Participants
Eve Tang; IR; NIO Inc.
William Li; CEO; NIO Inc.
Steven Feng; CFO; NIO Inc.
Tim Hsiao; Analyst; Morgan Stanley
Bin Wang; Analyst; Credit Suisse
Ming-Hsun Lee; Analyst; Bank of America
Yuqian Ding; Analyst; HSBC
Nick Lai; Analyst; JP Morgan
Paul Gong; Analyst; UBS
Xing Chang; Analyst; CICC
Vijay Rakesh; Analyst; Mizuho
William Bin Li
Stanley Qu
Presentation
Operator
Hello, ladies and gentlemen. Thank you for standing by, and welcome to the NIO Incorporated First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. Today’s conference call is being recorded. I would now like to hand the conference over to your host, Ms. Eve Tang from Capital Markets. Please go ahead.
Eve Tang
Good morning and good evening, everyone. Welcome to NIO’s First 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 a Mr. William Li, Founder, Chairman of the Board and Chief Executive Officer; Mr. Steven Feng, Chief Financial Officer; Mr. Stanley Qu, Senior VP of Finance; and Ms. Jade Wei, VP of Capital Markets.
Before we continue, please be kindly reminded that today’s discussion will contain forward-looking statements made under the Safe Harbor provisions of the US 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 US 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.
William Li
(Interpreted) Hello, everyone. Thank you for joining NIO’s 2023 First Quarter Earnings Call. In the first quarter of 2023, NIO delivered a total of 31,041 smart electric vehicles, up 20.5% year over year.
In April and May, NIO delivered 6,658 and 6,155 vehicles, respectively. We expect the total deliveries in the second quarter of this year to be between 23,000 and 25,000 units. As we ramp up the production of the All-New ES6 and other new models, we are confident in continuously driving up our delivery volume.
Next, I would like to share with you the recent highlights of our product R&D and operations. On May 24, we launched the All-New ES6, an all-round, mid-sized, smart electric SUV, and started its delivery the next day. The product quality of the All-New ES6 has been widely acclaimed by the first batch of users.
In May, we also started the user delivery of the 2023 NIO ET7 and the flagship coupe SUV, EC7. Coming with more than 15 new features and enhancements, the 2023 NIO ET7 continues to lead the change in the premium smart electric large sedan market. As a flagship coupe SUV, EC7 inherits NIO’s high-performance DNA and boasts ultimate riding and handling experience.
NIO’s product quality and safety are also recognized by authoritative institutions. On April 24, NIO ET5 was rated good, the highest safety level, by China Insurance Automobile Safety Index, or CIASI. In J.D. Power’s 2023 China New Energy Vehicle Initial Quality Study released on June 1, NIO’s ES6 won first place in the premium BEV segment for the fourth consecutive year. Also in J.D. Power’s 2023 NEV-IQ Study, which evaluates new energy vehicles’ performance, execution and layout, NIO ET7 ranked number one among premium BEVs.
We plan to launch the NIO ET5 Touring on June 15 and start delivery in the same month. As the world’s first smart electric tourer, the ET5 Touring is designed to cover diversified scenarios for both individual and family users, significantly improving our competitiveness in the premium family vehicle market.
Besides NIO’s flagship SUVs, the All-New ES8 will also commence delivery in the near term. The new EC6, our second-generation, mid-size smart coupe SUV will be launched and delivered in the third quarter. As we proceed with product platform transition, NIO’s complete NT 2.0 lineup, featuring eight different products will form a combined force to better cater to the diverse needs in the premium smart EV market and provide users with more experiences beyond expectations.
In June, NIO’s smart system, Banyan, will be upgraded to version 2.0. This release includes over 120 new features and enhancements. By connecting NIO’s products, services and the community in a more seamless way, Banyan 2.0 will deliver a one-of-a-kind digital experience.
It is particularly worth mentioning that Banyan 2.0 provides a new feature, that is automatic planning of charging and swapping routes. Enabled by NIO Power cloud and a comprehensive power infrastructure, it can let users plan for charging and swapping along the navigation route for long-distance trips with just one tap.
In terms of intelligent driving, NIO has released Navigate on Pilot Plus Beta, or NOP+ Beta, to all NT 2.0 users. Based on inhouse-developed new intelligent driving technology and closed-loop data management, NOP+ Beta has made significant improvements in making users’ journeys more reassuring, comfortable and efficient.
In Banyan 2.0, NOP+ will be using NIO’s proprietary BEV model and occupancy network for perception, and the large language model trained with a largescale dataset for planning and control. The experience of NOP+ will be further enhanced.
In the meantime, we have started to test our power swap [palette] for highway at scale and will make it available for 40 power swap stations on highways, starting from the third quarter this year. This feature will be gradually rolled out to more power swap stations, with which users can enjoy more seamless navigate on power experience from point A to point B on highways.
With respect to the sales and service networks, we now have 365 NIO Houses and NIO Spaces in 136 cities and 359 NIO service centers and NIO delivery centers in 196 cities.
In terms of the charging and swapping network, on April 13, the first batch of NIO Power Swap Station 3.0 started operation. The Power Swap Station 3.0 features the synchronization of three operating positions, making it faster than the previous generation with higher service capacity and more intelligent experience.
So far, NIO has installed 1,474 swap stations worldwide, including 119 third-generation power swap stations, and has completed over 23 million swaps for users. NIO has also installed 7,000 power charges and 8,800 destination chargers. In fact, our power map has also been connected to over 1.1 million third-party chargers globally.
On April 17, NIO’s first 500-kilowatt power chargers went online, completing the new generation of power-up stations, which is an integrated station featuring 500-kilowatt power chargers and the Power Swap Station 3.0. Through efficient coordination between chargers and the swap stations and flexible capacity distribution, the power chargers can operate more stably and efficiently.
On April 22, the first NIO User Council was established, after the NIO user council member election, which was actively participated by NIO users worldwide. This year, NIO Users Trust will continue their work centering on public welfare, user care and common growth.
On March 26, further deepening our partnership with World Wide Fund for Nature, WWF, NIO announced to join the science-based target initiative and the plan to set a science-based target within the next two years, with the goal of contributing to global sustainable development and leading up to the blue-sky commitment.
In the face of the changing market situation, we will timely adjust ourselves and the marketing priorities to ensure the market competitiveness of our products and services. In the second half of 2023, with the entire NT 2.0 product lineup entering the premium battery electric vehicle market, and 1,000 new Power Swap stations put into operation, NIO’s product competitiveness, powered by our decisive efforts into developing full-stack R&D capabilities and core technologies of smart EVs will be gradually unleashed, which in turn can better prepare us for the increasingly intensive buying competition at the next stage.
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 first quarter. Over to you, Steven.
Steven Feng
Thank you, William. I will now go over our key financial results for the first quarter of 2023. To be mindful of the length of this call, I will reference RMB only in my discussion today. I will encourage listeners to refer to our earnings press release, which is posted online for additional details.
Our total revenues in the first quarter were RMB10.7 billion, representing an increase of 7.7% year over year and a decrease of 33.5% quarter over quarter.
Our total revenues are made up of two parts – vehicle sales and other sales. Vehicle sales in the first quarter were RMB9.2 billion, representing a decrease of 0.2% year over year and a decrease of 37.5% quarter over quarter. The decrease in vehicle sales year over year was mainly due to lower average selling price and the result of a higher proportion of ET5 and 75-kilowatt hour standard-range battery pack deliveries, partially offset by increase in delivery volume.
The decrease in vehicle sales quarter over quarter was mainly due to a decrease in delivery volume and lower average selling price, as a result of higher proportion of ET5 and 75-kilowatt hour standard-range battery pack deliveries.
Other sales in the first quarter were RMB1.5 billion, representing an increase of 117.8% year over year, an increase of 11.3% quarter over quarter. The increase in other sales year over year was mainly due to the increase in sales of accessories, provision of repair and maintenance services, provision of auto financing services, sales of used cars and provision of power solutions, as a result of continued growth of our users.
The increase in other sales quarter over quarter was mainly due to the increase in provision of auto financing services, sales of accessories, provision of repair and maintenance services, provision of power solutions and sales of used cars, as a result of continued growth of our users and partially offset by a decrease in revenue from rendering of research and development services.
Gross margin in the first quarter of 2023 was 1.5%, compared with 14.6% in the first quarter of 2022 and 3.9% in the fourth quarter of 2022. The decrease in gross margin year over year and quarter over quarter was mainly attributed to the decreased vehicle margin.
More specifically, vehicle margin in the first quarter was 5.1%, compared with 18.1% in the first quarter of 2022 and 6.8% in the fourth quarter of 2022. The decrease in vehicle margin year over year was mainly attributed to changes in product mix and increased battery cost per unit. The decrease in vehicle margin quarter over quarter was mainly due to changes in product mix and increased promotion discount for the previous generations of ES8, ES6 and EC6, which were partially offset by the inventory provisions, accelerated depreciation on production facilities and losses on purchase commitments for the previous generation of ES8, ES6 and EC6 in the fourth quarter of 2022.
R&D expenses in the first quarter were RMB3.1 billion, representing an increase of 74.6% year over year, a decrease of 22.7% quarter over quarter. The increase in research and development expenses year over year was mainly attributed to increased personnel costs in research and development functions and the increased share-based compensation expenses recognized in the first quarter of 2023. The decrease in research and development expenses quarter over quarter reflected fluctuations due to different design and development stages of new products and technologies.
SG&A expenses in the first quarter were RMB2.4 billion, representing an increase of 21.4% quarter over quarter, a decrease of 30.7% quarter over quarter. The increase in SG&A expenses year over year was primarily due to the increase in personnel costs related to sales and general corporate functions and increase in expenses related to the Company’s sales and service network expansion. The decrease in SG&A expenses quarter over quarter was mainly due to the decrease in sales and marketing activities and professional services.
Loss from operations in the first quarter was RMB5.1 billion, representing an increase of 133.6% year over year, a decrease of 24.1% quarter over quarter. Net loss in the first quarter was RMB4.7 billion, representing an increase of 165.9% year over year and a decrease of 18.1% quarter over quarter. Net loss attributable to NIO’s ordinary shareholders in the first quarter RMB4.8 billion, representing an increase of 163.2% year over year, a decrease of 17.8% quarter over quarter.
Our balance of cash and cash equivalents, restricted cash, short-term investment and long-term deposits was RMB37.8 billion as of 31 March 2023.
Now this concludes our prepared remarks. I will now turn the call over to the operator to facilitate our Q&A session.
Question and Answer Session
Operator
Thank you. If you wish to ask a question, please press star-one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star-two. If you are on a speakerphone, please pick up the handset to ask your question. For the benefit of all participants on today’s call, please limit yourself to two questions and if you have got more questions, you can reenter the queue.
Your first question comes from Tim Hsiao from Morgan Stanley. Please go ahead.
Tim Hsiao
(Spoken in Mandarin). My first question is about what are your cost controls because NIO has been investing more aggressively since 2021 on new models, sales and marketing and energy replenishment network. So in light of the challenge in the industry and the ma cro outlook, will NIO consider streamlining the model portfolio and cutting back on investment in some projects, like smartphone, battery, chipset and refocus resources on a few flagship models? Separately, does NIO still stick to its original schedule to launch a mass-market brand, ALPS, next year? So that’s my first question, thank you.
William Bin Li
(Interpreted) Thank you, Tim, for your question. As you have mentioned, the market competition is intensifying and we do face a lot of changes in the market dynamics. For the NIO technology platform 2.0, we are about to show the whole lineup of the eight products based on the NT2.0 and this eight products will enter the market in the near term gradually.
The kind of focus for us is to make sure we have the new organization structure to have a more targeted sales strategy and marketing strategy for all the eight products to reach its own target user groups. Because when we design those products, we do have specific positioning of the different products in their specific segment and target group. So the kind of challenge for us is to make sure the marketing and the sales teams can be more dedicated on these eight products in terms of showroom layout and the product reach and the marketing reach and the distribution of the resources as the sales and marketing teams.
We want to make sure for each product we have a dedicated team to take responsibilities in terms of the sales and marketing efforts. Of course, for those key products we will put more resources to make sure we can reach much better sales performance. But just like I mentioned, the focus for us now is to make sure we can have more dedicated resources for the eight products separately and to make sure they can achieve a good market share in terms of their specific segment.
Of course, we need to be more agile in terms of challenges of the changing market situation to ensure our competitiveness in terms of the products and the services. Regarding the topics of the R&D projects, overall speaking we would like to insist on offering big directions in terms of the R&D projects.
In the short term, yes, we do have some pressures but we think it’s really important and necessary for us to focus on those R&D capability building to build our long-term competitiveness. But at the same time, based on other resources and the priorities of the Company, we can adjust the pace of the investment for all those different R&D projects.
For the question regarding ALPS project, our timing for ALPS brand is still the same, that is the second half of 2024, where we plan to launch the ALPS product at that time and we will choose the specific timings for those different products. However, at the same time, we want to make sure for the ALPS products that we can have a much faster pace in terms of the go-to market, because this can help us to improve the efficiency and have much better planning of the resources, especially at the marketing and sales front.
Tim Hsiao
(Spoken in Mandarin) My second question is about the new ES6. The second quarter guidance came in stronger than market expectation which (inaudible) 3,000 to 4,000 units of additional sales of the new ES6. So could you share a little bit more about the order intake of the new ES6 since its launch to date and if there are any bottlenecks to the delivery of the new ES6.
In the meantime, are you still expecting the sales update of ET5, ES6 and the upcoming ET5 Touring to achieve 20,000 per month? When do we expect to achieve that (inaudible) target? So that’s my second question, thank you.
William Bin Li
(Interpreted) Thank you, Tim. ES6 is very well received by the users and also received very good feedback in the media. We think the auto performance has reached our expectations and the test drive conversion rate of the ES6 actually reached a record high in the history of NIO. So that’s why we’re very confident in terms of the sales performance of ES6.
At this stage, especially in June, we need to focus on the ramp up of the ES6 first. But for the target in July is we want to achieve 10,000 units in terms of the production and delivery. We’re very confident to achieve this target in July and the supply chain team, manufacturing team and other teams are making all sorts of preparations to make sure we can achieve this objective.
Regarding the ET5, ET5 Touring and ES6 overall volume, we believe that there is an opportunity for us to still achieve 20,000 units in one month. The big challenge for us right now is more about the ET5, because if we look at the ET5’s pricing we can see that last year we still had around RMB12,000 subsidies for the users. At the same time, users could get the home chargers free of charge last year, but now users will need to pay for the home chargers for the ET5.
So net-net speaking, probably for the ET5, if we make the apple-to-apple comparison, it’s probably RMB20,000 more expensive this year. This is the fact and the challenge we need to face, but what we need to focus on is to make sure we can find a better way to expand the user needs and demands.
The more — the challenge we are facing right now is about the ET5, but just like I mentioned we’re going to launch the ET5 Touring on 15 June. This is going to help us to improve overall product competitiveness, because we believe the ET5 Touring can cater to the diversified needs of individuals and family users and this can help us to boost our product competitiveness in this specific market segment.
Tim Hsiao
Thank you.
Operator
Thank you, your next question comes from Bin Wang from Credit Suisse. Please go ahead.
Bin Wang
Thank you, I’ve got two questions. Number 1 is about the margin outlook. We reached the [10k] demand for ES6 in the third quarter, so what is the gross margin expectation we can have for the third quarter, second half? That is the number 1 question about gross margin guidance. (Spoken in Mandarin).
Stanley Qu
Hi Bin, this is Stanley. As William mentioned, with the delivery of our NT2 product with higher price from Q2 to Q3, the average selling price and gross profit margin per car will recover. So we are confident that the gross profit margin will start to recover to double digits in Q3 and over 15% in Q4. Thank you.
Bin Wang
Okay, great. My second question is are there any further R&D demands needed, because people worry about your net cash position which has declined quite fast. So can you provide a update about your potential fundraising? Especially on your China IPO. (Spoken in Mandarin)
William Bin Li
(Interpreted) Thank you, Bin, for your question. Yes, for this year, if we look at the first quarter and the second quarter, because of the delivery performance, which is actually less than that of the fourth quarter last year, so this has affected our operating cash flow. But together with our delivery volume ramp up in the third quarter, we believe that operating cash flow will also improve.
Currently we believe our cash is sufficient to support the Company’s business development. As a public listed company, we make very prudent management of our cash position and at the same time, we do have all the different channels to do the fundraising in different markets.
But this year we have made some adjustments in terms of our cash spending. For example, we have delayed our CapEx investment and we have also delayed some R&D projects. At the same time, in terms of global market expansion, we believe it is more important for us to focus on the markets we have already entered. For example, for those countries we have already entered in Europe. So if we have any kind of plans in the capital markets, we will of course let everyone know.
Bin Wang
Thank you.
Operator
Thank you. Your next question comes from Ming-Hsun Lee from USA. Thank you, please go ahead.
Ming-Hsun Lee
Thank you, William and Steven. I also have two questions. My first question is what is the battery price decline in first quarter and how much does the battery price help gross margin in the first quarter? Could you also comment on the second quarter and third quarter’s battery price trend? That’s my first question, thank you.
Stanley Qu
Hi Ming. Generally, the price of lithium carbonate differs a little bit from Q1, so this leads to a certain increase of our gross profit margin. Regarding amount-wise, I think the RMB2,500 per car, but recently I think we can also see the lithium carbonate price also recover a little bit to RMB310,000 per ton. So when (inaudible) change of lithium price will bring uncertainty to our gross profit margin. That’s generally the impact of lithium.
Ming-Hsun Lee
Thank you, Stanley. My question is regarding your latest CapEx and operating expense guidance because I think William just mentioned that you are starting to control some investment, especially for some long-term investment. But are you able to give some new guidance, if there is any? I remember last year the CapEx is around RMB10 billion, so I want to know your guidance for this year for CapEx and OpEx. Thank you.
Stanley Qu
Yes, Ming. Our tenants will still concentrate on the construction of power source stations, charging network, [service] network and also tooling and production facilities for our new models. We will well control the cadence of those investments, but at this moment I don’t think we can give clear guidance of CapEx investment for this year. We will make a judgement dynamically in line with the spending and also the status.
Ming-Hsun Lee
Also the guidance on operating expense, sorry.
Stanley Qu
Okay, regarding operating expense, one is for the R&D expense. The upcoming years remains to be the crucial stage for our R&D and also mass production of our core technology and new models. So our average each quarter of 2023 the non-GAAP R&D expense will be kept at RMB3 billion to RMB3.5 billion per quarter. Yes, we will also manage the spending curve and also keep improving our system efficiency.
For SG&A expense, we can see a decline in Q1. The main reason is because the reduced marketing activities and also seasonality impact of Chinese New Year along with more marketing events like auto show, road show and also launch of new motors. The SG&A total amount will increase from Q2, but the efficiency will be improved from Q3 since our NT2 products will be launched and more revenue will be realized. [Inaudible] that’s the guidance for OpEx of next quarters.
Ming-Hsun Lee
Yes, thank you, Stanley. Thank you.
Stanley Qu
Thank you, Ming.
Eve Tang
Hi, operator. Next question, please.
Operator
Thank you. Your next question comes from Yuqian Ding from HSBC. Please go ahead.
Yuqian Ding
(Spoken in Mandarin).
Steven Feng
Yes, go ahead.
Yuqian Ding
I’m sorry.
Steven Feng
Yes, please.
Yuqian Ding
Yes, sorry. (Spoken in Mandarin). I’ve got two questions. The first is do we have plan to introduce any budget version of our existing model, especially the potential volume carrier ET5, but lower price and lower content to access more volume?
The same question, we’re talking about the dial down a little on OpEx burn. Generally, does that also affect or postpone our breakeven point of the year?
William Bin Li
(Interpreted) Thank you, Yuqian, for your question. We understand that there are many different kind of pricing movements in the market. But for us, regarding ET5, we don’t think it’s reasonable for us to have a budget version of the ET5, because our philosophy is that we believe the different configurations or the important configurations should come as a standard for all of our NT2 products. For example, the dual motor, [AD switch] and other important functions and features.
We believe those standard package philosophy can serve the long-term interests of our users. But at the same time, we do have some flexibilities in many other different approaches, for example user rights such as the free battery swapping.
When we make those kind of considerations and adjustment, of course, the important thing is to make sure we can put the users’ interest first. When we decide to make those kind of adjustment, we also need to consider the interest of our installed base.
For the second question regarding the breakeven point, according to the current situation, we do think probably we need to delay our breakeven point to within one year. We think this is probably a reasonable assumption.
William Bin Li
Thank you, Yuqian.
Operator
Thank you. Your next question comes from Nick Lai from JP Morgan. Please go ahead.
Nick Lai
(Spoken in Mandarin). My first question is really following up the previous question regarding cash burn and CapEx cycle and so on. [You] just mentioned that you’ll push back the RMB spend and so on. I’m more curious about our 2024 and 2025 planning. How should we expect the CapEx or cash burn in 2024 and ’25? Would that be flat or up or down compared with 2023? Thank you.
William Bin Li
(Interpreted) Thank you for your question, Nick. Regarding the dynamic and the forward market expectation, we understand it’s important for us to control the risk and keep the stable and sound business operations. For the ALPS brand, basically the project is moving forward according to our plan.
For the production side, we believe the current production capacity is sufficient to support the needs of NIO brand and ALPS brand. It means that, in terms of production facilities and capacities, there’s no need for big CapEx investment.
In the market front, we believe, starting from this year, we should have sufficient power swap stations to support both brands to share the power swap stations.
Previously we mentioned that probably for the go-to-market of ALPS brand we do need to make some investment in terms of CapEx and OpEx. But we would like to control the pace of the go-to-market cadence to make sure we can have much faster movement and cadence and have a much agile mode to operate the go-to-market of the ALPS brand. This can help us to save the resources and the capital.
In terms of the cash management, of course, as a publicly listed company, we need to be very prudent in terms of the cash management. For the financing channels, we do have different channels in terms of the RMB and US dollar capital markets. For us we think cash is not going to be a big issue for the Company, but at the same time, we still need to make a refined management of our cash and also the working capital of the Company.
Nick Lai
(Spoken in Mandarin). My second question is really simple, really about the product mix, yes. The new product ALPS is going to account for a meaningful portion of the volume and how should we think about the conditions [on this for margin]? How should we think about the product mix going forward? Thanks.
Stanley Qu
Hi, Nick. Regarding the volume percentage of ET5, ET5 Touring (inaudible) and ET6 I think from a long run, the percentage will be 80% around. Yes. From the long run, as I mentioned earlier, this year I think with all the NT2 product launched, our gross profit margin can recover to 15%. Long term, considering the cost advantage brought by the in-house technology capability and also the innovative supply chain development, the NT2 product gross profit margin target will still be 20% from the long run. Yes. Thank you.
Nick Lai
(Spoken in Mandarin).
Operator
Thank you. Your next question comes from Paul Gong from UBS. Please go ahead.
Paul Gong
(Spoken in Mandarin). My first question is regarding the new models’ sales trends. It seems that a few recent new models all shared (inaudible) similarity with strong starts but after a few months, they subsequently declined. Does our ES6 also face such kind of, say, challenges or how should we avoid this happening again?
William Bin Li
(Interpreted) Thank you, Paul, for your question. Last year we launched three products, ET7, ES7 and ET5. To be honest, in terms of the recent performance of these three products including the second quarter, we understand the market performance of these three products is lagging behind of our expectations.
If we look at the factors affecting the performance of these three products, just like I mentioned before, last year for the users who purchased those three products, they have more user rights and benefits and they can enjoy the national subsidies. But this year for the users purchasing these three products, apple-to-apple comparison, the cost increase is around RMB10,000 to RMB20,000.
At the same time, if we look at the macro environment, we can see the market competition is also getting intensified, so some users are choosing probably some other new brands or some traditional brands of our products. This is one factor.
Another factor is the internal cannibalization or competition. For example, some ES7 users, may decide to choose the ES6 instead of the ES7. Therefore, some ET5 users, probably they decided to wait a little bit for the ET5 Touring.
This is the situation that we are facing right now. That is why we decide that probably we are going to make some adjustment in the near term in terms of our sales channel and network as well as of our organization structure and of our sales and the marketing strategy and policies.
But for the five new products based on the new technology platform 2.0 that we launched this year, we do not have this concern. The first product we launched this year is the EC7. After the delivery of EC7, we can see the demand is actually quite stable. As for the ES6, just now I have mentioned that we are very confident about the sales performance of ES6 after the product ramp-up.
Then for this year, we are very confident of our (inaudible) for all the new products that we launched this year, including the ES8. We are about to start the delivery of the ES8 in the near term. Currently we can see that the reservation order performance is actually higher than our expectations.
We believe right now the current pace of our product quality and the product go-to-market is actually much better than before, so we believe these five new products based on the NT2 technology platform should be able to reach reasonable performance in terms of its delivery ramp-up.
Recently we have also launched the 2023 ET7. After the delivery of ET7, we believe it can also meet of expectations. The order performance is also quite stable.
Paul Gong
Thank you. (Spoken in Mandarin). So sorry, I forgot to translate. So, my second question is regarding the marginal outlook of the high-end NIO brand versus the low-end ALPS brand. NIO brand remains to be relatively expensive thanks to the branding and the excellent service Company has been offering but has yet to achieve a satisfactory or kind of like excellent margins. So, you are moving towards an ALPS to the relatively the lower end. How do you foresee the margin would be like especially compared to the high-end ones? Thank you.
William Bin Li: (Interpreted) Thank you for your questions. Regarding the brand positioning, I believe right now it’s a very (inaudible) period for the brand positioning. For most of the users in a majority of the time, they choose a product based on the price. So, right now, in terms of our product, our service as well as of our technology and experience, we believe we are much better than others in those different areas. But the values of our product and services and the technologies are not reflected in the perceived value and the price of the products.
This is the reality that we’re facing right now but we’re doing it for the long run. The value of our product and services will be recognized by the users and by the markets.
At the same time, we do face some challenges in the macro environment, for example the lithium carbonate cost has significantly impacted our vehicle gross margin. Back in 2021, we have reached around 20% vehicle gross margin.
At that time, we believe if the lithium carbonate cost goes back to a reasonable level, we should still have a chance to reach 20% vehicle gross margin. In the long term, we believe in terms of the economies of scale and the efficiency improvement as well as the vertical integration of our core components and in-house R&D capabilities, there’s a strong base for us to achieve a 20% vehicle gross margin. That’s for NIO.
But for ALPS, the strategy is very different because we believe that in terms of the vehicles gross margin is actually more about how you define the product and how we design the product. So, for ALPS, it’s more about finding the best solution in the specific segment that the ALPS brand targets at.
For us, if we look at the market, we see some companies that they sell the product at a price of around RMB200,000 but they can still achieve over 20% vehicle gross margin. So, it shows that this is achievable for NIO because we have many high-spec configurations in our products. For example, the over 1,000 top computing powers and all those smart features. It will be very difficult for us to lower the cost on those components, and this wow factor is in terms of lowering the price of our products.
But for ALPS is different. When we define our business products, of course, the target for us is to achieve reasonable vehicle gross margin and we believe it is reasonable and is possible for us to achieve the 20% vehicle gross margin.
Paul Gong
Thank you so much, William, for your kind sharing. Thank you.
Operator
Thank you. Your next question comes from [Xing Chang] from CICC. Please go ahead.
Xing Chang
(Spoken in Mandarin) My first question is about the NOP+. Our NOP+ beta version has been open for several months. So, can you share some users’ data such as usage, time or accumulated mileage or the average takeover mileage during this period? How is their feedback? We can see the official version will be a charge for subscription. So, can you share more of your understanding of subscription charge?
Also, in the second half of this year, we can see that highway navigation function to swapping stations will be further launched. So what do we see of improvement of customers’ experience with this new function?
The last one is, is there any time plan for our city (inaudible) function in the second half year?
William Bin Li
(Interpreted) Thank you for your question. I will answer the NOP+ related question and Steven is going to address the question about the power swap stations.
For the NOP+, right now we have over 50,000 users using the NOP+ services. For us, the accumulated mileage of the NOP+ is over 41 million kilometers, and every week the mileage is around 2 million kilometers.
We have already started the test of the NOP+ in the city scenarios and use cases. This year, we’re going to accelerate the test of the NOP+ in the city use cases, or the urban use cases. When it gets ready, we will also release these features to the users. Based off our internal evaluation right now, we are very confident regarding the performance of the NOP+ in the urban scenarios.
At the same time, regarding the NAD we’re also doing some test and if, in the future, the regulations and the laws are in the right place for the NOP+ releases, then we will release the NAD for our users when the regulations is in the right place. We believe this is probably right now all the R&D of NOP+ and NAD is basically on track and according to our schedule.
Xing Chang
(Spoken in Mandarin) My second question is about the battery swapping stations. We can hear you have gotten nearly 1,500 stations at present. And yearly, we can see 200 stations has been added since this year. So, have you seen that the center of our battery swapping stations network has been built and it’s quite good for ourselves or four new models, especially for our penetration of lower tier cities.
Steven Feng
(Inaudible) This is Steven. I think the short answer is a very clear yes. We have seen a very clear [flower] effect between the power swap station at work and our sales growth. As William just mentioned, we have already deployed 1,500 power swap stations across China and, at the end of this year, the number of power swap stations will rise to around 2,400.
Every day, we offer around 60,000 to 70,000 times a power source to our users. So, on average, every day one power swap station of 40 to 50 times of power swaps to our users.
So, that means on one hand, our users rely on power swap station as their favorite charging method. On the other hand, the power swap stations are very efficiently utilized. So, that’s why we see a clear [flower] effect, and that’s why we are very determined to accelerate our power swap station deployment.
Also, we’re very confident that more power swap stations will lead to more sales growth. Actually, in the Yangtze River and some Tier 1 cities we have seen that as the charging strength improves, our sales volumes grow. That’s why we are very confident that with more power and more power swap stations penetrate into the low tier cities, naturally, NIO’s sales will lead to a very strong momentum and solid growth in the low-tier cities.
Nevertheless, I think looking forward as more and more OEMs seriously look at power swap stations as a more or less a standard way, that power swap stations will become a more and more convenient way for more and more EV users.
Xing Chang (Spoken in Mandarin). Steven, thank you.
Operator
Thank you, your next question comes from Vijay Rakesh from Mizuho Securities. Please go ahead.
Vijay Rakesh
Yes, hi. Just a quick question. You have given some of the new ramps of the five-year models. It looks like you’re getting a good response from it. Would you expect the second half or even third quarter production run rates to get to the 20,000 per month on average? Just wondering what the expectation is on second half to first half deliveries.
William Bin Li (Interpreted) Thank you Vijay, for your question. Of course, for us, the target for the second quarter of this year is to deliver over 20,000 units every month and we are very confident to achieve this target.
Vijay Rakesh
Got it. Just one other question.
[Over speaking]
Vijay Rakesh
If you look at some of the cities, more of the tier 2 cities, is that a near term – could that be a challenge for NIO given you don’t have enough swap stations, etc. on the tier 2 cities etc. Thanks, appreciate.
William Bin Li
(Interpreted) This year our target is to deploy 1,000 additional power swap stations. The majority of those power swap stations will be deployed on the highways. Some of them will be installed in the Tier 3 and the Tier 4 cities. We believe that this is going to directly boost the sales performance of other products.
Actually, in April we started the deployment of the power swap station 3.0 and we accelerated the deployment in May. In June we believe that we are going to deploy around 100 power swap stations 3.0. We believe gradually from now on we are going to speed up the deployment of the power swap stations.
Vijay Rakesh
Thank you.
Eve Tang
Thank you, Vijay.
Operator
Thank you. As there are no further questions at this time, I would now like to turn the call back to the Company for closing remarks.
Eve Tang
Thank you once again for joining us today. If you have further questions, please feel free to contact any of the investor relations team through the contact information provided on our website. This concludes the conference call. You may now disconnect your line. Thank you.
Portions of this transcript that are marked as (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.