Participants
Eve Tang
Stanley Qu; VP of Finance; NIO Inc.
Unidentified Company Representative
Wei Feng; CFO; NIO Inc.
William Li; Co-Founder, Chairman & CEO; NIO Inc.
Bin Wang; China Auto Analyst; Crédit Suisse AG, Research Division
Edison Yu; Research Analyst; Deutsche Bank AG, Research Division
Jing Chang; Analyst; China International Capital Corporation Limited, Research Division
Ming Chung; Director & Analyst; Citigroup Inc., Research Division
Ming-Hsun Lee; Director & Head of Greater China Auto Research; BofA Securities, Research Division
Paul Gong; HK and China Autos Analyst; UBS Investment Bank, Research Division
Tim Hsiao; VP; Morgan Stanley, Research Division
Yuqian Ding; Head of A-share Auto Research & Analyst; HSBC, Research Division
Presentation
Operator
Hello, ladies and gentlemen, and thank you for standing by for the NIO Inc. First Quarter 2023 Earnings Conference Call. (Operator Instructions) Today’s conference call is being recorded. I will now turn the call over to your host, Ms. Eve Tang from Capital Markets.
Eve Tang
Good morning and good evening, everyone. Welcome to NIO’s Second 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 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 that 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.
William Li
[Interpreted] Hello, everyone. Thank you for joining NIO’s 2023 Q2 earnings call. In the second quarter of 2023, NIO delivered a total of 23,520 smart electric vehicles. In July 2023, as we started mass production and the ramp-up of more NIO models, NIO’s monthly delivery volume grew rapidly to 20,462 units, representing a year-over-year growth of 104% and a new monthly high. According to the retail statistics of Carpark, in July, NIO was the best-selling brand in the premium electric vehicle segment with a transaction price of over RMB 300,000, claiming a 59% market share.
As NIO completes its product lineup, further expand the sales and service network and the power network enhances its all-round sales capability and the role of sales and marketing plans. The competitiveness of the NT 2 products have been further unleashed. The delivery volume in the third quarter of 2023 is expected to be between 50,000 — 55,000 and 57,000 units.
And now I would like to share with you the recent highlights of our products, R&D and operations. Following the delivery of the flagship coupe SUV EC7, the flagship sedan 2023 NIO ET7 and the all-round SUV, All-New ES6 earlier this year, we started to deliver the smart electric tour, ET5 Touring, or ET5T for short, and the flagship SUV All-New ES8 in June.
In the second quarter, NIO achieved high-quality delivery of 5 new models with user satisfaction exceeding our expectations. This also proves NIO’s capabilities of conducting fast product iteration and managing product complexity.
In September, we plan to launch and deliver the new mid-size coupe SUV ES6, which marks the completion of our product transition to the NT 2 platform. With that, NIO’s entire NT2 product lineup featuring 8 different models will have entered the premium BEV market to better cater to the diverse needs of the users in the premium segment and drive the steady growth of deliveries.
NIO’s product safety has been highly recognized by authoritative institutions worldwide. On July 12, 2023, NIO’s smart electric mid-sized sedan ET5 and the mid large SUV EL7, which is called ES7 in China, both obtained the 5-star safety rating from Euro NCAP making NIO the first car brand receiving the 5-star rating since Euro NCAP adopted the new testing protocols for 2023.
Enabled by the full stack technologies developed in-house and the closed-loop data management, NIO has made significant progress in the assisted and intelligent driving. User base and engagement continue to grow. At present, over 100,000 NIO users have activated Navigate on Pilot Plus or NOP+, and have driven on it for over 80 million kilometers. The mortgage penetration rate of NOP+ has reached 53%.
In the meantime, we have carried out multiple rounds of early bird program in Beijing and Shanghai for NOP+ in all operational domains, including in urban environments. In terms of the sales and service network, so far, we have 420 NIO house, NIO space and pop-up stores in 143 cities and 304 service centers as well as 58 delivery centers in 201 cities worldwide.
Since July, we have started to take a more active manner in expanding the user touch points and sales channels and enlarging the sales team in China. These actions will further increase our sales capabilities and propelling sales growth.
As for the charging and swapping network, to date, we have installed 1,747 Power Swap stations worldwide and provided more than 27 million battery swaps. Our Expressway battery swap network in China consists of 476 swap stations along the 10 major expressways, connecting 6 to 8 major cities. We’ve also deployed over 7,900 power chargers and 9,700 destination chargers. NIO has become the automotive brand with the most public charters and the most chargers along expressways in China.
In the meantime, NIO’s charging map has connected with over 1.36 million third-party charges worldwide. On July 20, NIO announced the flexible battery upgrade service by day, providing users with more options and fulfilling more use cases. In July, we organized the host city election for NIO day 2023, and the city of Xi’an was voted by NIO users as the host city this year.
On August 20, we partnered with Worldwide Fund for Nature and Chilean Mountain National Park in installing the world’s first photovoltaic self-consumption system with V2G capability. It features solar power stations, V2G chargers and battery electric vehicles. Moreover, we initiated the Clean Park citizen scientist program, to engage more users and the public in conserving biodiversity and supporting the establishment of a volunteer system for national parks in hope of striving for a shared vision of Blue Sky.
In July, NIO received a strategic equity investment from CYVN Holdings, an investment vehicle majorly owned by the Abu Dhabi government. The investment package totaled USD 1.1 billion. In addition, we will also cooperate with the NIO strategic investor to jointly pursue opportunities in our international business.
Although the smart EV market is full of challenges and the competition is increasingly fierce, with our continuous efforts in core technologies, product portfolio, sales capabilities, manufacturing and logistics, we are fully ready to rise to the challenge. We believe that with focused marketing and self-strategy as well as execution, NIO can drive the steady growth of sales and deliveries while further optimizing the cost structure and enhancing operating efficiency on all fronts. We look forward to Nio’s strong market performance in the second half.
As always, thank you for your support. With that, I will now turn the call over to Steven, who will provide the financial details for the second quarter. Over to you, Steven.
Wei Feng
Thank you, William. I will now go over our key financial results for the second quarter of 2023. And be mindful of the length of call, I’ll reference to RMB only in my discussion today. I encourage listeners to refer to our earnings press release, which is posted online for additional details. Our total revenues in the second quarter were RMB 8.8 billion, representing a decrease of 14.8% year-over-year and a decrease of 17.8% quarter-over-quarter.
Our total revenue in the mid of 2 parts: vehicle sales and other sales. Vehicle sales in the second quarter were RMB 7.2 billion, represent a decrease of 24.9% year-over-year and 22.1% quarter-over-quarter. The decrease in vehicle sales year-over-year was mainly due to the lower average selling price as a result of higher proportion of 25 and 75-kilowatt hour standard of range battery pack deliveries and decrease in delivery volume.
The decrease in vehicle sales quarter-over-quarter was mainly due to a decrease in delivery volume. Other sales in the second quarter were RMB 1.6 billion, representing an increase of 119.9% year-over-year and 9.3% quarter-over-quarter. The increase in other sales year-over-year was mainly due to the increase in sales of used cars, accessories and provisional 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 sales of used cars and provisional power solutions as a result of continued growth of our users, partially offset by decrease in revenue from provision of auto financing services. Gross margin in second quarter of continued (inaudible) was 1.0% compared with 7.0% in the second quarter of 2022 and 1.5% in the first quarter of 2023.
Vehicle margins in the second quarter was 6.2% compared with 16.7% in the second quarter of 2022 and 1.1% in the first quarter of 2023. the decrease in vehicle margin year-over-year was mainly attributed to changes in product mix, partially offset by the credit cost per unit. The increase in vehicle margin quarter-to-quarter was many due to the current promotion discount for the previous generation of ES8, ES6 and EC6.
Our own expenses in the second quarter were RMB 3.3 billion, represented an increase of 55.6% year-over-year, an increase of 8.7% quarter-over-quarter. The increase in research and development expenses year-over-year and quarter-over-quarter was mainly attributed to: first, the increased personnel costs, in R&D functions and increased share-based compensation expenses with (inaudible) in the second quarter of 2023.
And second, the incremental design and development costs for NIO products and technologies. SG&A expenses in second quarter were RMB 2.9 million, represent an increase of 25.3% year-over-year, an increase of 16.8% quarter-over-quarter. The increase in SG&A expenses year-over-year and quarter-to-quarter was primarily due to, first, the increase in personnel costs related to sales functions; second, the increase in sales and marketing activities, increase the launch of NIO products; and third, increased rental and related expenses related to company’s sales and service network expansion.
Loss from operation in the second quarter was RMB 6.1 billion, represent an increase of 170.5% year-over-year, an increase of 18.8% quarter-over-quarter. Loss in the second quarter was RMB 6.1 billion revenue increase of 119.6% year-over-year, an increase of 27.8% quarter-over-quarter. Our best cash and cash equivalents, restricted cash, short-term investments and long-term power deposits was RMB 31.5 billion as of June 30, 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
(Operator Instructions) And the first question will come from Bin Wang of Credit Suisse.
Bin Wang
My question is about your sales network structure. Recently, I heard you hired a few of the salesperson from other luxury brands such as BMW, Mercedes and Audi. So what’s the reason you hire on non-NIO salesperson recently? And how is the impact so far for your sales volume increase? We also found that in your third quarter guidance, you actually employed in August and September, September will be lower compared to July. So kind of what’s the reason behind it? It’s because supply chain issue?
William Li
[Interpreted] Well, thank you, Bin Wang. For your first question, actually, around June, we have realized that inside of the company in terms of the number of our salespersons as well as the capabilities of selling products, we are lagged behind by the competitors in the market. For example, for those luxury brands like BMW and Mercedes, the size of their sales team is 6 to 7x of ours. Without sufficient personnel or touch point, we cannot realize a very good user satisfaction, realize very good test drives or high conversion rate from these 2 orders.
So starting from June and — July and August, we have taken a more active manner in improving our sales capabilities. And with that, we hope that the company will be able to support the NIO orders of 30,000 units per month that will be contributed by our sales network as well as the personnel increase. So that by the end of September, we will be able to realize that target. Of course, it takes time for us to really train the personnel and also to find the locations. So the — we will have that initial capability ready by the end of September, and then the real effect will kick in from October. That is our existing plan for the improvement. This is also why starting July and August, we’ve been taking some active measures and actions in expanding our sales network and touch points, especially in lower-tier cities where we don’t have full-fledged facilities or stores, we hope to really secure and hire experience and season salespersons who have their networks and user bases already to help us with the sales test.
And regarding your second question, in July, we have delivered more than 20,000 vehicles. And as shown by our guidance, our delivery volume in August and September are lower than that in July. This is mainly because by the end of July, we have announced the adjustment to our Power Swap user benefits before users enjoy or are entitled to 4 or 6 free swaps per month. But starting from August 1, all the NIO orders are not entitled to free swaps anymore. This also helped us to pull ahead some orders or users with strong demand for Power Swap in July, and this has also affected the delivery volume in July.
In terms of the August, we believe that it will take some time for the order momentum and intake to be back to the normal track. But in the meantime, in August, we’ve also witnessed a new high of the numbers of test drives and leads. Average speaking, during the weekends, we have more than 10,000 test drives. This represents a significant growth from the past month. And in the meantime, we also understand that it will take some time for the test drive to be truly converted into orders and we will wait for that. But overall speaking, we are very confident in stabilizing the order intake as well as the delivery volume.
In the meantime, we also need to understand the external challenges, especially the challenges and the pressure from the macroeconomic environment. So our fair cost and guidance have also considered that those external factors. But overall speaking, we are confident in the delivery volumes we provided. Also, we must understand that in July, inside of the premium battery electric vehicle segment priced over RMB 300,000. We have already realized the 59% market share. This has proven a very solid foothold of NIO in this segment, and we will continue to make efforts in transforming and converting ICE users into buying EVs in the premium segment. In this case, we will also make more efforts in expanding our channels at touch point. Thank you, Wang Bin.
Operator
The next question comes from Tim Hsiao of Morgan Stanley.
Tim Hsiao
So my first question, basically, just want to follow-up regarding the sales volumes into second half. Because as William just mentioned, we successfully upgraded our sales team and sales network. So looking into fourth quarter, I recall that we expect our monthly sales can stay above 20,000. So if that’s the case, looking into fourth quarter, should we expect NIO to grow the sales further to above 20,000 or even like 25,000?
And what could be the contribution from the 4 volume driving models covering like ET5, ES6. So could you just provide some update regarding volume.
And my second question is about the gross profit margin. It is according to the management’s previous guidance, I think the vehicle gross profit margin could you go back to double digit in the second half. So after the RMD 30,000 cost in late June, do you still stick to your previous view on sequential margin expansion into second half? What would be the pace in the quarter and fourth quarter, respectively. That’s my second question.
William Li
[Interpreted] Thank you, Tim, for your question. Regarding your first question, of course, we target to realize and stabilize our monthly delivery to be above 20,000 units starting Q4 this year. But in the meantime, we are also preparing our [sales] capability so that we can support the new orders of 30,000 units per month. In this case, we are expanding our channels and also personnels. As mentioned, we will be occurring this initial capabilities by the end of September, and we will take some time for the preparation and the ramp-up. We believe that the effect of our sales capability improvement will be kicking in from October and November with positive progress from that time point. .
In terms of the reference to the NT 1 products we’ve experienced. Normally, we realize that it will take around 1 to 2 years for the new product to reach a sound and stable volume on a monthly basis. For example, for our first generation ES6 was launched in 2019, and it was not until 2021 that it has a rather stable and sound monthly delivery. So we are very confident with our new products.
In terms of the volume products, including ET5, ET5 T, ES6 and EC6, these are 4 volume products. For the EC6, it will be delivered starting September and it will take some time for the production and the delivery ramp up. But within its own segment, it will be dominating the major market share. So with these 4 models combined, we believe that its monthly volume will be stabilized at around 15,000 to 20,000 units.
In terms of higher volume — higher service products like EC7, ET7 and ES7 as well as ES8, we are expecting also increments on their sales volume.
Unidentified Company Representative
Yes. Stanley will answer the second question.
Stanley Qu
Tim, regarding the gross profit margin, as shown in our Q2 financials, the vehicle margin is 6.2%, similar with Q1. The key reasons are sales and production volume at a lower level, driving higher manufacturing cost and other cost allocation and also more promotions to the users and also marketing efforts during the product transition period. But along with our sales and volume ramp-up of our — all our NT2 product, our target to achieve double-digit gross profit margin in Q3 and 15% in Q4. If we can control the battery cost and other costs well. So, yes.
William Li
[Interpreted] So we have already digested the impact of the price reduction.
Operator
The next question comes from Yuqian Ding of HSBC.
Yuqian Ding
Yuqian here. I got 2. First question is, we practically have all the models are now refreshed and then newly launched based on 2.0 platform. Therefore, NT model is a pretty comprehensive coverage. We will be expecting strong ramp-up in the coming 6 months in a visible way. But how do we expect the key growth drivers, if we’re looking at 12 to 18 months, especially in terms of new product? How do we [filling] in the already comprehensive product portfolio where the software is going to be the next leg of growth?
The second question is on the OpEx side. So this year, we have new model launches and we have the sales channel upgrade. But next year, when we’re rolling into next year, could we see the absolute OpEx value dialed down a little bit?
William Li
[Interpreted] Thank you for your question. Regarding your first question, as you may know that starting from September, we will launch our EC6 into the market. And with that all its models on the NT 2.0 platforms will be launched to the market. .
And over the past several months, we have launched 5 brand new models plus a facelift. In such a short time frame, we are able to realize the high-quality deliveries of this model. This has also demonstrated our R&D efficiency as well as the strong execution.
But in the meantime, we also need to realize that it’s a challenge brought by the smart electric vehicles to the entire industry as in a very short time frame we needed to catch up to the changes of all the smart technologies. But in the meantime, for all the NT 2.0 products, we are looking at more software features to be updated and released.
For example, our NIO Assisted and Intelligent Driving. For the coming months, we will be rolling out some new features and also services. This will help us to improve the competitiveness of the project.
And also, as we’ve mentioned, we are developing the sales capabilities inside of the company so that we can reach out to broader channels with more salespersons and support the new orders of 30,000 units per month. This will also be a very concrete foundation for the continuous growth of the sales and deliveries in the coming months.
If you look at our 8 models on the NT 2.0 platform, they are already covering 80% of the needs in the premium market. And also, we have also adjusted our organizational structure starting from the third quarter. So that from the headquarters to the regional companies, we will be having dedicated teams managing and responsible for each of the model across the life cycle. This is also the efforts we’ve made from the sales and marketing perspective.
Stanley Qu
Regarding the OpEx of next year, the negative — the budget for us has not been ready. So at this moment, I may not be able to give you the precise number, but I can give you some feeling.
Regarding the R&D expense, as introduced in last quarters, on average each quarter this year, the non-GAAP R&D investments will be RMB 3 billion to RMB 3.5 billion for this year. I think for next year, the — we will keep similar like investment R&D activities.
And regarding the SG&A expense, as explained by William, we have the relatively more aggressive sales targets for the second half of this year, I think should be for next year. So the absolute value for SG&A will grow accordingly since we need more market activities and events. But the percentage of total sales revenue, I think, will decline compared with the first half of this year and also the whole — I think the whole year of 2023. Because of the improvements in both, I think, delivery volume and also operating efficiency. Thank you, Yuqian.
Operator
The next question comes from Jeff Chung of Citi.
Ming Chung
(foreign language) I have 2 questions. First question is our refinancing plan going forward. And the second question is our cash flows projection into the third quarter and fourth quarter. So why I am asking this is because we saw the first quarter, the net cash outflow was JPY 10.6 billion but improved to a cash outflow of JPY 5.9 billion in the second quarter.
And within the second quarter, we also saw the inventory Q-on-Q delta of around 5 billion, while the account payable — account receivable remains stable. So that said, if the third quarter inventory came down plus the operating leverage with a volume hike whether we should see the cash outflow should be significantly narrowing further? This is my first question.
And my second question is about the third quarter and fourth quarter GP margin guidance. When can we return to a 10% or double-digit level as well as the third quarter, fourth quarter SG&A as a percentage of the revenue guidance. That’s all from me.
Unidentified Company Representative
Okay. Thank you, Jeff. Stanley, please answer the first question.
Stanley Qu
Yes. Yes, regarding the cash flow, I think — sorry. Yes, regarding the cash flow and also the refinancing plans, I think several points about this.
One is regarding operating cash flow, I think as the delivery volume ramp-up from Q3 this year, our operating cash flow will be significantly improved compared with Q1 and Q2 of this year. And we also carried out a series of measures to control the CapEx investment and also manage the — our investment cadence prudently like delay or cancel of certain CapEx investments. This will also help us to manage the healthy cash flow.
And additionally, as explained in William’s comments, we received USD 740 million strategic investment from CYVN. And we also completed the offering of our first of balance sheet (inaudible) in Q3. I think both our U.S. dollar and also RMB financing channels remain drafted. And all those will enable us to keep a healthy cash position and support the ongoing business development of the company.
And regarding the refinancing plan, we will disclose our plan accordingly if there is any capital market-related updates. But at this moment, I think we don’t have the precise information to comment with you. Yes, that’s the first question regarding the cash flow and also refinancing plan. The second is for this year’s margin?
Ming Chung
Yes.
Stanley Qu
For this year’s margin, I think we have explained in the previous questions. And for Q3, our target is to achieve the double-digit gross profit margin and Q4 is 15%. And for SG&A guidance, I think the absolute value will grow along with our delivery volume and sales growth but the percentage of total revenue will decrease. But according to the market situation, the adjustment and the change of our marketing strategy will be quite dynamic. So at this moment, I cannot give you precise guidance about the percentage of SG&A over sales revenue. Thank you, Jeff.
Ming Chung
Just a correction here. I mentioned the inventory Q-on-Q delta was 5 billion, which was wrong. I just checked that. The Q-on-Q delta was only 2 billion. That’s it from my side.
Stanley Qu
Yes, welcome. Thank you.
Operator
The next question comes from Ming-Hsun Lee of Bank of America.
Ming-Hsun Lee
(foreign language) So I have 2 questions. The first question is currently, you have [8] product to cover the majority of the luxury car segment. So could you give more guidance on any of the new product plan next year in — under the NIO brand as well as the ALPS brand. And the second question is, what is your latest business progress for the mobile business?
William Li
[Interpreted] Thank you for your question. For NIO brand, actually, we don’t plan to launch any new products in the year of 2024. Of course, we will still roll out some routine facelifts or product upgrades, but we haven’t planned any new products for next year because we think that it’s more important for us to stay focused on our existing [8] products on the NT 2.0 platform to continuously improve its qualities and also market performance.
Just like in 2021, we didn’t launch any new models, but still, we have realized a very good gross margin, sales volume as well as quality performance. So that’s the plan for the brand of NIO.
In terms of our mass market brand, ALPS, we plan to launch the very first model from ALPS in the second half of next year. Right now, the R&D activities are proceeding according to the plan. And actually, we have just rolled out the verification build of the first model from ALPS and this model will be highly competitive in its product segment.
And also for the brands of ALPS, its R&D philosophy is different from that of NIO. ALPS is targeting at the mass market, and we will not have many products in the lineup for ALPS.
But for NIO, it’s different. It is targeting at the premium segment where we care more about the personalization and also the differentiation of the products. Just like Mercedes and BMW in China, they are solving 40, 50 models. That is a unique character of the premium segment. But for ALPS, for the mass market, it will be more family oriented and we will also care more on the sales volume of each model launched by ALPS.
In terms of our phone business, our mobile phone will be developed mainly for our new users, especially the users of our NT 2.0 products. And the phone itself is developed centering on the vehicles but with better mobility and connectivity experience, we are actually believing that with the phone business, it can help us to improve the competitiveness of our vehicle products because our phone business is not to compete with those phone makers. Instead, we would like to use the phone as a carrier to provide the best experience for our vehicle users.
Moreover, the underlying software and the underlying logic between the phone and the cars shares quite a lot of similarities. In terms of the launch plan for the phone, we plan to introduce our first phone product in the second half or in late September.
Operator
The next question comes from Paul Gong of UBS.
Paul Gong
So 2 questions here. The first question is regarding the sales channel. You mentioned that you are going to expand it. You feel it’s behind of the BMW and Mercedes Benz in terms of the channel as well as a sales person. But how does it compare to other EV start-ups, are we ahead or are we behind?
And how much do you think about the expansion of the store network and the sales personnel versus the sales efficiency improvement? And you also mentioned you are going to reach 30,000 monthly sales capability. How does that compare to today? Is that fair to assume currently, we have the capability to sell 20,000 monthly sales, given we already achieved that in July and expanding would be about 50% compared to today to 30,000. How does this mathematics work? This is my first question.
The second question is regarding the battery swap versus fast charging given the batteries, the semiconductors as well as even the charging piles, DC charging stations or this seems to be rolling out with the industrial efforts. How — I understand it’s good to have both, the battery swap as well as the fast charging, but would you consider the rolling out of the fast charging kind of weak and the battery swap convenience and the competitive edge of used cars?
William Li
[Interpreted] Thank you for your questions. If you look at the size of the sales teams in comparison to other EV start-ups in China, actually, by the end of June, the size of our sales team is only half of those of other companies.
Of course, in terms of the service network, we have specialties and the teams working for the Power Swap stations, roadside services as well as the new houses. So for the service and community part, we have a bigger team than other EV start-ups. But when it comes to the actual sales person in our company, we call them silos. In terms of the number of silos, we are — actually have a much smaller team than all the other companies in the industry.
In April and May this year, our delivery volume was not very high. By then, we didn’t really realize the importance of the sales capabilities for taking any actions. But starting from June, as we ramp up our delivery volumes, we gradually realize that the insufficient sales teams has affected the satisfaction and also the execution of many things, including test drive and also order conversions. That’s why starting from July, we have started to develop our sales channels as well as the sales teams.
For comparison to ramp up to the comparable size, we believe that we need around 5,000 people working on the sales team. But of course, it takes time for us to have that many people on the team and also to train them with the corresponding capabilities. In terms of the delivery volume in July, we have delivered more than 20,000 cars, but that demonstrated our capability in terms of the deliveries, which is relatively easier than realizing sales capabilities.
And another thing is about the channels. If you look at our sales distribution, Jiangsu and Shanghai, this replaces basically contribute half of our sales volume. But for other provinces like in Anhui, the capital city itself is contributing around 80% to 90% of the sales volume.
If we take Anhui as an example for other brands like BMW or Mercedes, half of their sales volume in Anhui province is contributed by cities outside of Anhui — sorry, outside of the Hefei. And they basically have dealership stores in all the cities in Anhui province. And for us, we opened — we’ve just opened our NIO house in the second largest city in Anhui province that is in Wuhu.
In this case, we will need to take efforts in increasing our penetration into the lower-tier cities. In addition to the sales channels, we are also developing and expanding our Power Swap networks into more cities. For the past several months, we’ve been developing our Power Swap stations in a much faster manner. And in August, we expect that we will deploy and install more than 100 Power Swap stations. Of course, it will take time for all these measures to kick in, but this investment will be very important for our long-term capability.
Regarding your second question about power swapping versus faster charging, as we’ve always mentioned, that chargeable, swappable and upgradable have been the philosophy of our power solutions and we’ve been choosing the optimal solutions and also the best experience for our users based on the actual scenarios and the use cases.
And as we are developing our power swapping network, we are also the automotive brand with the most public chargers in China, as I’ve mentioned in my opening remarks. Of course, we believe that with the development of the fast charging technology, it will also help us with the power swap operations as this can improve the service capacity of the swap stations. Not to mention that many of the stations we’ve installed as of today are integrated stations, which are in both chargers as well as Power Swap.
So in terms of the power swapping and the faster charging, we’ve also had many discussions between these 2 technologies, but we believe that, so far, power swapping is still having a much better experience than faster charging, and it will continue to be a very unique advantage and the competitiveness of NIO.
Operator
The next question comes from Jing Chang of CICC.
Jing Chang
I have 2 follow-up questions. The first is about our other sales revenue and profit margin. As we can see that after our policy adjustment, what is our expectation for the future revenue and also profit margin for other sales? After our battery swap started to gain profit. And in particular, do we have any internal calculation of the profitability of the battery swapping business? So what is the upward trend of our gross profit margin for other sales in the following few quarters? And when will it turn positive? This is my first question.
And my second is about the technology improvement. We have always been focused more on R&D investment and also technology accumulation. So looking forward regarding to our next generation platform, NT 3. So what improvement can we expect? What are the major areas of our effort to (inaudible)? So can you just share a few insights of information about that? This is my 2 questions.
Stanley Qu
This is Stanley. Regarding your first question about the other sales revenue and margin. As we mentioned, we canceled the 3 battery swap policies in Q3. So therefore, there will be more users to pay for battery swap services. And as the sales keep growing, we think more battery swap service revenue can be realized. But since it’s only one month from the policy adjustment, so we still need some time to observe and assess the impact of this policy change.
And second is with the Power Swap station, the third generation put into operation starting from this April, we will accelerate the deployment of the Power Swap stations in the following quarters. And for this year, our plan is to build 1,000 stations. But at current stage, the capacity won’t be fully utilized. So the losses from the accelerated construction of Power Swap station will increase. So I think that’s basically the guidance for the other sales revenue.
William Li
[Interpreted] Actually, the inherent efficiency of the Power Swap business is pretty high. Before we have negative margin on this part, it’s mainly because when we were offering free Power Swaps, the electricity costs were also included in that offering. But now we are charging that separately. In addition, we are also charging our users RMB 30 per swap as a service fee.
Actually, we are seeing growing demand for such charged power swap services. Especially many used car users, they are actually using the service. So the percentage for the users to use the paid swap service is also growing. It’s mainly a business for the existing users and existing population.
For the third-generation Power Swap stations, we’ve also done a rough calculation. When it completes 60 swaps per day, it basically can be breaking even and its service revenues will be covering its operating costs. Right now, around 20% of our third-generation stations are able to realize such performance and capability. So for the long run, we believe that power swap is also a sustainable business. As in addition to offering Power Swap services, we also have other diversified business models like we can leverage the energy storage.
Regarding your second question about our next-generation technology, of course, we will be leveraging our full stack capabilities developed in-house. With that, we will continue to improve the experience and also the performance of our products. And we believe that this will give us a strong product competitiveness worldwide. And also the continuous investment into the research and the development of the core technologies will also help us to optimize and improve the vehicle margin as well as improving the efficiencies of our operations and R&D.
Operator
The next question comes from Edison Yu of Deutsche Bank.
Edison Yu
I have one question. I’m wondering what is the management team’s openness to embarking on some more strategic action? We’ve obviously seen a lot of activity from the European OEMs in China trying to revive or restructure their efforts.
And I also think in the context of — I think NIO has made some mistakes. We talked a lot about sales, the sales force today. We had a lot of supply issues last year. Many of which are related actually to more traditional auto side. Can we perhaps benefit actually from having some more closer strategic relationships with some of the OEMs out there?
William Li
[Interpreted] Thank you, Edison, for your question. Overall speaking, we are very open to all kinds of cooperations with peers in the industry. But so far, we don’t have much information to update or share with you. But if you look at our smart technologies as well as our charging and swapping networks, actually, we aim to use these technologies to catalyze the transformation of the entire industry.
As we’ve also announced at the Power Day 2023, we are willing to open up our next-generation battery technologies as well as our charging and swapping networks to the entire industry. Right now, we are in some initial communications with certain OEMs. They are also thinking about using our battery technologies for swapping networks. But to use that technology, they need to adapt their products to our standards, which can take some time for them to make the final decisions. But overall speaking, we are very open to all kinds of cooperation.
And in terms of our existing charging network, so far, 80% of our electricities are actually charged for the non-NIO users. Maybe you’ve also read this news recently in Xinjiang, Sayram Lake because it’s such a popular tourist spot, we have to limit access to our public chargers for the non-NIO users at certain time frames, and that caused some complaints by the non-NIO users. But overall speaking, is also a very good example of showing our existing charging and swapping facilities are helping many EV users, not just the user from NIO.
Operator
As there are no questions now, I’d like to turn the call back over to the company for any closing remarks.
Eve Tang
Thank you once 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 the 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.]