Nio released its fourth quarter and full year 2022 financial results for the year ended December 31 on March 1. According to the results, Nio’s fourth quarter revenue was RMB 16,063.5 million (US$2,329.0 million), an increase of 62.2% compared to the fourth quarter of 2021 and 23.5% compared to the third quarter of 2022. Net loss was RMB 5,786.1 million (US$838.9 million), an increase of 169.9% compared to the fourth quarter of 2021 and an increase of 40.8% compared to the third quarter of 2022. Excluding equity award expense (non-GAAP), the adjusted net loss was RMB 5,065.6 million ($734.4 million), an increase of 190.0% compared to the fourth quarter of 2021 and 44.8% compared to the third quarter of 2022. For 2022, total revenue will be RMB 49,286.6 million ($7,143.3 million), an increase of 36.3% compared to 2021. Net loss of RMB 14,437.1 million (US$ 2,093.2 million), compared to a net loss of RMB 4,016.9 million in 2021. Excluding equity award expenses (non-GAAP), the adjusted net loss was RMB 12,141.2 million (approximately $1,760.3 million).
Following the earnings release, Nio Founder, Chairman and CEO Bin Li, CFO Wei Feng, VP of Finance Yu Qu and VP of Capital Markets Jade Wei attended a subsequent conference call to explain the results and answer questions from analysts.
The following is a transcript of the analyst Q&A session.
Tim Hsiao, Analyst, Morgan Stanley: The first question is about the parts supply chain. At the end of last year, Nio vehicle deliveries were hampered by shortages of some parts, including camera chips, and according to the quarterly guidance provided by the company, our deliveries in March were still weak, is there still a bottleneck in the supply of key supply chain? Could you ask management to share an update on the situation? What is the approximate monthly and weekly output of vehicles that are currently the best overall match for components? What kind of improvement will we see in the second quarter?
Li Bin: The supply of parts did affect the delivery of some cars in the fourth quarter of last year, but with the end of the epidemic in China in the first quarter of this year, the supply of parts is no longer a bottleneck for us in general. In the second quarter, with the delivery of new vehicles, there will be initial climbing challenges, but for the whole year, if we can maintain the current situation, we think the pressure on the supply side will be greatly reduced and will not be a constraint.
Tim Hsiao: The second question is about gross margin and battery prices. The company’s gross margin dropped more significantly in the fourth quarter, how much of the 6.7 point impact on gross margin mentioned in the earnings report was one-time and how much will carry over into the first quarter? In addition, this year’s good news may be the battery price reduction, and long-term procurement cooperation with Ningde Times, as well as battery cost reduction, is a contribution to the group’s profits because the company also mentioned that lithium carbonate into a ternary, may affect the next two points gross margin, through our negotiations with the battery factory, the management expects for the whole year will probably have how much contribution?
Qu Yu: First of all, I would like to clarify a question about the gross margin in the fourth quarter. The new ES8, ES6 and EC6 will be delivered to customers in the second quarter of this year, so we have lowered our order forecast for the current ES8, ES6 and EC6 for the fourth quarter, so the loss in inventory provision and purchase commitments related to these products are included in the fourth quarter earnings report, totaling $985 million. Excluding this impact, the margin on vehicle sales was 13.5 percent in the fourth quarter, with the year-over-year decline due to changes in product mix, particularly higher sales of the lower-margin ET5 models in the fourth quarter. Regarding the outlook for the full-year gross margin this year, we asked Bin Li to answer.
Li Bin: By the fourth quarter of this year, we are confident that the gross margin will climb to 18%-20%, for several reasons. The first is our product portfolio, from the second quarter onwards, relatively high gross margin products will be delivered one after another. The second is the decline in lithium prices and raw material prices that you mentioned, as well as the decline in chip costs, which still has a relatively large impact on us. Currently, there is a relatively rapid decline in the price of lithium carbonate, the general view of the market, including our first two days with many upstream materials companies to do very close communication, but also to understand their production capacity and production situation, we expect a large number of (carbonate) lithium-related projects will be put into production this year. Demand is certainly not as strong as last year, last year’s situation is really more than we expected, in general, we think that by the fourth quarter, (lithium carbonate) prices have the opportunity to fall to 200,000 or below. Third, we think the overall delivery volume will rise significantly from the third quarter onwards, because from the second quarter onwards, our new products will be delivered one after another, and with the rise in sales volume and delivery volume, a lot of fixed cost sharing will be able to be improved very well. So we think it is our goal to return to an 18%-20% gross margin level, and we are confident to achieve it.
I would like to add that we will still face more pressure in the first quarter, because the first quarter is still a conversion period for us, and as you can see, our sales are also in a conversion period because we have to wait to switch to the second generation platform. On the other hand, for the 866 models that have been produced, we have some financial discount policies in order to subsidize the retreat of the state subsidy and the liquidation of the show cars, which has an impact on the short-term gross profit. In addition, because our F1 plant has to prepare for the production of the second generation of 866 models, the output of the F1 plant in the first quarter is also relatively low, which will also have some impact on the amortization of our single-vehicle. The other reason is the product mix, the delivery in the first quarter is mainly ET5, and the gross margin is relatively lower.
Ming Hsun Lee, Analyst, Bank of America Merrill Lynch: I have two questions, the first one is about the guidance on expenses, last quarter the management mentioned that they want to control the R&D expenses to about 3 billion per quarter in the future, is there any update on the operating expense guidance? In addition, the management also mentioned that one of the goals of this year is to increase the efficiency of capital utilization, so I would like to know if the company has any new guidelines for marketing and R&D expenses this year.
Qu Yu: There are no adjustments to the company’s outlook for R&D expenses, which will average RMB 3 to 3.5 billion on a quarterly basis this year on a non-GAAP basis. In terms of selling and general expenses, as Bin Li said, as the NT2.0 platform starts to deliver new vehicles to customers in the second quarter, our sales efficiency will gradually improve and selling and general expenses as a percentage of sales revenue are expected to decrease significantly.
Bin Lee: The sales and general expenses also include the investment in the European business, which is still in the early stages of sales in Europe, and the investment will be a bit larger, so when it comes to sales efficiency, we may also have to take the global market entry aspect into consideration.
Ming Hsun Lee: The second question is about product launch, the new cars this year are mainly the 866, EC7 and ET5 hunter versions, can you ask the management to confirm that the EC6 and ES6 will be delivered around the same time as the ES8, and will there be minor changes or upgrades to the ES7 and ET7 this year? What are the company’s product launch plans for next year? Is there any plan to release the second brand?
Li Bin: According to the latest plan, we will deliver four cars in the second quarter of this year, including the ES6, the most important model, and the fifth car of this year in July, a month later than the original plan, which was to deliver five cars in the second quarter. However, we have since realized that we need to give each vehicle a little more time to ensure the quality of the launch, including the marketing rhythm. In addition, we continue to promote product iteration and improvement, and will also communicate with the market in a timely manner. What I can say is that Nio product planning has always been very rigorous, and we have been following the plan strictly.
