NIO Inc

NYSE:NIO

Earnings Call Analysis

NIO Q3 Performance with Strategic Outlook

In Q3 2023, NIO's total revenues soared by 46.6% YoY to RMB 19.1 billion following vehicle deliveries up by 75.4% to 55,432 units, achieving a first-in-segment status in China's BEV market. Vehicle margin climbed to 11%, benefiting from a prudent sales mix strategy, reduced part costs, and scale efficiencies. NIO introduced its NT2.0 platform, heralded by the EC6 delivery, and progressed in innovative technology, such as SkyOS and NOP+. They predict Q4 deliveries between 47,000 and 49,000 vehicles. NIO remains committed to sustaining core tech investments and strategic efficiencies while preparing for heightened industry competition and plans for 9 core products.

NIO's Leadership in China's Premium EV Segment and Q3 2023 Financials

In the competitive landscape of electric vehicles, NIO Incorporated stands out with an impressive third-quarter performance in 2023. Deliveries soared to 55,432 premium smart electric vehicles, marking a 75.4% year-over-year growth, and capturing over 45% of China's high-end battery electric vehicle (BEV) market with an average transaction price above RMB 300,000. This growth trajectory was sustained into the following two months with a 32.2% year-over-year increase in deliveries. Financially, total revenues hit RMB 19.1 billion, a near 50% increase from the previous year, driven primarily by their vehicle sales.

Margins and Profitability Analysis

Despite the revenue surge, the vehicle margin contracted to 11% compared to the prior year's 13.3%. Nonetheless, there was a rebound from the previous quarter's low of 1%. This fluctuation is largely attributed to product mix changes and battery cost variations. Operating loss widened by 25.2% year-over-year but reduced by 23% sequentially, reflecting the company's proactive measures to enhance operational efficiency and cost control.

Cash Position and Organizational Efficiency

NIO's cash reserves remained robust at RMB 45.2 billion, ensuring sufficient liquidity for continued investments and growth. The quarter also saw a 10% reduction in workforce and a deferment or cancellation of less impactful projects, contributing to an expected annual savings of RMB 2 billion in 2024, showcasing the company's resolution to streamline operations and prioritize profit-generating initiatives.

R&D and Product Advancement

Investment in innovation remained a focal point with the introduction of SkyOS, China's first vehicle operating system, and Yang Jian, an in-house developed LiDAR SoC. This commitment was bolstered by the rapid iteration of intelligent driving systems and the expansion of the charging and swapping infrastructure, underpinning NIO's leadership in smart EV technologies. Furthermore, the company is poised to unveil a cutting-edge flagship model, setting the stage for leadership in the global smart EV market.

Outlook and Future Strategies

Looking ahead, NIO anticipates that vehicle margins could rise to 15-18% in 2024, citing efficiencies from in-house manufacturing and organizational optimizations. This is further supported by their positive operating cash flow in Q3, hinting at sustainable financial growth moving forward. Equally pivotal are plans to expand the Power Swap network, exploring partnerships and innovative business models to scale operations.

European Market and Global Expansion

In the international realm, NIO's European venture is still in nascent stages, focusing on building a substantial and high-quality user experience. With 6 NIO houses, 8 NIO spaces, and a growing network of service centers and Power Swap stations in 5 countries, the company is cautious yet strategic about escalating operations in Europe, with volume expansion not being the immediate focus.

Production and Sales Force Challenges

On the production front, challenges persist. Although NIO aimed for 20,000 vehicles a month by December, the company has run below target, facing headwinds like production constraints and macroeconomic softness. Still, they achieved an impressive 45% market share in the premium BEV segment in Q3 2023.

Earnings Call Transcript 2023-Q3

[Operator]

Hello, ladies and gentlemen, thank you for standing by for the NIO Incorporated Third Quarter 2023 Earnings Conference Call. [Operator Instructions] Today's conference call is being recorded.I will now turn the call over to your host, Mr. Rui Chen, Head of Investor Relations of the company. Please go ahead, Rui.

[Rui Chen, executive]

Good morning and good evening, everyone. Welcome to NIO's Third Quarter 2023 Earnings Conference Call. The company's financial and operating results were published in the press release earlier today and are posted at the company's IR website.On today's call, we have Mr. William Li, Founder, Chairman and CEO; Mr. Steven Feng, our CFO; and Mr. Stanley Qu, Senior 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 Stock Exchange of Hong Kong Limited and the Singapore Exchange Securities Trading Limited. The company does not assume any obligation to update any forward-looking statements except as required under applicable law.Please also note that NIO's earnings press release and this conference call include discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. Please refer to NIO's press release, which contains a reconciliation of the unaudited non-GAAP measures to comparable GAAP measures.With that, I will now turn the call over to our CEO, Mr. William Li. William, please go ahead.

[Bin Li, executive]

[Interpreted] Hello, everyone. Thank you for joining NIO's 2023 Q3 earnings call.In the third quarter of 2023, by making the most of a complete product line-up on the NT2.0 platform, the improvement of overall sales capacity and capability, as well as the continuous expansion of sales, service, and power networks. NIO delivered a total of 55,432 premium smart electric vehicles, up 75.4% year-over-year. The retail stats from Carpark showed that in Q3, NIO ranked first in China's BEV segment with an average transaction price of over RMB 300,000, with market share above 45% in the segment.In September, NIO launched and delivered the all-new EC6, a mid-size coupe SUV upgraded to the second generation. It also marked the completion of NIO's product line-up on the NT2.0 Platform. In Q4, as price war deepens and competition gets tighter for smart EVs, NIO delivered a total of 32,033 vehicles in October and November, up 32.2% from last year while maintaining our prices stable. In Q4, the total deliveries are expected to be between 47,000 to 49,000.Going forward, we will stay focused on executing sales strategies and improving operational efficiency. We believe the competitiveness of NIO's second-generation products will be further unleashed next year.In terms of NIO's financial performance, attributed to the increased sales mix for higher-priced models, decreased parts costs, and improved economies of scale enabled by more deliveries, combined with the refined management of sales policies, the vehicle margin in the third quarter reached 11%.Next, I would like to share with you the recent highlights of our products, R&D, and operations. On September 21, NIO held NIO IN, NIO's Innovation and Technology Day. At the event, NIO's 12 full-stack technology capabilities covering the holistic business scenarios for smart EVs from multiple brands and platforms were introduced to the public for the first time.In the meantime, NIO also unveiled China's first vehicle operating system, SkyOS, and the in-house developed LiDAR SoC named Yang Jian, demonstrating NIO's systematic R&D capabilities leading the industry.Regarding assisted and intelligent driving, NIO has been quickly iterating the system capabilities. On November 15th, Power Swap Pilot for Highway Beta was released in China. So far, 29 Power Swap stations on highways already support this feature. PSP seamlessly combines NOP+ and Power Swap, bringing new users a hassle-free highway driving and battery swapping experience that is automated and intelligent from end-to-end.In the meantime, NIO has rolled out the NOP+ for urban traffic, providing users with uninterrupted driving experience from point A to point B, both on highways and on city streets. Enabled by NIO's generalization capability in-house and taking into consideration the high demand roads on users' wishes, we've started to roll out NOP+ for cities, route-by-route, from November, and we'll gradually realize wider coverage.At present, the NOP+ been released to early bird users in several major cities and is quickly becoming available for more routes and in more cities, which has far surpassed the target announced at NIO IN. At our upcoming NIO Day communication event, we will be sharing more information about that.In terms of the sales and service network, so far we have 468 new house, new space, and pop-up stores in 152 cities, as well as 314 service centers and 62 delivery centers in 217 cities.As for the charging and swapping network, to date, we have installed 2,226 Power Swap stations, over 9,400 power chargers and over 11,000 destination chargers worldwide. More than 1.46 million public chargers have been connected with NIO's charging maps.NIO's long-tested and well-proven battery swapping system has offered over 32 million convenient, efficient, and safe battery swaps to NIO users, making Power Swap the most trusted recharging solution for them. NIO Power Cloud and NIO's Power Swap network have been opened to the entire industry.In November, NIO partnered with Changan Automobile and Geely Holding respectively on battery swapping. In the future, NIO will join hands with more industry partners in such areas as formulation of swappable battery standards, battery swap network, R&D of battery swapping vehicles, and the management of battery assets. So as to provide the holistic, chargeable, swappable, and upgradeable solution to more smart EV users, and jointly contribute to the development and wider adoption of battery swap.NIO Day, NIO's grand annual gatherings with users will be held on December 23rd in Xi'an, Shaanxi Province. This year, we will unveil a brand new flagship model, a real epitome of NIO's innovative technologies. This product will become a technology benchmark for smart EVs and a trendsetter of the smart EV technologies worldwide.On September 26, with contributions to shaping a low-carbon industry with innovative EV battery swapping, NIO received the Green Innovation Award of the 2023 Paulson Prize for Sustainability. This award is a recognition of the novelty and expandabilities, as well as the economic and environmental benefits of NIO's battery swapping technology and business model.The 2023 NIO Cup Formula Student China, a racing car design competition for college students was held from November 8 to November 12 in Hefei. NIO has been sponsoring and supporting the competition since 2015. So far, Formula Student China has cultivated more than 40,000 young professionals for China's automotive industry, becoming one of the most important cradles of young automotive talent in China.The next 2 years, we'll see the most intense competition during the transformation of the automotive industry. Faced with massive uncertainty in the external environment, recently we've sorted through and adjusted our key objectives, priorities, and action plans to become more focused on efficient execution and improvement of system capabilities. While ensuring long-term investment in core technologies, strong sales and service capabilities to navigate the intense market competition, and on-time release of the 9 core products from the 3 brands.We will continuously optimize internal working processes and the division of roles and responsibilities, stay focused on projects that can contribute to the company's financial performance, and comprehensively improve organizational efficiency and resource utilization. We are very confident of NIO's long-term competitiveness in the smart EV industry.As always, thank you for your support. With that, I will now turn the call over to Steven to provide the financial details for the third quarter. Over to you, Steven.

[Wei Feng, executive]

Thank you, William. I will now go over our key financial results for the third quarter of 2023. And to be mindful of the length of this call, I will reference to RMB only in my discussion today. I encourage listeners to refer to our audience press release, which is posted online for additional details.Our total revenues in the third quarter were RMB 19.1 billion, representing an increase of 46.6% year-over-year and an increase of 117.4% quarter-over-quarter. Our total revenues are made up of 2 parts, vehicle sales and other sales. Vehicle sales in the third quarter were RMB 17.4 billion, representing an increase of 45.9% year-over-year and 142.3% quarter-of-quarter. The increase in vehicle sales year-over-year and quarter-over-quarter was mainly attributable to higher vehicle deliveries. Other sales in the third quarter were RMB 1.7 billion, representing an increase of 55% year-over-year, an increase of 4.5% quarter-over-quarter.Gross margin in the third quarter of 2023 was 8%, compared with 13.3% in the third quarter of 2022, and 1% in the second quarter of 2023. The changes of gross margin year-over-year and quarter-over-quarter, was mainly attributable to the changes of vehicle margin. More specifically, vehicle margin in the third quarter was 11%, compared with 16.4% in the third quarter of 2022, and 6.2% in the second quarter of 2023. The decrease in vehicle margin year-over-year was mainly attributable to changes in product mix, partially offset by the decreased battery cost per unit. The increase in vehicle margin of quarter-over-quarter was mainly due to changes in product mix, as well as decreased promotion.Around expenses in third quarter were RMB 3 billion represents an increase of 3.2% year-over-year and a decrease of 9.1% quarter-over-quarter. The slight increase in research and development expenses year-over-year was mainly attributable to increased personal costs in research and development functions partially offset by the decreased design and development costs and deduction of expenses due to support for technology advancement provided by local government authorities during the third quarter of 2023.The decrease in research and development expenses quarter-over-quarter was mainly due to the support for technology advancement provided by local government authorities during the third quarter of 2003. As general expenses in the third quarter were RMB 3.6 billion, representing an increase of 33.1% year-over-year, an increase of 6.3% quarter-over-quarter.Plus, for operations in the third quarter was RMB 4.8 billion representing an increase of 25.2% year-over-year, and a decrease of 23% quarter-over-quarter. Last, in the third quarter was RMB 4.6 billion representing an increase of 10.8% year-over-year, and a decrease of 24.8% quarter-over-quarter. Our balance for cash and cash equivalents, restrict cash, short-term investment, and long-term time deposits was RMB 45.2 billion as of September 30, 2023.Now, this concludes our prepared remarks. I will now turn the call over to the operator to facilitate our Q&A session.

[Operator]

[Operator Instructions] Our first question comes from Tim Hsiao with Morgan Stanley.

[Tim Hsiao, analyst]

I actually have 2 parts of the questions. The first one is about battery swapping, because the new, as just mentioned, pretty expanded strategic alliance in battery swapping from previous partner like Sinopec to Changan and the Geely. Could you share a little bit more about your plans of how to structure the new alliance of battery swapping and the potential financial impact like your CapEx and operating loss?So in the long term, will you consider to spin off the battery swapping business and operate it independently or even go public as a standalone third-party battery swapping or utility operator? So that's my first question.

[Bin Li, executive]

[Interpreted] Thank you, Tim, for your question. Yes, recently we have announced the cooperation agreements with both Changan and Geely on the battery swapping. And in terms of the battery swap network, the way we look at it is a bit similar to the cloud service or the cloud infrastructure. Both Power Swap Stations and the Cloud Infrastructure require and rely on the network effect. Both can have a pretty long investment cycle. And both are actually started with the internal services first. And after sufficient validations and verifying the demands and the fulfillment for our users' needs, we will then open up the service to the public.So after 5-years of validation and internal services, we believe that we are ready to provide such network and service to the industry. And it's about time to open up the network to the industry.And as we all know that, there are quite a lot of benefits with Power Swap. It is faster than charging, and also it has better user experience. It also brings values and benefits to users and also the society. Especially in China, many users living in the urban environment or compound and apartments do not have a home charger. In fact, actually more than 50% of our users cannot install a charger at home. In this case, battery swap becomes even more important and convenient for those users who do not have home chargers.This is also very important for the mass market brand, because NIO is after all a premium brand, and many of our users can still have chargers at home. But for the mass market brand, the percentage of not being able to have the home chargers will be higher. That's why when we started to share our battery design standards and also specifications for the mass market brand to the industry peers, many of them are very interested in this alliance. We have already announced 2 agreements, and there are several more that are still in negotiation. As we also believe that with NIO's current battery swap technologies, service standards, and also service network, this is what they need for their product as well as for their users.And Also, in terms of the business model for the Power Swap, we believe that it is sustainable both from the business perspective as well as from the finance perspective. Especially after 5-years of operations and validation, we have confidence in the sustainability of battery swap.In terms of our battery swap network, as we will continue to expand our Power Swap network, there will be CapEx also relevant to such network development. In the meantime, we are also looking for approaches where we may introduce partners into our Power Swap network. Basically, they will buy the battery swap station as a product from us, and then they will install the stations and hand it over to us for the operations. In this case, they will be holding this battery asset for us. There are a thousand of -- stations already running based on this business model. For the longer term, we will also be looking for partners holding the battery swap station assets.In terms of the NIO powers charging service, it is already almost breaking even. As you may know, 80% of our power was charged for the non-new users. For the longer term, new power charging will also be a profitable business. Actually, in certain areas and with charging stations -- with certain swap stations, the operation is already profitable. This is also -- in terms of spinning of the Power Swap stations, there are some investors showing their interest in having Power Swap or Power Swap business as a independent business. We are also in conversation with them. Yes. Okay. Tim, your next question.

[Tim Hsiao, analyst]

Sure. Thank you, Will for sharing all the details. So my next question is about the car manufacturing. Because -- as you just mentioned, NIO announced to acquire the production facility from JAC. So, first, does that mean NIO has been granted the manufacturing license? In the meantime, I think that means NIO officially shifted from the asset-light business model to asset-happy. So, in the near-term, how should we think about the unique cost of vehicle manufacturing from fourth quarter onward? I think previously, we provided vehicle margin guidance 50% for December quarter. In the long term, do you still think that the full stack in-house development, production, and direct vehicle sales without relying on dealers would be the most ideal model for both NIO and ALPS, the mass market brand, or if there will be any major difference? That's my second question.

[Bin Li, executive]

Stephen will answer this question.

[Wei Feng, executive]

Okay. I'll give an example of your question about the manufacturing, car manufacturing. During this acquisition, the manufacturing agreements between NIO and JAC are still performed, are stipulated, and the production activities of the models in the corporation are going on normally.Going forward, if there is any change to the manufacturing corporation with regards to the REDD models between NIO and JAC or other situations that constitute significant information after this acquisition or in the future, NIO will communicate with and disclose the capital market in a timely manner, comply with the REDD norms and regulations and the rules for listed companies.

[Bin Li, executive]

[Interpreted] And also, to add on to Stephen's comment, if we bring the entire manufacturing fully in-house, overall speaking, our manufacturing cost will be reduced by around 10%.

[Operator]

Our next question comes from Nick Lai with JP Morgan.

[Y.C. Lai, analyst]

[Foreign Language] My first simple question is really about NIO's plan to increase or enhance operation efficiency and re-archive our resource to more important priorities. So if you can give us some examples and a little bit -- a bit more on this initiative.

[Bin Li, executive]

[Interpreted] In this round of organizational optimizations, we have identified several principles. Because over the years of development, we have some low-efficiency positions and jobs, and also some duplicated roles and responsibilities. In this case, we have identified these low-efficiencies or redundancies in the organization. We have improved the processes of lower-efficiencies, and we have also eliminated jobs and positions that are duplicated or are of low-efficiencies. And also, in terms of the projects deferred or terminated, basically we look at the projects and their financial contribution.If they cannot bring any financial contribution in the coming 3 years, we will be thinking about deferring them or terminating them. For example, if they cannot contribute to the gross margin or the P&L, they may need to be deferred or reconsidered. A quick example is regarding the in-house manufacturing of our batteries. We've identified that in the coming 3 years, bringing battery production in-house will not help us with the gross margin improvement. In this case, we have decided to defer the plan. We will still continue to do the in-house R&D of battery cells, battery materials, and the battery packs. But we will outsource the manufacturing of the battery packs for better overall efficiency and performance.So for this round of optimization, we've done a detailed and thorough review and adjustments and also made the necessary adjustments based on the needs of the business and the resources of the entire company.But in the meantime, we will still make sure that we don't miss our focus or dilute our investment resources for the high priority items for the coming 2 years. The first is the long-term investment for the core technologies so that we can still keep leading in terms of the products and the technologies. As I mentioned earlier today, at the NIO Day 2023, we are going to unveil a brand new flagship model. And this car will be equipped with a lot of state-of-the-art technologies that are leading the entire automotive industry.And our second priority is the continuous development of our sales and service networks. Recently, we have enlarged the sales teams. We have also increased the number of the point of sales so that we can get ready for the more intense competition in the coming 2 years. Because if we don't make such preparation, we will not be navigating the intense competition. An example is that in October in Shanghai, our sales volume has outnumbered that of BMW and Mercedes running on all power sources, including ICE cars as well as EVs.And in cities from Jiangsu or Zhejiang provinces, we are also establishing a pretty solid foothold with a pretty significant market share. But when it comes to lower tier cities like fourth tier or fifth tier cities, we still have a long way to go. Or in cities where the EV infrastructure is not yet ready, we are also not outperforming those well-established brands. In this case, we need to continue to develop our sales and service networks.In terms of our sales performance in Zhejiang, Jiangsu and Shanghai, actually 50% of our sales volume is contributed by the sales in these 3 areas. On the one hand, it shows that our products are well-recognized in the highly competitive markets in these 3 places.On the other hand, it also means that we need to further enhance our brand awareness in the lower tier cities. And the third priority in the coming 2 years is to secure the on-time release of our 9 core products from the third brands. We have already made investments, and the products of this third brand will be coming into the market very quickly in the coming 2 years.

[Y.C. Lai, analyst]

[Foreign Language] My second question is really about the balance or the choice between sales volume and margin, and how should we consider these 2 factors when it comes to the market competition? and are we still maintaining 50% of vehicle GP margin in 4Q and a long-term target of, let's say, 20% to 22% of vehicle GP margin, sometimes toward '24 or beyond?

[Bin Li, executive]

[Interpreted] Our strategy for the third quarter is pretty clear. That is to keep our prices stable. Earlier this year in June, we have adjusted our user benefits. Actually, both our existing users and the new users were accepting this adjustment pretty well. So we may be the only company able to satisfy both existing users and the new users with a benefit adjustment.And since then, we have been keeping a pretty stable price strategy as we believe that it is beneficial to our brand image and also product competitiveness. And also users' experience and benefits. As going into Q4, the price war deepens. The competition also gets more fierce. For many well-established brands like our competitors BMW and Mercedes, they are also slashing prices pretty aggressively. Even on their EV models, the price reduction can be as high as 31%. But we still keep a pretty stable price amid this fierce competition. This is also reflected. This stable price is also reflected in our improved vehicle margin. So our longer-term strategy will be keeping our price stable while continuously improving our vehicle margin.In the meantime, we will also improve our sales capacity, capability, and efficiency so that we can bolster our sales volume. But this can take time and we will be staying patient. We will not realize or boost our sales volume at the cost of our product margin as this is not healthy for the longer run.Maybe Stanley can also add more information regarding the specific financial numbers.

[Stanley Qu, executive]

Nick, our vehicle gross profit margin is 11% for Q3 and we are confident to achieve a higher margin in Q4 considering more production efficiency, lower price of lithium carbonate, and also decreased part cost. Our target is also still kept at 15% for Q4. And from long run, as an important project internally, we have started to further improve our cost structure for NT2.0 products by optimizing design, improving supply chain and production efficiency, and also business negotiation with our partners.As mentioned by William, our NIO brand keeps focus on premium market segment and we will keep product prices relatively stable. So combining all those factors together, we believe our vehicle margin can be further increased to 15% to 18% in 2024. That's the general guidance for vehicle margin.

[Bin Li, executive]

[Interpreted] And also looking at our previous vehicle margin history, before the crisis of the lithium carbonate spike, we actually managed to realize a vehicle margin as good as 21%. So for a much longer term, we will also target -- a target that we like -- vehicle margin of above 20%.

[Operator]

Our next question comes from Yuqian Ding with HSBC.

[Yuqian Ding, analyst]

This is Yuqian Ding here. I got 2 questions. Maybe we roll it one-by-one. The first one is on the cash position. We noticed the cash balance increasing quarter-on-quarter. Other than the strategic investment and the convertible bond, there is also still a RMB 1 billion increase. Does that coming from the improving operation? Can you shed out a little bit more light on that?

[Stanley Qu, executive]

Yuqian, this is Stanley. In fact, the new product delivery ramp-up in Q3, we achieved a positive operating cash flow. Yes. Going forward, if our sales can continue to grow, we are confident to realize a healthy operating cash flow. So that's for your first question. Yes.

[Yuqian Ding, analyst]

Okay Got it. The second question is on the OpEx reduction. Thanks for William sharing on optimizing the battery business. We also read there is also a headcount cut. Could you share more on whether there will be asset write-offs during the process of the cost optimization, and when we would expect us to reach a lean yet sustainable shape?

[Stanley Qu, executive]

Yes. Yuqian, about the cost optimization, yes, we reduced 10% working positions and completed the adjustment in November. But for Q4, there will be almost no financial impact since we need to pay additional compensation for the employees who left the company, offset with less payroll costs. But for next year, together with the headcount reductions, we also delayed or cancelled a certain project, as mentioned by William. So the total impact to 2024 will be a saving of RMB 2 billion.

[Bin Li, executive]

[Interpreted] Yes, this round of optimization has helped us to improve the financial performance slightly over our previous budget. However, we do need to have some one-time expenses due to the severance package for the terminated employees.

[Operator]

Our next question comes from Ming-Hsun Lee with Bank of America.

[Ming-Hsun Lee, analyst]

My first question is regarding your second brand, ALPS in 2024. In the future, will you consider to share the charging station and the battery swap station along with the NIO brand? And also, will you also consider to share the sales channel with NIO brand?

[Bin Li, executive]

[Interpreted] Yes, when it comes to our mass market brand code named ALPS. Actually, recently we have just had the very first validation build of this brand. A road of the production line, actually, the condition of this verification build is pretty good. It can be maybe one of the best EV cars we have in the history of NIO. So we are very confident in the competitiveness of this project. And before the official launch and delivery, we still have time to continue to optimize and improve the project.In terms of our Power Swap and the charging network strategy, for NIO, our battery swap network will be coming in 2 parts. The first is the exclusive network for NIO and NIO users. And the second will be a shared network, not only for NIO users, but also for ALPS users and other brands with swappable vehicles.In terms of the charging network, we have been sharing our chargers already to many non-NIO brands. In terms of the sales network, this will be separated. So they will have their own sales stores. But we will be sharing the service capacities and facilities. So service centers will be shared between NIO and ALPS.

[Ming-Hsun Lee, analyst]

So my second question is regarding your 2024 product. Because this year you already updated all of your new models and also launched some new models. So in 2024, will you have some facelift version of the existing model and start to use 800-voltage charging system on your car? So in this case, do you have any guidance about the battery swap station you will expect?

[Bin Li, executive]

[Interpreted] Yes, it's a common standard and practices for the automotive industry to have model years or facelifts. But for our NT2.0 products, we will not have any major modifications or upgrades. As many of them were just newly launched or delivered to the market. To stabilize our quality and supply chain, we will only make minor improvements and upgrades on our NT2.0 products.In terms of our plan for the Power Swap stations in 2024, as I've mentioned, we will be not only building our exclusive battery swap network, but also a battery swap network for sharing. On the one hand, we will build this Power Swap network for other brands that can be shared with other brands.In the meantime, we will also continue to look at the demand of our NIO users. So that, if there are any requirements or high demand stations or locations, we will also install stations there. But we are still working on the specific plans and the numbers.

[Operator]

Our next question comes from Paul Gong with UBS.

[Paul Gong, analyst]

My first question is regarding your sales force, sales team. I think in last quarter's earnings, you mentioned that you are going to significantly increase your sales people's headcount. May I double check how this has been proceeding at this moment? Have you achieved your original target of expanding sales team, or have you adjusted your original plan?

[Bin Li, executive]

[Interpreted] Paul, at the present, for our frontline fellows, we have a team of around 5,700 persons, but many of them were just newly on board. Around 3,300 of them were newly on board into the company, and it still takes some time for them to really get to know the brand and also get familiar with the entire sales processes. Because for the newly hired fellows, we will spend around 1.5 months on the trainings, and afterwards we can start to sell vehicles to our users.According to our history data, a seasoned fellow on average will need to spend around 6 months to be familiar with the brand and the processes, and will become a real sales force for the company. So we need to be patient with this newly hired fellows, as many of them just joined the company in September and October. But in the meantime, we will also be completing and improving our assessment and evaluation systems, our training systems. We will also bring these fellows more efficient tools so that they can really make full use of their sales capacity and capability.

[Paul Gong, analyst]

My second question is regarding the R&D spending. I think this quarter you had about RMB 300 million, quarter-over-quarter decline on the R&D, and the explanation is some incentives from the local government. May I quantify that number? And more importantly, going forward, what would be your projected quarterly R&D spending?

[Bin Li, executive]

Yes, Stanley, you answer that question.

[Stanley Qu, executive]

Yes. Paul, there are some slight decreases considering some support we received from the local authorities. But in the long run, as we mentioned during the past earnings quarter, our non-GAAP R&D investment per quarter will also be kept at RMB 3 billion to RMB 3.5 billion. As also mentioned by William in previous statements, we will also ensure investment in core technologies and also the advantages of technology and product and guarantee the timely launch of the new product. So the investment in R&D will not decrease. There will be a slight fluctuation across different quarters.

[Operator]

The next question comes from Jing Chang with CICC. Please go ahead.

[Jing Chang, analyst]

[Foreign Language] So my first question is regarding to autonomous driving. We have already opened the submission of wish list in September. So relying on group intelligence, we try to expand the NOA function in unmapped cities, which is a little bit different from other OEMs. They open up city-by-city. So the group introduced our ideas on the implementation of NOA function in the city area. And also, what's our, again, our target of the cumulative mileage of 6,000 kilometers by the end of last year. So how is our current progress?

[Bin Li, executive]

[Interpreted] In terms of news NLP Plus for cities, actually we leverage our generalization capabilities as well as the crossing AI capabilities so that we can roll out this NLP route-by-route for our users based on their demand. Of course, in the meantime, we have also formulated the data closed loop capabilities where we can really leverage all this data coming from the generalization and also cloud AI.At the NIO end, we have announced that by the end of this year, we are going to open up the routes covering around 60,000 kilometers of mileage. And so far, our progress is pretty good, and we already have established the capabilities of releasing NLP Plus for early bird users in more than 100 cities. And we will be rolling out such a service and invite our users into the program step-by-step so that it can be covering more cities with more users gradually.Of course, in terms of city-based or road-based autonomous driving or NLP, we do see some of our peers, they have some marketing slogans regarding their services, but we believe that NLP Plus, especially NLP Plus for cities, is a pretty serious service, and we would like to make sure that our users have a safe and also good experience.And then we will roll out the service and its coverage step-by-step. But overall speaking, our progress has far surpassed our expectations. And after all, we already have more than 100,000 vehicles running on the road. This will also help us to further formulate and improve our data cultureEspecially for every new NT2.0 vehicle, it is standard with 4 Orin chips and also 33 high-performance sensors. This will further help us to formulate the data closed loop and improve the data capabilities. And in return, we will also accelerate the capabilities for iteration. This is also a very unique advantage of NIO, which is quite different from any other competitors offering a similar service.So my second question is regarding to the overseas market, will it still be one of our strategic focus? Could you please introduce the current operation situation of our overseas market this year regarding to our sales volume, our layout program of our co-regions, and also about the dealerships and the infrastructure, and also our next year's target and plan?

[Jing Chang, analyst]

[Foreign Language] So my second question is regarding to overseas markets. Will it still be one of our strategic focus? Could you please introduce the current operation situation of our overseas market this year regarding to the -- our sales volume, our layout program of our co-regions, and also about the dealerships and the infrastructure? And also our next year's target and plan?

[Bin Li, executive]

[Interpreted] At the moment, in 5 European countries, we have opened 6 NIO houses, 8 NIO spaces, 2 multi-functional service centers, and also partnered with 54 authorized service centers. We have also installed 30 Power Swap stations in 5 European countries.But in terms of our business development in Europe, we are still at the early stage of the business development and expansion. We want to continue to test the water, ensure we have good user experience before we scale our operations and business there. That's why volume is not a priority for us in terms of our European business. And in the coming 1-year, we will continue to be staying at this stage. We will make sure that our capability and capacity are sufficient to serve our users in Europe before we start to work on a higher scale.

[Operator]

Our next question comes from Jason Getz with Mizuho Securities USA.

[Jason Getz, analyst]

You talked a couple of months back about 20,000 vehicles a month in December. We're running a little bit below that now. What have been the biggest headwinds there? Has it been some production challenges, maybe broader macro weakness? And then what did it take to get to that 20,000 units? And how should we think about the run rate moving through 2024 with the new sales force?

[Bin Li, executive]

[Interpreted] Thank you for your questions. As we mentioned earlier today, in the premium battery electric vehicle segment priced over RMB 300,000, NIO has realized a 45% market share in the third quarter of this year. Actually, our market share in this segment has been pretty stable, around 40%. So this has proven that we have a relatively solid foothold in the premium BEV segment. We have a pretty significant, also stable market share already established in the segment. But when it comes to convincing users of premium ICE cars of buying a premium EV, it is actually more difficult than convincing mass market users. Because for the mass market users buying a car of RMB 100,000 or RMB 200,000, they pay attention to the ownership cost and also the usage cost of the product. But for the users of premium electric vehicles, they pay more attention to other factors.And the second reason that may be affecting the wider adoption of the premium BEV is regarding the coverage of infrastructure. As I've also shared in the Yangtze River Delta areas, mainly Shanghai, Jiangsu, and Zhejiang, we have a pretty significant market share. Our sales volume has outnumbered that of BMW, Audi, and Mercedes with their ICE car sales. A very important reason behind this is because we have 700 Power Swap stations already established in this area.So infrastructure is also playing a very important role in boosting the sales volume and the adoption of electric vehicles. So far in China, we have already installed over 2,000 Power Swap stations, but roughly 700 of them are along the highways. In some regions and areas, our Power Swap stations are still not widely accessible. In this case, we will need to also speed up and enhance our infrastructure coverage so that we can further boost the wider adoption of electric vehicles.So basically, 2 main reasons. The first is regarding the consumption habits of the premium vehicle users, and the second is mainly because of the coverage of the infrastructures for electric vehicles. But we believe that this trend of convincing ICE users of buying EVs or this overall trend of transforming into battery electric vehicles will be picking up its speed because we also find that some of our peers and competitors before they only have hybrid vehicles or range-extended vehicles, but now they're also launching their battery electric vehicles.Such strategy will also push the transformation of the entire industry, so we are actually happy to see such transformation. And also, many car companies are now also installing and expanding their charging network, and NIO is working on our battery swap network. With wider infrastructure, we will also boost the adoption of the battery electric vehicles.So overall speaking, we believe that 2024 will be better off than in 2023 because in 2024, we will also be having a more stable product portfolio without frequent product launch and delivery which has also slightly disturbed our overall execution.

[Jason Getz, analyst]

Got it. And then a quick follow-up. On the battery swap partnership side, is there any kind of design changes that your partners would have to do to their vehicles in order for them to use the swap stations? And if so, have you guys talked about what percent of mix of vehicles they produce might need to be kind of changed or edited in the production process in order to do battery swapping?

[Bin Li, executive]

[Interpreted] Actually, we have shared the battery spikes and also the design details of our battery packs for the mass market brand to our battery swap partners. And they will need to design and engineer their vehicle products, mainly chassis interfaces, following our battery standards. It will take some time for them to decide on the right models and complete the product R&D. But the overall investment and R&D expenses for developing such new models based on our battery standards won't be very high.

[Operator]

If there are no further questions, now I'd like to turn the call back over to the company for closing remarks.

[Rui Chen, executive]

Thank you again for joining us today. If you have further questions, please feel free to contact NIO's Investor Relations team through the contact information provided on our website. This concludes today's conference call. You may now disconnect your lines. Thank you.[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]