26:00 2019
]he [Author ID1: at Thu Sep 26 13:26:00 2019
]y[Author ID1: at Thu Sep 26 13:26:00 2019
]ou[Author ID1: at Thu Sep 26 13:26:00 2019
]r[Author ID1: at Thu Sep 26 13:26:00 2019
] [Author ID1: at Thu Sep 26 13:26:00 2019
]progress of your[Author ID1: at Thu Sep 26 13:27:00 2019
]the[Author ID1: at Thu Sep 26 13:27:00 2019
] capital raising [Author ID1: at Thu Sep 26 13:26:00 2019
]ac[Author ID1: at Thu Sep 26 13:26:00 2019
]tivities [Author ID1: at Thu Sep 26 13:26:00 2019
]in China, and despite the T[Author ID1: at Thu Sep 26 15:13:00 2019
]encent instrument deal,[Author ID1: at Thu Sep 26 15:13:00 2019
] [Author ID1: at Thu Sep 26 15:13:00 2019
][indiscernible][Author ID1: at Thu Sep 26 15:13:00 2019
] [Author ID1: at Thu Sep 26 15:13:00 2019
]deals,[Author ID1: at Thu Sep 26 15:13:00 2019
] did[Author ID1: at Thu Sep 26 15:13:00 2019
]would[Author ID1: at Thu Sep 26 15:13:00 2019
] you try all the financial -- financing options, that [Author ID1: at Thu Sep 26 15:14:00 2019
]is the first question.[Author ID1: at Thu Sep 26 15:14:00 2019
]?[Author ID1: at Thu Sep 26 15:14:00 2019
] And my second question is about the [Author ID1: at Thu Sep 26 15:14:00 2019
]sales order[Author ID1: at Thu Sep 26 15:15:00 2019
][indiscernible][Author ID1: at Thu Sep 26 15:15:00 2019
] [Author ID1: at Thu Sep 26 15:15:00 2019
]progr[Author ID1: at Thu Sep 26 15:15:00 2019
]ess[Author ID1: at Thu Sep 26 15:15:00 2019
] of ES8 and ES6. We have observed very strong momentum of ES6, but ES8 sales declined after recall. Would you please share your thoughts about the sales outlook of ES8 and ES6? Thanks.
Thank you, Feng. I think on the first question, we’re not going to take that question for now, because it relates to the China financing projects. You do know that from the release that we do at $200 million convertible bond deal, so that one is the one that has already been disclosed. Regarding to the ES8, ES6 orders, William, do you want to address that question please?
Okay. [Foreign Language]
Thanks for your questions. The sales of ES8 in July and August is quite challenging. That's the fact and previously the same challenge faced by other EV companies, because with the subsidy reduction starting from the 20th of June, we can see the surge up in retail has perhaps declined and this is a challenge for the whole industry.
[Foreign Language]
As you can see in July and August, we didn't take any initiative to provide rebates or[Author ID1: at Thu Sep 26 14:55:00 2019
]f[Author ID1: at Thu Sep 26 14:55:00 2019
]or[Author ID1: at Thu Sep 26 14:55:00 2019
] the price reduction for the ES8 users. Because you consider[Author ID1: at Thu Sep 26 14:57:00 2019
] [Author ID1: at Thu Sep 26 14:57:00 2019
]can see there[Author ID1: at Thu Sep 26 14:57:00 2019
] [Author ID1: at Thu Sep 26 14:57:00 2019
]is [Author ID1: at Thu Sep 26 14:57:00 2019
]the[Author ID1: at Thu Sep 26 14:56:00 2019
]a[Author ID1: at Thu Sep 26 14:56:00 2019
] transaction price on the users for the ES8, the price of ES8 actually increased by 10%. But just now, I had mentioned that the price of those premium EVs in the market, the premium cars in the market actually has reduce so this means it will affect the sales of our cars in the July and August time.
[Foreign Language]
We are quite confident about the competitiveness of the ES8 product and the service. As you can see in September, the rates and the sales of ES8 are picking up in the market and in October, we're going to deliver the 84 kilowatt hour battery version ES8. We believe this can actually help us to extend the drive range of ES8, which has been an [Author ID1: at Thu Sep 26 15:00:00 2019
]issue for ES8 in the past, and which can help us to improve the competitiveness of our ES8. In this specific segment for ES8, we think it can actually compete with other ICE parts and the premium SUV.
[Foreign Language]
From January to August, the sales of our ES8 ranked as the top three for the 7-seater and 6-seater SUV market segment. Thank you.
Thank you for the questions. Next question comes from the line of Bin Wang from Credit Suisse. Please go ahead.
[Foreign Language]
I actually have two questions. The number one is about recall, because originally we’[Author ID1: at Thu Sep 26 15:19:00 2019
]ve[Author ID1: at Thu Sep 26 15:19:00 2019
] seen the company c[Author ID1: at Thu Sep 26 15:19:00 2019
]laimed [Author ID1: at Thu Sep 26 15:19:00 2019
]th[Author ID1: at Thu Sep 26 15:20:00 2019
]at the [Author ID1: at Thu Sep 26 15:20:00 2019
]recall cost[Author ID1: at Thu Sep 26 15:20:00 2019
]s[Author ID1: at Thu Sep 26 15:22:00 2019
]cars[Author ID1: at Thu Sep 26 15:20:00 2019
] were[Author ID1: at Thu Sep 26 15:22:00 2019
]as[Author ID1: at Thu Sep 26 15:22:00 2019
] mainly due to the battery supplier, which is[Author ID1: at Thu Sep 26 15:05:00 2019
] [Author ID1: at Thu Sep 26 15:05:00 2019
]CA[Author ID1: at Thu Sep 26 15:03:00 2019
]TL[Author ID1: at Thu Sep 26 15:03:00 2019
], but[Author ID1: at Thu Sep 26 15:05:00 2019
] [Author ID1: at Thu Sep 26 15:04:00 2019
][[Author ID1: at Thu Sep 26 15:03:00 2019
]indiscernible] [Author ID1: at Thu Sep 26 15:03:00 2019
]now,[Author ID1: at Thu Sep 26 15:22:00 2019
] we've seen that[Author ID1: at Thu Sep 26 15:22:00 2019
], the result [Author ID1: at Thu Sep 26 15:38:00 2019
] [Author ID1: at Thu Sep 26 15:40:00 2019
]start[Author ID1: at Thu Sep 26 15:40:00 2019
]ing[Author ID1: at Thu Sep 26 15:40:00 2019
][indiscernible][Author ID1: at Thu Sep 26 15:23:00 2019
] most of the cost go to NIO [Author ID1: at Thu Sep 26 15:09:00 2019
]the deal[Author ID1: at Thu Sep 26 15:09:00 2019
] more than half,[Author ID1: at Thu Sep 26 15:23:00 2019
] [Author ID1: at Thu Sep 26 15:21:00 2019
]or[Author ID1: at Thu Sep 26 15:23:00 2019
] is th[Author ID1: at Thu Sep 26 15:21:00 2019
]ere[Author ID1: at Thu Sep 26 15:24:00 2019
] reason[Author ID1: at Thu Sep 26 15:21:00 2019
] lea[Author ID1: at Thu Sep 26 15:10:00 2019
]ding[Author ID1: at Thu Sep 26 15:11:00 2019
] to[Author ID1: at Thu Sep 26 15:24:00 2019
] su[Author ID1: at Thu Sep 26 15:11:00 2019
]ch a [Author ID1: at Thu Sep 26 15:11:00 2019
][indiscernible] [Author ID1: at Thu Sep 26 15:10:00 2019
]difference, that's for the first one question. The second one is about the marginal [Author ID1: at Thu Sep 26 15:07:00 2019
]o[Author ID1: at Thu Sep 26 15:24:00 2019
]utlook[Author ID1: at Thu Sep 26 15:24:00 2019
] [Author ID1: at Thu Sep 26 15:07:00 2019
][indiscernible][Author ID1: at Thu Sep 26 15:07:00 2019
], because we've seen organic margin -- gross margin in the second quarter actually has been improving compared to the first quarter, but we[Author ID1: at Thu Sep 26 15:39:00 2019
] [Author ID1: at Thu Sep 26 15:39:00 2019
]which seems to [Author ID1: at Thu Sep 26 15:39:00 2019
]see two [Author ID1: at Thu Sep 26 15:11:00 2019
]new dev[Author ID1: at Thu Sep 26 15:10:00 2019
]elop[Author ID1: at Thu Sep 26 15:10:00 2019
]me[Author ID1: at Thu Sep 26 15:10:00 2019
]nts[Author ID1: at Thu Sep 26 15:10:00 2019
]. [Author ID1: at Thu Sep 26 15:25:00 2019
][indiscernible] [Author ID1: at Thu Sep 26 15:10:00 2019
]ability [Author ID1: at Thu Sep 26 15:10:00 2019
]and [Author ID1: at Thu Sep 26 15:25:00 2019
] Th[Author ID1: at Thu Sep 26 15:25:00 2019
]e [Author ID1: at Thu Sep 26 15:25:00 2019
]number one is that NIO wou[Author ID1: at Thu Sep 26 15:28:00 2019
]ld [Author ID1: at Thu Sep 26 15:28:00 2019
]opens[Author ID1: at Thu Sep 26 15:28:00 2019
] NIO[Author ID1: at Thu Sep 26 15:28:00 2019
]a new[Author ID1: at Thu Sep 26 15:28:00 2019
] house over[Author ID1: at Thu Sep 26 15:30:00 2019
]open to the[Author ID1: at Thu Sep 26 15:29:00 2019
] third party partners [Author ID1: at Thu Sep 26 15:32:00 2019
]t[Author ID1: at Thu Sep 26 15:29:00 2019
]o s[Author ID1: at Thu Sep 26 15:29:00 2019
]hare [Author ID1: at Thu Sep 26 15:29:00 2019
]cust[Author ID1: at Thu Sep 26 15:29:00 2019
]omers[Author ID1: at Thu Sep 26 15:29:00 2019
] [Author ID1: at Thu Sep 26 15:29:00 2019
][indiscernible] [Author ID1: at Thu Sep 26 15:29:00 2019
]part of the profit with [Author ID1: at Thu Sep 26 15:29:00 2019
]problem was that on[Author ID1: at Thu Sep 26 15:29:00 2019
] the third party. And second thing is that NIO seems to [Author ID1: at Thu Sep 26 15:33:00 2019
]do[Author ID1: at Thu Sep 26 15:31:00 2019
] [Author ID1: at Thu Sep 26 15:32:00 2019
]has [Author ID1: at Thu Sep 26 15:31:00 2019
][indiscernible] [Author ID1: at Thu Sep 26 15:31:00 2019
]more promotions since the [Author ID1: at Thu Sep 26 15:34:00 2019
]thir[Author ID1: at Thu Sep 26 15:35:00 2019
]d[Author ID1: at Thu Sep 26 15:35:00 2019
][indiscernible] for [Author ID1: at Thu Sep 26 15:34:00 2019
]the[Author ID1: at Thu Sep 26 15:34:00 2019
] quarter, such as the free auto insurance, also auto finance and free battery swap. So what's the margin guidance? Because previously we guided margin will improve in the second half. Thank you.
William, the…
Okay. Well, thank you.
[Foreign Language]
Okay. Nick, you want to do the gross margin question? [Author ID1: at Thu Sep 26 15:45:00 2019
]
[Author ID1: at Thu Sep 26 15:45:00 2019
]
]–[Author ID1: at Thu Sep 26 15:45:00 2019
] [Author ID1: at Thu Sep 26 15:45:00 2019
]Nick [Author ID1: at Thu Sep 26 15:45:00 2019
]Wang[Author ID1: at Thu Sep 26 15:45:00 2019
]
[Author ID1: at Thu Sep 26 15:45:00 2019
]
Let Eve[Author ID1: at Thu Sep 26 15:46:00 2019
]me[Author ID1: at Thu Sep 26 15:46:00 2019
] translate the [Author ID1: at Thu Sep 26 15:48:00 2019
]first part about battery recall.
]Jade Wei[Author ID1: at Thu Sep 26 15:42:00 2019
]
I'll talk about the battery. W[Author ID1: at Thu Sep 26 15:50:00 2019
]e[Author ID1: at Thu Sep 26 15:48:00 2019
] [Author ID1: at Thu Sep 26 15:48:00 2019
]ha[Author ID1: at Thu Sep 26 15:49:00 2019
]ve[Author ID1: at Thu Sep 26 15:50:00 2019
] [Author ID1: at Thu Sep 26 15:49:00 2019
]pretty[Author ID1: at Thu Sep 26 15:50:00 2019
] clear [Author ID1: at Thu Sep 26 15:47:00 2019
]responsibility[Author ID1: at Thu Sep 26 15:47:00 2019
] [Author ID1: at Thu Sep 26 15:47:00 2019
]with [Author ID1: at Thu Sep 26 15:51:00 2019
] [Author ID1: at Thu Sep 26 15:48:00 2019
][indiscernible] [Author ID1: at Thu Sep 26 15:47:00 2019
]of [Author ID1: at Thu Sep 26 15:47:00 2019
]our battery supply chain partners regarding the issues. And this has been made clear in the announcement in the national market moni[Author ID1: at Thu Sep 26 15:52:00 2019
]tor[Author ID1: at Thu Sep 26 15:52:00 2019
]ing [Author ID1: at Thu Sep 26 15:52:00 2019
]monetary [Author ID1: at Thu Sep 26 15:52:00 2019
]bureau. But you need to understand, our relationship with the battery supply chain partner is a long-term one. We have agreed on how we are going to cover the cost of the battery recall. But the battery recall is a very significant cost, because it will cover the new battery pack production, logistics and execution. We believe the share of the responsibility is actually quite reasonable and the cost segmentation is also quite reasonable. But the responsibility is quite clear regarding the battery recall issues.
This is Nick. I'm happy to answer the second, the question about margins. I'm going to speak only in English for the sake of audience. Actually in Q2, you're right Wang Bin[Author ID1: at Thu Sep 26 15:54:00 2019
] [Author ID1: at Thu Sep 26 15:54:00 2019
]on [Author ID1: at Thu Sep 26 15:54:00 2019
]one t[Author ID1: at Thu Sep 26 15:54:00 2019
]hing[Author ID1: at Thu Sep 26 15:54:00 2019
]. We accrued our portion, our portion of the battery recall related costs at a roughly RMB283 million in the cost of vehicle sales. If you exclude accrued battery recall costs, the company's overall gross margin was around negative 11% in Q2. But out of that the [Author ID1: at Thu Sep 26 15:56:00 2019
]actually[Author ID1: at Thu Sep 26 15:55:00 2019
] vehicle margin, vehicle sales margin is negative 4%, so better, okay? Those margins were better than Q1 margins essentially.
But we also expect we're going to deliver more vehicles in the second half of 2019, which I believe will certainly help the gross margin from the scale [Author ID1: at Thu Sep 26 15:57:00 2019
][[Author ID1: at Thu Sep 26 15:56:00 2019
]indiscernible] [Author ID1: at Thu Sep 26 15:55:00 2019
]economy, especially production related. However, we also expect some mix margin trend coming from the model mix and options. That's the -- you can call it the controllable element but market driven. With that, the gross margin will highly depend on the volume of the deliveries and unit price, including the options of each vehicle we sell. So with our best estimation so far, the gross margin will still be negative for the rest of the year, I think, conservatively speaking. So that's my answer for this margin related part.
Thank you for the questions. Next question comes from the line of Ryan Brinkman from JP Morgan. Please go ahead.
The first one relates to gross margin in the context of a softer volume environment. So backing out the higher warranty costs in 2Q, with the underlying margin of negative 4% or so, have been roughly in-line with your expectations. And how should investors expect vehicle gross margin to trend going forward given this backdrop of lower industry and NIO volumes?
Nick, you want to take that?
I think, yes. You're absolutely right, Q2, the vehicle gross margins, negative 4%. Again, like I said, the second half, we're probably still going to see a pretty tough market. But we also see potential uptake in our volumes, I think. So overall, the current estimation range for the vehicle margin in Q3 is going to be around, I will say, vehicle margin -- I mean around negative 6%. And Q4 is between negative 6% to negative 10%, conservatively speaking.
Okay, great. Thank you. And my second question just relates…
We're going to start delivering the base model of the ES6 at the end of this month, so probably next week. So the ES6 based model will have a lower margin if it doesn't have all the options. It'll be counter-weighted somewhat by the 84 kilowatt battery versions that will start shipping next month for Q4, which will have a higher gross margin. And then as Nick said earlier, it depends on the uptake of the volume -- of the options, the options are very high margins. But volume will also -- would definitely help the vehicle gross margins.
That's very helpful, thank you. Just my last question is on the distribution strategy. If deliveries remain fewer than anticipated for longer, could that cause you to consider potential adjustments to distribution strategy, particularly with regards to the presumably largely fixed cost NIO houses? Can you talk about the relative cost and capabilities of the NIO Space compared to a NIO House?
Well, the NIO Space sometimes are pre[Author ID1: at Thu Sep 26 16:02:00 2019
]paid by partners and also the cost will be less than RMB1 million if we had to do it all ourselves on average. So it's very economical. It's also in high traffic area. So that's the direction we're going. The larger NIO Houses, we're done initially to help the company build a brand and to get users into the NIO brand and NIO user experience. But those have three to five year lease terms. So they will -- going forward, you'll see our strategy would be to build more smaller NIO Spaces type operations. And if we do renew NIO Houses, they won't be as big and as luxurious as the ones that are in the original ones in Beijing and Shanghai and other large cities.
[Foreign Language]
I’d like to add a[Author ID1: at Thu Sep 26 16:05:00 2019
] few [Author ID1: at Thu Sep 26 16:05:00 2019
]to your [Author ID1: at Thu Sep 26 16:05:00 2019
]points[Author ID1: at Thu Sep 26 16:05:00 2019
] about the NIO Space. Our corporation model for the NIO Spaces is different from the traditional dealership or corporation, because for us, we still control the touch point and the user relationships in the NIO Space. We have our own f[Author ID1: at Thu Sep 26 16:04:00 2019
]e[Author ID1: at Thu Sep 26 16:06:00 2019
]llows[Author ID1: at Thu Sep 26 16:04:00 2019
] [Author ID1: at Thu Sep 26 16:06:00 2019
][i[Author ID1: at Thu Sep 26 16:04:00 2019
]ndiscernible] [Author ID1: at Thu Sep 26 16:04:00 2019
]we [Author ID1: at Thu Sep 26 16:04:00 2019
]directly serve our users in the NIO Spaces. So it means that our distribution strategy wi[Author ID1: at Thu Sep 26 16:08:00 2019
]ll be[Author ID1: at Thu Sep 26 16:08:00 2019
]is to[Author ID1: at Thu Sep 26 16:08:00 2019
] direct-to-sell. We just work with our [Author ID1: at Thu Sep 26 16:08:00 2019
] [Author ID1: at Thu Sep 26 16:11:00 2019
]pa[Author ID1: at Thu Sep 26 16:09:00 2019
]rtners [Author ID1: at Thu Sep 26 16:09:00 2019
]to[Author ID1: at Thu Sep 26 16:11:00 2019
]g[Author ID1: at Thu Sep 26 16:09:00 2019
]et first [Author ID1: at Thu Sep 26 16:09:00 2019
][[Author ID1: at Thu Sep 26 16:09:00 2019
]indiscernible] [Author ID1: at Thu Sep 26 16:09:00 2019
]to[Author ID1: at Thu Sep 26 16:09:00 2019
] allocate the facilities and the initial investments at the beginning[Author ID1: at Thu Sep 26 16:12:00 2019
] [Author ID1: at Thu Sep 26 16:12:00 2019
][indiscernible][Author ID1: at Thu Sep 26 16:12:00 2019
]. So basically, the cost is going to be based on the deals that we have made in the NIO Spaces.
Ryan, we’re actually very excited about NIO Space. Just as we begin to roll it out in September, we’ve seen a significant uptake[Author ID1: at Thu Sep 26 16:14:00 2019
]ick[Author ID1: at Thu Sep 26 16:14:00 2019
] in orders in the last three weeks. So this whole month of September is going to be much better than July and August. July was quite slow. August is [Author ID1: at Thu Sep 26 16:13:00 2019
]little bit better. And September is really picking up. And I think it’s very important as we reach the touch-points[Author ID1: at Thu Sep 26 16:15:00 2019
]touchpoints[Author ID1: at Thu Sep 26 16:15:00 2019
]. Now by the end of this year, we’ll be in over 100 cities. And so -- and it’s very cost-[Author ID1: at Thu Sep 26 16:15:00 2019
] [Author ID1: at Thu Sep 26 16:15:00 2019
]effective way for us to increase our reach throughout China’s large cities.
Thank you for the questions. Next question comes from the line of Dan Galves from Wolfe Research. Please go ahead.
Hi, thanks for taking my questions. So I think as a result of the market conditions and kind of the things -- the way things have played out this year, it seems like you have a lot of plans of changes to the business. I was wondering and probably thinking about the business at lower volumes longer term. I was wondering if there was any way, you could roughly talk to us about, given kind of changes to cost structure that you’re planning, and changes to distribution strategy. Is there a volume level that you believe that you can breakeven at in the future, and how much capital do you think that you need to kind of [Technical Difficulty] have a reasonable balance sheet?
Yes, I mean that’s a great question. I think, we don’t have enough data. We just started rolling out the NIO Spaces. And as you know, on the volume side, at the beginning of this year when we did forecast for this year, we didn’t expect the -- China's auto market never shrunk as far as I know, and then it shrunk 14 months in a row. So we want to see how -- and you also know we just released a new car ES6. So we would like to see how the momentum and the market sales pick up.
We will do our budgeting at the end of this year. By then, we’ll have three or four months with a dozens of NIO Spaces, to see how the economics work versus the additional model. And I think is that you’re going to see us cut costs significantly Dan[Author ID1: at Thu Sep 26 16:18:00 2019
]there[Author ID1: at Thu Sep 26 16:18:00 2019
]. So you will see a much leaner operation from NIO. And so I think is the volumes won’t be the 120,000,[Author ID1: at Thu Sep 26 16:19:00 2019
] to[Author ID1: at Thu Sep 26 16:19:00 2019
] 150,000 that we had talked about actually with these big NIO houses.
And the other thing is we are -- we have R&D initiatives in place to reduce our battery pack cost significantly, which will come out next year as well. So those will all be calculated together as we do budgets and as we get more tracker[Author ID1: at Thu Sep 26 16:21:00 2019
]tion[Author ID1: at Thu Sep 26 16:21:00 2019
]. It's a little bit too early. I'm not trying to avoid your question. But we don't have the strategic budget for next year yet, given all these -- the turmoil and all the changes in the markets this year. So give us about -- give us until the end of the year.
Thanks Louis. That's fair. And just the[Author ID1: at Thu Sep 26 16:23:00 2019
]a[Author ID1: at Thu Sep 26 16:23:00 2019
] follow up, if I could is, the cash burn. I was wondering if you could talk to us about kind of the level of pre-launch cost for ES6 in terms of marketing and engineering that may go away in Q3. But on the other side it seems like most of the cash costs for the recall happens in Q3. So I mean maybe just talk to us about, is there a potential to meaningfully reduce the cash burn that you saw in Q2, in Q3 and Q4?
The answer is yes. If we cannot[Author ID1: at Thu Sep 26 16:25:00 2019
] burn -- if we cannot do RMB3.2 billion in operating loss, you see a significant reduction in Q3 and a further reduction in Q4 is there's -- we have to do it.
Okay. Okay, thanks very much…
I mean don't forget, we’[Author ID1: at Thu Sep 26 16:27:00 2019
]ve a[Author ID1: at Thu Sep 26 16:27:00 2019
]lready [Author ID1: at Thu Sep 26 16:28:00 2019
] [Author ID1: at Thu Sep 26 16:27:00 2019
]wanted to [Author ID1: at Thu Sep 26 16:27:00 2019
]cut headcount from 9,900 down to 7,800 and there is further to come. We have also have strict expense controls in place. We're not expanding capital -- expand capital for NIO Spaces, but not for a lot of other things. We have not start adding any swap centers. We're not -- it is not as much cash usage with [Author ID1: at Thu Sep 26 16:27:00 2019
], [Author ID1: at Thu Sep 26 16:27:00 2019
]and there is [Author ID1: at Thu Sep 26 16:27:00 2019
]a lower headcount. And we also try to spin-off [Author ID1: at Thu Sep 26 16:26:00 2019
]from[Author ID1: at Thu Sep 26 16:26:00 2019
] some[Author ID1: at Thu Sep 26 16:25:00 2019
]n[Author ID1: at Thu Sep 26 16:25:00 2019
] non-core businesses as well, which we will disclose as the deals get done. William, do you want to add something?
Yes [Foreign Language]
Well, as Louis mentioned, right now we are taking some of initiative[Author ID1: at Thu Sep 26 16:30:00 2019
]s[Author ID1: at Thu Sep 26 16:30:00 2019
] [Author ID1: at Thu Sep 26 16:30:00 2019
]the[Author ID1: at Thu Sep 26 16:30:00 2019
] increases [Author ID1: at Thu Sep 26 16:30:00 2019
]to cut down the costs and improve the efficiency with ongoing financing projects and the cost reduction initiatives, as well as incentive initiatives to improve the operational efficiency. We believe the company will have sustainable develop[Author ID1: at Thu Sep 26 16:30:00 2019
]ment [Author ID1: at Thu Sep 26 16:30:00 2019
][indiscernible][Author ID1: at Thu Sep 26 16:30:00 2019
] [Author ID1: at Thu Sep 26 16:30:00 2019
]and operations.
[Foreign Language]
The company has been very transparent on our financials, including cash flow and cash position. We'll provide the investor community and the media to have a complete and fair view about the company's cash situation.
[Foreign Language]
Recently, some media has reported some inaccurate numbers about[Author ID1: at Thu Sep 26 16:32:00 2019
] [Author ID1: at Thu Sep 26 16:33:00 2019
]around [Author ID1: at Thu Sep 26 16:32:00 2019
]our cash situation. In the report, the media mentioned that we have operating loss that is around $5.7 billion, which is not accurate. So I would like to use this opportunity to make some clarifications[Author ID1: at Thu Sep 26 16:33:00 2019
].
[Foreign Language]
In their report, they have coun[Author ID1: at Thu Sep 26 16:33:00 2019
]ted [Author ID1: at Thu Sep 26 16:34:00 2019
][indiscernible] [Author ID1: at Thu Sep 26 16:33:00 2019
]in the question on the preferred shares issued to private equity investors prior to the IPO last year. Our non-GAAP operating loss was RMB22 billion, which is significantly lower than the $5.7 billion the media has reported. Among the RMB22 billion, over RMB10 billion was spent on R&D efforts and the project. We have always been considered R&D and legal services as our priorities in our investment and spending. We have filed [Author ID1: at Thu Sep 26 16:35:00 2019
]those clients [Author ID1: at Thu Sep 26 16:35:00 2019
]4,200 patents globally and buil[Author ID1: at Thu Sep 26 16:36:00 2019
]t[Author ID1: at Thu Sep 26 16:36:00 2019
]do[Author ID1: at Thu Sep 26 16:36:00 2019
] a very strong EV brand in the premium sector. In terms of the service network, we have to do a comprehensive service network nationwide covering users in 270 cities in China.
[Foreign Language]
As everyone know that the R&D for the auto industry requires a long lead time. We are now committed to developing the NP2 to use the advanced and cutting edge[Author ID1: at Thu Sep 26 16:39:00 2019
]cutting-edge[Author ID1: at Thu Sep 26 16:39:00 2019
] technologies and autonomous driving technologies in our products. With that, we have to raise a sufficient capital to support our future developments. As the only in[Author ID1: at Thu Sep 26 16:39:00 2019
] Chinese premium [Author ID1: at Thu Sep 26 16:40:00 2019
]extreme [Author ID1: at Thu Sep 26 16:40:00 2019
]smart EV brand and a very premium global competitive brand, we are confident that investors will support us.
Yes. I think, I found the Bloomberg article very, very [insulting]. I mean, the headline was $5 billion loss. As William said, that's not. That -- he didn't break out the fact that a lot of those were preferred shares pre-IPO they're marked up at the IPO. So those -- the real number is closer to $3 billion over four years. And as William said, most of that is toward R&D. So I don't -- we weren't very happy with the way Bloomberg use that as the headline. It's not very accurate.
Next question comes from the line of Paul Gong from UBS. Please go ahead.
Hi, thanks for taking my question, I have two questions. The first one is regarding the regional promotion mentioned by Louis. Given this, you've lost lot of detail[Author ID1: at Thu Sep 26 16:42:00 2019
] [Author ID1: at Thu Sep 26 16:42:00 2019
]in-house [Author ID1: at Thu Sep 26 16:43:00 2019
]measures, like the battery swap surface and some extra incentive including the financial lease. Can you help us to quantify what is a[Author ID1: at Thu Sep 26 16:45:00 2019
]the[Author ID1: at Thu Sep 26 16:45:00 2019
] rough amount of per [Author ID1: at Thu Sep 26 16:44:00 2019
]vehicle and is this only applicable to ES8, or is also applied to ES6 as well? This is the first question regarding the incentives. My second question is regarding the cost cuts on the cost of goods, especially on the procurement. Have you negotiate with your supplier on the cost after the subsidy cut in late June? If yes, can you help us to give a rough idea how much has been cut in second half versus first half, especially on the battery side? Thank you.
William, do you want to discuss the incentives? And then, Nick, you can discuss the financial impact of the batteries, and the supply chain.
[Foreign Language]
Recently, we have launched the free power swap services to the users if they [Author ID1: at Thu Sep 26 16:48:00 2019
]to[Author ID1: at Thu Sep 26 16:48:00 2019
] drive their cars to the power swap station, which has been quite widely welcomed by our users.
[Foreign Language]
Every[Author ID1: at Thu Sep 26 16:50:00 2019
]Every day[Author ID1: at Thu Sep 26 16:50:00 2019
]thing[Author ID1: at Thu Sep 26 16:49:00 2019
] we have around the [Author ID1: at Thu Sep 26 16:49:00 2019
]1,000 users to [Author ID1: at Thu Sep 26 16:51:00 2019
]drive their car to the power swap stations to use [Author ID1: at Thu Sep 26 16:50:00 2019
]t[Author ID1: at Thu Sep 26 16:50:00 2019
]he [Author ID1: at Thu Sep 26 16:50:00 2019
][indiscernible] [Author ID1: at Thu Sep 26 16:50:00 2019
]service. But as we know the power swap station costs mainly include the construction costs and the renting[Author ID1: at Thu Sep 26 16:51:00 2019
]a[Author ID1: at Thu Sep 26 16:51:00 2019
]nging[Author ID1: at Thu Sep 26 16:51:00 2019
] cost. The electricity cost is actually quite low. So for one power swap, it may cost around 60 kilowatt hour and this means the cost will be around the RMB5[Author ID1: at Thu Sep 26 16:53:00 2019
]6[Author ID1: at Thu Sep 26 16:53:00 2019
]0. And in this calculation, it means that every day the additional cost will be around RMB5[Author ID1: at Thu Sep 26 16:53:00 2019
]6[Author ID1: at Thu Sep 26 16:53:00 2019
]0,000.
[Foreign Language]
Actually, we have a very high home charger[Author ID1: at Thu Sep 26 16:55:00 2019
][indiscernible][Author ID1: at Thu Sep 26 16:55:00 2019
] installation rates, which is close to 80%.
Overall speaking, the free power swap and services was not contributed a lot to the company’s cost. It will not impact the cost very significantly. Previously, we have already prom[Author ID1: at Thu Sep 26 16:56:00 2019
]ised[Author ID1: at Thu Sep 26 16:57:00 2019
] [Author ID1: at Thu Sep 26 16:57:00 2019
]commented [Author ID1: at Thu Sep 26 16:56:00 2019
]to our users that they can enjoy the inter-city or ou[Author ID1: at Thu Sep 26 16:56:00 2019
]t[Author ID1: at Thu Sep 26 16:57:00 2019
] of city[Author ID1: at Thu Sep 26 16:56:00 2019
] [Author ID1: at Thu Sep 26 16:56:00 2019
][indiscernible[Author ID1: at Thu Sep 26 16:56:00 2019
]] free power swap services. So this can be considered as part of the cost.
[Foreign Language]
Compared with our competitors free super[Author ID1: at Thu Sep 26 16:57:00 2019
] [Author ID1: at Thu Sep 26 16:57:00 2019
][indiscernible][Author ID1: at Thu Sep 26 16:57:00 2019
] [Author ID1: at Thu Sep 26 16:57:00 2019
]charging[Author ID1: at Thu Sep 26 16:58:00 2019
]e[Author ID1: at Thu Sep 26 16:58:00 2019
] and[Author ID1: at Thu Sep 26 16:58:00 2019
] services, [Author ID1: at Thu Sep 26 16:59:00 2019
] [Author ID1: at Thu Sep 26 16:59:00 2019
]our service[Author ID1: at Thu Sep 26 16:59:00 2019
] experience[Author ID1: at Thu Sep 26 16:59:00 2019
] is [Author ID1: at Thu Sep 26 16:59:00 2019
]are [i[Author ID1: at Thu Sep 26 16:59:00 2019
]ndiscernible][Author ID1: at Thu Sep 26 16:59:00 2019
] [Author ID1: at Thu Sep 26 16:59:00 2019
]much better.
[Foreign Language]
Right now, there is a very popular concept among the users is that is they like to get a[Author ID1: at Thu Sep 26 17:00:00 2019
] house close to the power swap station. Thank you very much.
Okay. And then, Nick, do you want to talk about -- I think a lot of the supply chain costs, we are renegotiating with a lot of suppliers as our volume begins to get larger, second is also I think the battery pack costs has come down on a year-over-year basis, and will continue to go down we believe each year on a per kilowatt basis by 10% to 15%. Nick, is there anything else on the supply?
]–[Author ID1: at Thu Sep 26 17:01:00 2019
] Willi[Author ID1: at Thu Sep 26 17:00:00 2019
]am [Author ID1: at Thu Sep 26 17:01:00 2019
]L[Author ID1: at Thu Sep 26 17:01:00 2019
]i[Author ID1: at Thu Sep 26 17:01:00 2019
]Nick Wang[Author ID1: at Thu Sep 26 17:00:00 2019
]
[Foreign Language]
In terms of the battery cost, we can predict the quarterly battery cost reduction, this is mainly due to the volume increased by the industry and the NIO in terms of the battery pack. Right now, we think[Author ID1: at Thu Sep 26 17:02:00 2019
] of [Author ID1: at Thu Sep 26 17:02:00 2019
]can g[Author ID1: at Thu Sep 26 17:02:00 2019
]o[Author ID1: at Thu Sep 26 17:02:00 2019
] from now to the next year four quarter, we will -- we can continuous reduction of the battery cost. But right now, I cannot share with you about the specific percentage, because we have reached agreements with our supply chain partners regarding this. But we believe for the next Q3 and Q4 we should -- for the next year Q3 and Q4, we should be able to reach significant cost reductions.
Thank you, Paul.
Hey Paul, I think I'll…
Go ahead, Nick. Do you want to add to the…
Yes. Your first part of question also involving what the financial leasing actually…
Yes.
We actually have a very successful financial lease plan roll out nationwide with certain partner banks, some of big commercial banks, I mean. And these attract the -- certain purpose of attracting a lot of traffic into our showrooms, and we can see a clear trend -- upward trend in the past two[Author ID1: at Thu Sep 26 17:05:00 2019
]few[Author ID1: at Thu Sep 26 17:05:00 2019
] months. And also in terms of per unit cost is a[Author ID1: at Thu Sep 26 17:07:00 2019
]the[Author ID1: at Thu Sep 26 17:07:00 2019
] function of the overall percentage of how many customers pay 100%, or take the financial product, and how much percentage actually[Author ID1: at Thu Sep 26 17:08:00 2019
]through[Author ID1: at Thu Sep 26 17:06:00 2019
] they pick[Author ID1: at Thu Sep 26 17:06:00 2019
]take[Author ID1: at Thu Sep 26 17:06:00 2019
] sort of intere[Author ID1: at Thu Sep 26 17:04:00 2019
]st[Author ID1: at Thu Sep 26 17:04:00 2019
]int[Author ID1: at Thu Sep 26 17:04:00 2019
]ra[Author ID1: at Thu Sep 26 17:04:00 2019
]- subsidy program essentially. So namely our -- we used to have this RMB100,000 battery leasing program, and now we replace the majority with[Author ID1: at Thu Sep 26 17:08:00 2019
] [Author ID1: at Thu Sep 26 17:09:00 2019
]away of [Author ID1: at Thu Sep 26 17:08:00 2019
]third-party financial institutions, I think financial loans with a similar amount, but we actually have discount subsidy on this -- interest subsidy on this. So overall, I think per unit [Author ID1: at Thu Sep 26 17:09:00 2019
]bringing[Author ID1: at Thu Sep 26 17:09:00 2019
] the basis -- the rough estimate, I think it's roughly RMB10,000 per unit roughly.
RMB 10,000 per units[Author ID1: at Thu Sep 26 17:10:00 2019
]?
Yes, roughly.
Okay, thank you.
Thank you, Paul. Thanks Nick. Operator, are we -- is that conclude the hour?
Yes, certainly. There are no further questions at this time, and the call is around the hour mark. I'll turn the call back to company for closing remarks.
Okay. Thank you once again for joining us on this quarterly conference call. We look forward to talking to you next quarter. Have a good evening, or have a good day.
This concludes today's conference call. You may now disconnect your lines. Thank you.