NIO Inc. Price & Performance (NIO)

Good morning, and good evening, everyone. Welcome to NIO's first fourth quarter and full year twenty twenty four earnings conference call. The company's financial and operating results were published in the press release earlier today and are posted on the company's IR website. On today's call, we have Mr. William Li, Founder, Chairman of the Board and Chief Executive Officer. And Ms. Danny Chu, Chief Financial Officer Before we continue, please be kindly reminded that today's discussion will contain forward looking statements made under the safe harbor provisions of The U. S. Private Securities Litigation Reform Act, of 1995. Forward looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the views expressed today. Further information regarding risks and uncertainties is included in certain filings of the company. With the U. S. Securities and Exchange Commission the Stock Exchange of Hong Kong Limited, and the Singapore Exchange Securities Trading Limited. The company does not assume any obligation to update any forward looking statement 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 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. Hello, everyone. Thank you for joining NIO's twenty twenty four Q4 and the full year earnings call. In Q4, the company delivered a total of 72,689 smart EVs. Setting a new quarterly record. In December, our monthly deliveries surpassed 30,000 for the first time For 2024, the company's total deliveries reached 221,970 marking a 38.7% increase year over year. The NIO brand continued to lead the premium segment. Delivering 201,209 vehicles. Securing a 40% market share in China's BEV second segment priced above [indiscernible] The AngVo brand delivered twenty thousand seven hundred and six one vehicles, in the mainstream family market The market share of Le Envoy L60 have been steadily increasing since its launch. Ranking among the top three in China's BEV SUV market price between 200,000 and R300,000. In January and February, due to seasonality and the Chinese New Year holiday, the company delivered 27,055 vehicles. We expect total deliveries in Q1 to reach 41,000 to 43,000 units. Reflecting a year over year growth of 36% to 43%.

On the financial side, our effort in supply chain optimization and the cost control have delivered strong results NIO's vehicle margin improved to 14.9% in Q4. While Anvil achieved a positive vehicle margin in the early stage of production run up, As a result, the company's overall vehicle margin reached 13.1% in Q4, At the same time, the profitability of our after sales services continued to improve along with growth in technology service revenue. Leading to a positive gross margin in other sales in Q4. Now, I'd like to share some updates on our products and the operation. Starting this year, our Swiss Smart EV brand have entered a new product cycle, For the premium brand NIO, at NIO Day on December 21, We launched NIO ET9 a flagship smart executive As the result of NIO's ten year tech innovation, 89 set a new benchmark for premium smart use active EVs. With industry leading technology and distinctive experience, It has been well received by users in the segment. [indiscernible] in a limited offering of nine ninety nine units, sold out within hours and the signature version continued to see strong demand. 89 delivery will begin at end of this month.

Besides, NIO's version products ET5, ET5T, ES6 and EC6 we'll launch their twenty twenty five models in Q2. Featuring upgrades in design, cutting experience and the smart driving chip Moreover, with another major product launch in the second half of this year, They enhanced the product lineup with further solidify NIO's leadership in the premium BEV market via driving its overall profitability. For the mainstream mass market brand Envo, the first product L60 gained a strong recognition among family users for its safety space, class leading energy efficiency and a convenient recharging experience. On the second product, L90, is positioned as a flagship large family SUV. It will be introduced and in Q2 and delivered in Q3, Onward's third product will be launched in Q4. Forming a well rounded SUV lineup to cater to a broader range of mass market user. [indiscernible] Since its debut in December 2024, Firefly has received a bold attention. Particularly from young buyers and the family looking for a second car. The brand is set to launch and begin delivery in April. Leveraging NIO's SaaS network for rapid market expansion. With these three brands, the company is building a comprehensive product metrics spending 150,000 yuan to 800,000 yuan.

Catering device device user group as we expand our sales and service networks. They are set to reach more users and drive sustainable growth. In terms of smart driving technology and experience, AI technology continue to drive us towards our vision of delivering stress and reducing accident. Prior authorizing AI based safety enhancements, [indiscernible] It led [indiscernible] object detection, and the use case coverage. To date, NIO's smart safety has vented over 3,400,000 potential accidents for users. And the release of AES has further improved driving safety Meanwhile, we've made breakthroughs in switching to our next generation architecture based on the NIO world model. [indiscernible] We'll provide driving, parking and safety assistance across all scenarios. Now early bird program will begin in early April. With mass release gradually rolled out Globally, NIO has 183 NIO houses and four sixty two NIO spaces while Envoy has four and four nine stores in China. Ensuring a well balanced sales copy. The service side, the company operates three eighty eight service centers and six for delivery centers. We are putting more efforts improving operation operational efficiency. So as to better support our new product cycle and deliver on best exceptional user experience. As of now, the company has deployed 3,245 pulse workstations worldwide.

Including nine seventy stations on highway in China. Having private over six, nine sixty nine million swaps for NIO and onboard users. In addition, NIO has built over 25,000 power chargers and the destination chargers [indiscernible] remains the preferred recharging solution for NIO users on long trips during the tenth New Year holiday. We set a new record with over 137,000 batches worked in a single day. With top stations handing over 180 swabs. With unmatched speed and battery swap is the optimal recharging solution for long distance and holiday travel. It's a strategic advantage where we reinforce our competitive edge of the BEV market. Laying a strong foundation for the sales goals of our three brands. During the upcoming product cycle. [indiscernible] with partners in more countries and regions to expand our global footprint As we grow our global sales channels and start five flight deliveries, the company is accelerating its global expansion. While delivering best in class EV solutions to user worldwide. The company remains committed to social responsibility and the sustainability. In December, MCSI upgraded NIO's ESG rating from eight to double eight. In general, corporate nights ranked NIO as the number one car company in its list of twenty twenty five Global 100 most sustainable companies.

The competition landscape in the smart EV industry is involving rapidly making 2025 a critical year for the market reshaping. This year, with nine new models across three brands, the company is forming a comprehensive product lineup while a tech driven cost optimization is further enhanced [indiscernible] with global expansion picking up FEED the company will be able to unlock new revenue opportunities. In the meantime, the company is enhancing operational capabilities and the business awareness [indiscernible] Ensuring greater value creation and the efficiency With this action in place, they are confident in navigating field competition and achieving our full year operating target. Thank you for your support. With that, I will now turn the call over to Stanley for Q4's financial details Over to you, Stanley. You, William. Let's now review our key financial results for the fourth quarter of twenty twenty four. Our total revenues reached RMB19.7 billion, increased 15.2% year over year and 5.5% quarter over quarter. Vehicle sales were RMB17.5 billion, up 13.2% year over year. And 4.7% quarter over quarter. Primarily driven by higher deliveries partially offset by a lower average selling price due to changes in product mix. Our other business segments also delivered solid performance.

Other sales were RMB2.2 billion. Grew by 33.8% year over year and 12.7% quarter over quarter. The annual growth was from increased sales of parts, accessories, after sales vehicle services, and provision of power solutions along with a rise in sales of technical r and d services. The increase quarter over quarter was driven by higher sales in technical R and D services, used cars and our parts [indiscernible] and after sales vehicle service Looking at margins, vehicle margin was 13.1% in this quarter. Compared with 11.9% in the Q4 last year, and unchanged from last quarter. The year over year change increased was mainly due to lower material cost per unit. As the margin turned positively. This quarter. Mainly due to the increase in the provision of [indiscernible] technical R and D services as well as the sales of parts accessories, and after sales vehicle services. With relatively higher margins. Overall gross margin was 11.7% up from 7.5% in Q4 last year, at 10.7% last quarter. Turning to OpEx. R and D expenses were RMB3.6 billion, decreased 8.5% year over year. And increased 9.6% quarter over quarter. The year over year decrease was mainly driven by reduced personnel costs [indiscernible] while the quarter over quarter rise reflects additional investments in design and development partially offset by the decrease personnel cost.

SG and A expenses were RMB4.9 billion, up 22.8% year over year and 18.7% quarter over quarter. The year over year increase was mainly driven by increased sales and marketing, for new brands and products. And higher personnel costs from sales and service network expansion. The quarter over quarter increase was mainly due to the [indiscernible] enhanced sales and marketing efforts and higher professional services costs for general corporate functions. Loss from operations was 6,000,000,000, down 8.9% year over year and up 15.2% quarter over quarter. Interest and investment loss was RMB0.2 billion compared with investment income of 1,400,000,000.0 in twenty twenty three Q4 and 300,000,000.0 in twenty twenty four Q3. Primarily due to the fair value change of equity investment other loss, net in Q4 was billion, primarily due to the loss from the revaluation of overseas RMB related assets caused by the depreciation of RMB against the US dollars this quarter. Net loss was RMB7.1 billion showing an increase of 32.5% year over year and 40.6% quarter over quarter. Lastly, we ended the quarter with total cash as cash equivalents restricted cash, short term investment and long term time deposits, amounting to RMB41.9 billion. That wraps up our prepared remarks.

More information and the details of our unaudited fourth quarter and full year 2024 financial results, please refer to our earnings earnings press release. Now I will turn the call over to the operator. To start our Q and A session. Thank you.

Thank you. If you wish to ask a question. Please press 1 on your telephone and wait for your name to be announced. You wish to cancel your request, please press 2. If you're 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 2 Your first question is from Tim Tsai from Morgan Stanley. Please go ahead.

Hi, this is from Morgan Stanley. For taking my question. I have two questions. The first question is about cost reduction effort. Because a lot of market focus is put on NIO's latest round of restructuring. So just want to know that how much of cost saving would management expect to achieve And when are we going to see the contribution emerging in upcoming quarters? That's my first question. Thank you. [indiscernible] you for the question. Regarding the cost reductions, actually, since last year, we have already started the cost of mining initiatives. And for the 2024 full year, we were also on track for the cost reductions initiatives. As you can see in our vehicle margin, for Q4, it has fulfilled our expectation. And we will continue such cost reduction actions this year from multiple aspects, including supply chain, R and D, And in that case, we foresee that our vehicle margin will also continue to grow starting Q2. And in terms of expenses, in actually, in Q4, last year, as we have launched the new brand Envo together with its product, we have started to make investments and expenses developing its sales and service networks, as well as in the brand related activities.

And such activities and expenses will continue in Q1 this year including up the new brand and also the sales and service networks. But in the meantime, starting Q1 this year, we have started a all employee comprehensive cost reduction initiative covering R and D, supply chain, sales and also service teams. We call it CBU or sales business unit. Basically, we ask all the teams and employees take the ownership and accountabilities of the company's operational targets. We already have seen some good results and actions taken voluntarily by the R and D teams, by the sales and service teams in reducing the cost and improving the efficiency. And the results of such actions will be reflected in our balance sheet in the coming quarters starting Q2 as we continue to strengthen our cost control and also expenses management in the second half of this year, together with improvements in the sales volumes in the vehicle margin as well as in the expense control we are confident that we are going to achieve our breakeven target in Q4.

Kim, please. Thank you. My second question is about on Vogue. Just want to know that what actions could Envo take to regain the growth momentum? Will NIO stick to the Bao Te brand strategy? It could potentially change Envo to a sub brand. On the neo to save costs and enhance efficiency. So that's my second question. Thank you.

Thank you for the question. Regarding ANVO, its sales performance starting this year didn't meet our expectation. And we have also reviewed the comprehensive reasons and causes for its performance. The first reason is because of the brand awareness and the exposure. As almost still a new brand in terms of its brand awareness and and awareness, it is actually far below its competitors. We have also done some studies and research on the influence of the brand awareness of Ambo. And in terms of the brand awareness, it is only one third of that of NIO. In that case, as we consumed all the existing order backlogs, we are facing larger pressures regarding the fresh orders. Starting this year, especially during and up the spring festival holidays, we have also taken a series of actions to help strengthen and improve the brand awareness and exposure We have rolled out some offline advertisements in the train stations and also in the elevators of the apartment buildings We have also doubled down on the social media campaigns to help improve the exposures, and we are seeing some good effects in helping being more famous and well known. And the second reason is regarding the coverage of the points of sales.

We have been ramping up the South store coverage of the Angou brand. Last year, when we just launched the brand, we have around 105 stores in China. And by the end of last year, we have opened up another 100 stores. And so far, we have more than 400 stores in China. Yet most of the stores are still quite new in terms of their efficiencies and the productivities are not yet to a mature level. So it will take some time for these new stores to start to yield real results. We have also done the comparison between a mature store being in operations for more than three months in comparison to a newly established store, the productivity can be different can be as different as three times. As this new store is getting more mature and skillful, we believe that they will also start to play a bigger role. So as you can see, we have made some investments in ourselves and the service in Q4 last year and also Q1 this year, and we've been under the pressure for this investment and expenses. Yet we also believe that these stores and the network will soon start to yield results and kicking with effects.

And the third reason is also relevant to the maturity that regarding the maturity level of our sales force. For the fellow teams of the Ambo brand, 60% of them have been in the company for less than three months. And it will take some time to train the team and for the sales teams to polish their soft skills to be able to yield good results and make deals. As the team is getting more mature day day, we also see that more and more fellows are now able to making deals. And we also encourage these fellows to do more proactive outreach by going out of the stores to act reach out to the potential users and help expand the funnels, and this will also help us to improve the order performance. And for this year, if we look at the month over month trend for the number of fresh orders, it has been increasing steadily. And in terms of the number of test drives that we've been receiving and doing month over month, it is also breaking the record. And we believe that this fresh orders and the tested drives will also soon be converted into orders and self volume.

And the fourth reason is regarding the power swap stations availability for the onboard users. As in the past several months, we've been we've been making more progressive modifications on the power swap stations to make sure that they're compatible with the Envo product and also providing more batteries for the swab stations Now, more than 1,500 power swap stations in China are available for onboard users. And also, at the early stage of the product launch, we had the short supply of batteries. In that case, there was only one battery for the available power swap stations, not enough the onboard users to experience the full power swap. Service. But now we are supplying more batteries for the power swap In that case, the experience for the power swap among onboard users are also improving, also enhancing a better word-of-mouth for the brand. And also in many regions where we see more power swap stations available for our users, we also see actually more self volume for the Envo products. Together with our PowerUp County initiative, we believe that with more power swap stations available in the lower tier cities, this will also help improve the penetration rate of envelop in those lower tier cities.

And a very interesting number to share with you is that in actually in 12 regions in China, the sales volume of Anhuo has already outnumbered the volume of NIO. This is also a good effect result of our dual brand synergy and also strategy. And also another compound factor is that our resin source volume is majorly affected by the competition as well as the negative public opinions on the brand and also PR attacks. That has our volume by around 30 to 40%. But still, even against this difficult environment, still see a very high user satisfaction on the product l 60. Actually, l 60 has the highest product user satisfaction among all the products launched by the NIO company. And we also see a pretty good referral rate on the L60. This has gives us confidence on the product. Going forward. As we pick up speed with our orders and also test the drives, as we further enhance the brand awareness. Expanding our sales and service network, growing our team and their maturity level, and also enhance the coverage and availability of the power swap stations for the onboard users we believe that the sales volume of l 60 will pick up and also fulfill our expectation.

And regarding your question on the efficiency in improvement and also the synergies can be leveraged between two brands, actually, in terms of the after self-service, power swap stations, and as well as the supporting functions such as finance, human resources, and some regional functions. This has been shared across two brands. From the beginning. And recently, we are also making further adjustments in some regions for the supporting and the management roles we also try to have one team to both brands. And we see some good effects by having one team overseeing two brands in terms of the sales and the service management. And in terms of the point of sales of Anvil, where the sales network of AMOL, we will keep it separated and independent of the NIO brand as these two brands targeting different user groups and also are from different brand segments. Recently, we are also having some pilot programs where we have the incentives and the policies to encourage the sales team to also sell the product from the other brand. We already have seen some good results. By rolling out the pilot program.

Thank you, Tim.

Thank you. The next question is from Bin Wang from Deutsche Bank. Please go ahead.

My first question is about your guidance about gross margin, including vehicle gross margin and overall gross margin. Meanwhile, you mentioned that you will even in the number four quarter this year. So what's your assumption in terms of gross margin and volume? And my second last question is that, previously you guided your 2025 volume will be double year over year. After the first quarter. Can you provide update on the volume guidance? Thank you.

Thank you for the question. Regarding your questions on the vehicle margin, normally, Q1 is the off season. In the south of the vehicle product. And also in q one, we are in between generations for our five and the six series, as they will soon be upgraded to the model year 2025. To clean up the inventories for the existing generation We are also under pressure regarding the vehicle margin for the NIO brand. And in terms of the onboard brand, as William has mentioned, the sales performance of the Onward product didn't meet our expectation in this year. Considering the amortizations and other factors we are also under pressure and the challenging situation managing the onboard products and its sales and its vehicle margin. So overall speaking, the company's vehicle margin in Q1 will not be as good as you would expect it based on our margin performance in Q4 last year. But still, our full year target is to achieve breakeven in Q4 In that case, we have also mapped out a road map of our product margin. For the NIO brand, we would like to achieve a margin a vehicle margin of twenty percent. For the onboard brand, it will be 15%.

Regarding the actual actions that we have taken to control the cost and also improve the vehicle margin, there are several actions. The first is to implement a more systematic cost reduction initiative by making our products more platform based and improving the commonalities across different products and also across brands. There are several examples. For example, we have implemented a overall platform strategy for the seats. Now the products from the NIO brand and Angola brand share the same seat structure. With that, we are able to reduce the total BOM cost for the system by 10%. And the second example is regarding the smart hardware. We have standardized the interfaces of most of the smart hardwares in the vehicles. In that case, we can further reduce the costs on the cables and connectors The piece price per vehicle is in is reduced from 2,000 RMB to only 1,000 RMB. And the third example is regarding the in house developed the parts and also components as we've been making efforts in doing in house development in the past two to three years. And we also see a very helpful cost reduction result over the past two years For example, ET9 will soon be delivered with the NX9031, our chip for the smart driving.

And this chip will also be available on the model year '25 for the five and the six series product, our volume product. In that case, the piece price will be decreased by around 10,000 RMB compare in comparison to the four Orion solution. And in addition to this cost reduction measures, we are also taking some systematic measures. For example, we have a very capable team doing cost management analysis and engineering. And starting 2023, we have been enabling and empowering the team. And now the team directly reports to me for any quotation or nominating prices surpassing the cost estimation results by 7.5%, such nomination decisions will need to be escalated to the EC level the joint approval. With all these measures taken together, in 2024, we managed to reduce our BOM cost by 10%. And we will continue such efforts in 2025.

Okay.

And the second major action or the second major contributor of the vehicle margin will be contributed by the launch of our new model As mentioned by William, this year, we are going to introduce and launch nine new models. Including completely new models as well as the model year facelift. For the model year facelift, they will help improve the overall cost for these existing models. And in terms of the new models, in the second half of this year, the NIO brand is going to unveil and introduce a major product with better or with actually higher margin as well as more elevated brand and product positioning. This will help improve the overall vehicle margin of the NIO brand. And for the Envoy brand, in Q2 actually, in April, they will unveil their second brand, L90. And then start to deliver this product in Q3. And in the meantime, in Q4, Anhuo is going to introduce another product Both products from the Anhuo brand will target higher margin and also higher price segments. This will also help improve the overall product margin for the ENWALD brand. So together with the cost reduction actions that we've been taking as well as the margin increase driven by the new products, we will gradually achieve our margin targets in Q4 and also for the full year.

And regarding your questions on the sales volume and the guidance, for this year, in Q1, our sales guidance is to achieve a year over year growth of 36% to 43%, so around 40% year over year growth. For the deliveries in Q1. And as for the full year our target is still the same, just to double the sales volume from last year, and there are several drivers behind this. The first is the new car effect. As we've mentioned that this year, we are going to introduce nine new products under three brands. Starting next week, we are going to deliver ETNAI And with the launch and the delivery of these nine new models, we will be able to fill up our source volume for this year. And the second key driver is regarding the Anvil brand as we are improving the overall network sales network and service network of Envo, enhancing the maturity level of the team, and also strengthening its brand awareness. It will also gradually yield better results, even if it didn't fulfill the sales target we set for Q1, yet we are confident in the continuous improvement in the ARMOR brand. And also a further comment on the key driver behind the sales volume is the network effect of our power swap network and the recharging network in general.

If you look at the cumulative sales volume of the NIO brand and the distribution of this sales, actually half of this volume is contributed by the sales in the younger River Delta area. For the Jiang Jiangsu we have already achieved the power up county plan, which means that in every county in Jiangsu province, there is at least one power substation. And for the Zhejiang province, we aim to achieve also county level coverage by end of this month. Except for two islands where they will not have the power stop stations. And also, for the power swap strategy in general, as you may know, our recent strategic partnership with CATL. This will further help us to expand our reach in the country levels with our Power Swap facilities. In the first half of this year, our power swap network will cover the counties of more than 10 provinces in China. And by the end of this year, cumulatively 27 provincial level divisions will have power swap stations available at the county level. And the network effect of this swap. Station will play a very important role, because we have already proved that last year, we double down our efforts on the PowerSoft networks in bigger promises like Hubei and Anhui provinces.

And we already see some good results before the swap stations were merely available in big cities, but then we find that the county level coverage is more important in promoting the cells. And for the cells volume in these two provinces, after we achieve the county level coverage, their sales volume is far above the average. And this year, we will continue such efforts to cover more counties in more provinces, especially big provinces like Hwanda and Shandong and Sichuan. With that, we will help improve the overall market share and the market reach of not only the NIO brand, but also the Amu brand.

Especially NIO especially the Ambu brand. Thank you. The next question is from Paul Gong from UBS. Please go ahead.

Hi, William. Thanks for taking my question. The AI and the robotics has been the very hot topic in this early season. One of your peers, on this call, the AI has been mentioned by 49 times during the whole call, but I guess it hasn't been mentioned here. Can you please remind us your latest thoughts? On the AI autonomous driving robotics, etcetera. [indiscernible] Thank you for the question. Regarding the application of AI technologies, NIO is the first car company to introduce an AI companion in the car. It's know me, and it's loved and well received by many users. For NOMI, it has its own large language model capabilities, NOMI GP but on top of that, it is also supporting third party large language models. With that, the satisfaction and also the interaction rate of NOMI is growing. NOMI is also a quite profit making IP with a lot of the well popular merchandise and also high take rate. And in addition to the AI application on Nomi, we also have AI applied to our smart driving technologies and experience, as last year, we have introduced the the new work model, NWM, And the the latest AD version was smart driving release will be based on the new work model.

And actually, I have participated in some internal beta version tryout, and I can say that I really look forward to that version. It has quite good performance in terms of the active safety and in the experience in general. And, of course, AI is a very important basic capabilities in terms of AGI, terms of robots, in terms of the fundamental capabilities for AI. But for the foreseeable future, for us, we will mainly focus on our core business. That is the automotive product. And in that case, AI will be more of an enabler to achieve better product experience as well as better business and the management. As AI itself is one of our top full stack capabilities, and it is ever present in every aspect of our business. And as many people are talking about how the automotive product is becoming an AI agent, and I believe that the company itself is also turning into an AI But still, for the short term, our primary focus is still our core business as well as our operating targets. But a side note here is that NIO Capital has invested in a lot of AI companies, especially industry leading AI companies.

And in that case, we're in close contact with the cutting edge technologies and also the outstanding founding teams in the AI arena. And in house, we also have capable AI talents working on the relevant field.

Thank you, Paul.

Yeah. Yeah. Sorry. My second question My second question is regarding the number of models. I think the company has eight models at the same time right now. And after this year's new model launch, it would move into some big teens. Given the cannibalization between each other and also one of the peer has demonstrated with even only one single model the volume could still be achieved. Shall we consider to concentrate more into some block models, and eliminate some of the less popular models to be more focused. What do you think is the most optimal number of models for each of the brands?

For family, for me, [indiscernible] Thank you for the question. As we now have three brands NIO, Envoy and Firefly, our overall product strategy and portfolio for this three brands will also be quite different as it is also dependent on their respective segment and also brand positioning. For the NIO brand, we will basically keep the existing lineup spending from 300,000 RMB all the way to 800,000 RMB. And it will covering for me, for family, and for business segments. With ETNA being delivered, we are completing this price coverage from 300,000 all the way to 800,000 plus segments in the premium market. And for the premium market users, they actually care more on the personalization and also the unique identity of the vehicle products. If you look at other premium brands like BMW and the Mercedes, they actually offer forty, fifty products in their lineup. So for this segment, users care more about the differentiation and also the personality of their products. As for the OMO brand, we will be more careful with the number of products in the lineup. This year, we are going to introduce two new products under the Envo brand together with L60. There will be three products in the lineup by end of this year, and we will not drastically increase or expand the existing portfolio but to control that within a reasonable range.

As for the Firefly brand, it is a high end small car brand. In that case, it not necessary to really offer too many different products. So our overall strategy is to have a differentiated product portfolio and lineup for different brands. But overall, maintaining a rather stable and reasonable product lineup across three brands. But for each model, there will be also emphasized highlights. And also targeted user groups.

Thank you. Thank you. The next question is from Yukwyn Ding from HSBC. Please go ahead.

The first question is about cash position, supply chain perspective, against that and also potential financing. So if we see our net cash position at above $25,000,000,000 but given the volatility between quarters, the supply chain coming from more conservative perspective and how sustained would that require additional financing? No matter if it's debt or equity, can we have a bit more clarification on that? Second question is about the CapEx guidance. Can we see a little bit breakdown into a refreshed CapEx guidance this year? We talked about a commitment into SWAP network, but since we signed up the with Kato, can we partnership to do some CapEx building? Can we expect the CapEx to taper off this year? Thank you.

Thank you for the question. Regarding your first question on the cash reserves, by the end of twenty twenty four, our cash position was RMB49.1 billion. And in Q1, as we see the decrease in the sales volume quarter over quarter, we did experience an operating cash outflow Yet as we have introduced that this year will be a pivotal year for our product launch as we witness the rebound starting Q2, we will also see major improvement in the operating cash flow. And also, as we have previously introduced, starting Q1 this year, we have conducted a series of adjustments and also streamlining activities. This will also reflected in our performance, financial performance starting Q2. Overall speaking, we will be prudent with our cash flow management to make sure that our resources can sustain our continuous growth and development. And regarding your second question on the fundraising, we have various options We have a various fundraising channels for the capital market, for The US capital market, RMB capital market, public or private, we will be planning our fundraising requirements and activities according to the operations of the company as well as the changes in the market. [indiscernible] And regarding the question on the CapEx, as we have mentioned that this year, we will launch major products.

In that case, we have made the CapEx spending in the toolings and also the production production equipment together with our supply chain partners. And in the meantime, as we are launching new products, our third factory is also going to be put in operations depending on the overall production plan. So our CapEx this year will be higher than in last year, but still, we will have a very prudent measure and manner in managing our investment pacing and also our cash position to make sure that we have a very good control over the spending. In terms of the CapEx for the power swap stations, starting last year, in terms of the power swap network expansion, we have already started to adopt one principle that is to leverage the resources of our Power Swap partners as much as possible. As last year, we have announced the Power Up partner plan where we invite the partners to jointly build the swap stations and the For the PowerUp County plan this year, most of the stations will actually be sponsored or built by our partners than by ourselves. In that case, the CapEx utilization for the power substations will also be relatively limited.

Thank you, Lee Jin.

Thank you. The next question is from Ming Sun Lee from Bank of America. [indiscernible] regarding your autonomous driving technology [indiscernible] When do you plan to roll out your end to end model and in the future, do you consider to use the THOR chips in your car or you will use your Shenzhen chips in all of your NIO branded model. Thank you. That's my first question. [indiscernible] Thank you for the question. Actually, last year, we have already implemented the end to end solution to our active safety features, as different companies may have a different priority force ranking on the technology applications. And for us, we believe that safety matters the most. That's why we have implemented the end to end model firstly, in our active safety features. And we did see major improvement regarding the safety level week over week by 40%. So it is playing a very important role in providing a safer trip. For our users. And in terms of the end to end solution base, Navigate OnPilot Plus for the city roads, we have also started small scale testing and internal testing, and we plan to release that to our users by the April after a series of preparations and also approval applications.

And regarding the use of the chip for smart driving, ET9 is going to premier our house developed chip for the for the smart driving. It is made with advanced manufacturing process. NACS ninety thirty one. And after ET nine, our 2025 model year the five and the six series will also be launched and equipped with the in house developed chip for the smart driving. So all the future new models will be equipped with this house chip. As for the ARMOR brand, currently, it is using the AurinX chip the smart driving functionalities, and it does not have plan to use SOAR.

Thank you. My next question is regarding the OpEx. Because in the past few quarter, we continue to see your gross margin continue to improve Q o Q. But for the operating expense, do you have the latest guidance and new plan? For example, in the past, William mentioned that the stabilized IND will RMB13 billion every year. And could you give any new update for this number and also for the sales and marketing expense, do you have any, target ratio [indiscernible] for for this number. Thank you. [indiscernible] Thank you for the question regarding OpEx. In terms of the R and D spending and expenses, for this year, we will continue have the same intensity level for the R and D expenses. Around RMB 3,000,000,000 every quarter on the non GAAP basis. Of course, as mentioned by William, this year, we have rolled out the CPU mechanism where we emphasize more on the project with high return and also high yield. In that case, we will also optimize our project initiation and approval process to make sure that our R and D expenses are reasonable and also efficient.

So Gwenyuan SG and A And regarding the SGNA expenses, we did have a bigger challenges to manage in the first quarter of this year as Q1 is normally the off peak season for the sales, the overall volume in Q1 is not so high. In that case, the SG and A expenses are for a bigger part in to the sales revenue. And also, in the in this quarter, we are still building up and expanding the sales and service network as well as growing the Salesforce capabilities for the Onworld brand. In that case, Anvil's SG and A expenses is also higher. But as we have introduced, we are going to take a series of actions to improve efficiency and the productivity of teams and also to streamline the non frontline self functions to consolidate some of the self functions between the NIO and the Amur brand and also to leverage NIO's network for the sales of Firefly With all these actions taken, we expect the better results to be reflected in our financial performance in the coming quarters. As we grow our sales volume and also gradually achieve the breakeven target in Q4, you will also see SG and A accounting for smaller portions to the sales revenue.

And with that, you will see also the effect reflected by the improvement in both volume and also in the efficiency of people and expenses.

That's all my question.

Thank you. The next question is from Jing Cheng from CICC. And we can see that in the fourth quarter, the gross profit margin of other sales has already positive and reached 1.1%. So could you please break down the reasons for this? Thank you for the question. Regarding the gross margin of other cells, it mainly consists of three things. The revenues from the Aptar cell services, revenues from the power services, and also revenues from the technical services we provide to the supply chain partners and also to affiliated parties. And in Q4, we have the positive margin on other cells. It's mainly because we have been continuously improving the efficiency of the Aptar cell services. Of course, in terms of the power swap and or the power service in general, as we are still making advanced deployment of the facilities and infrastructure network the loss is actually not significantly narrowed. From the power perspective. And for the up for the other cells to be with positive gross margin in Q4 last year, it's mainly because of the revenues from our technology services provided to the partners and also the affiliated parties. It's around 20,000,000 in Q4 last year.

Yet such revenues are more project based, and also it's relevant to the cadence and the progress of services we provide to them. In that case, there will be in the future, there will be also similar revenues, but it will not be a recurring regular revenues from that perspective. In 2025, as we continue to increase our vehicle population, we also foresee continuous increase in the efficiency of our after stop services. As for the power networks, as we are still making advanced deployment of the power soft stations, we will still encounter slight loss making with the combined margin of the after soft services and the power services if we exclude the technical services. In terms of the technical services, if we can make major deals or if we can make major progress, probably there will be some good news too. Disclose. Thank you. Thank you. The next is from Tina Howe from Goldman Sachs. Thanks management for taking my question. So I have a quick one. Just regarding our longer longer term outlook, say, by 02/1930, do we still maintain our previous, I think, and the margin outlook? And could you please remind us of your revenue scale sorry, your sales volume scale target as well as your maybe overall gross margin as well as operating margin?

Thank you. As right now, the company is just striving to be breaking even in Q4. This year. We if we set for a longer term outlook for the future, we believe that for the smart EV companies or for the automotive industry in general to maintain a relative relative competitive edge among the competitions an annual volume of 2,000,000 units with 20% gross margin 7% to 8% net margin, that will be a baseline for the for a smart EV company to survive for the longer term.

Thank you, Tina.

Oh, thank you. Thank you, Thank you. As there are no further questions now, I'd like to turn the call back over to the company for closing remarks.

Thank you so much for joining us today. If you have further questions, please feel free to contact NIO's IR team. Through the contact information on our website. This concludes the conference call. You may now disconnect. The line. Thank you.