Hello, ladies and gentlemen. Thank you for standing by for Niu Incorporated's 4th Quarter 2020 Earnings Conference Call. Today's conference call is being recorded. I will now turn the call over to your host, Ms. Yves Tang from Capital Markets and Investor Relations.
Please go ahead, Yif.
Good morning and good evening, everyone. Welcome to Niu's 4th quarter 2020 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 Lin, Founder, Chairman of the Board and Chief Executive Officer Mr.
Stephen Feng, Chief Financial Officer Mr. Stanley Chu, VP of Finance and Ms. Jade Wei, ADP of Capital Markets and Investor Relations. 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 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. Hello, everyone. Thank you for joining NIO's 2020 Q4 earnings call. In the Q4 of 2020, Niu delivered 17,353 ES8, ES6 and EC6, representing a strong growth of 111% year over year and 42% quarter over quarter.
The cumulative deliveries of 2020 reached 43,728, representing a strong growth of 113% over 2019. We achieved a historic monthly delivery of 7,225 vehicles in January 2021 and the resilient delivery of 5,578 vehicles in February 2021, representing strong 3 52% and 689% year over year growth, respectively. In 2020, all three new models have achieved exceptional performance in the market. ES6 has been the best selling electric SUV in China for the full year of 2020. ES8 has reached number 1 in sales in 2020 in the premium electric SUV segment priced above RMB400000 in China.
AC6 has ranked at the top in the premium KuPay SUV segment for 3 consecutive months in China starting from November 2020, backed by the top notch product quality and service. NIO has gained growing positive recognition and feedback from users and the industry. In the China Insurance Automotive Safety Index published in January 2021, AC6 achieved the best safety rating among all models tested by CI ASI in 2020. Supported by competitive product offerings, outstanding services and innovative business models, we have won increasing user recognition and expect the overall deliveries in the Q1 of 2021 to reach 20,000 to 20,500 vehicles. In terms of gross margin driven by steadily increasing delivery, stable average selling price and improving material cost and manufacturing efficiency, our vehicle gross margin in Q4 reached 17.2%.
Moreover benefited from the new energy credit revenue, the overall gross margin has also increased to 17.2%. Liu has continued to achieve positive cash flow from operating activities in the 4th quarter and the full year of 2020. In all aspects, NIO's operational efficiency and overall system efficiency have significantly improved in 2020. Next, I would like to share with you some key tasks of the company. At the new day on January 9, 2020 or actually 2021, we launched the ET7 of the first flagship sedan based on the new technology platform 2.0 NT2 with its cross bleeding dimensions, breakthrough exterior, sophisticated interior, efficient powertrain, immersive digital cockpit and industry leading autonomous driving capabilities, ET7 has received remarkable feedback from users, media and the industry.
Its order performance has also exceeded our expectations. Based on NIO's in house full stack autonomous driving technology platform, 87 will be equipped with NAD, new autonomous driving, consisting of new Aquila super sensing and new add on supercomputing. New Acula Super Sensing System has 33 high performance sensing units, including 11 8 megapixel high resolution cameras and 1 high resolution lidar with a detection range of 500 meters. The computing power of new Adam is up to 10 16 tops. The sensor suite and the computing power of NAD fast surpass other competitors and will expedite the mass production progress of the autonomous driving industry.
NAD will provide a safer and more relaxing AD experience from point A to point B, gradually covering highway, urban, parking, charging, swapping and other use cases to free up time and reduce accidents. In addition, NIO NAD will be the 1st AD system offered through a monthly subscription service or AD as a Service, so more people can try out and enjoy NIO NAD. We have also launched the Power Swap Station 2.0 at the new day, which enjoys much lower cost and the 3 times higher service capacity compared with the 1st generation. In addition, we have launched the 150 kilowatt hour battery pack, which boasts 50% energy density improvement and can significantly extend the driving range of all NIO models. With the 150 kilowatt hour battery pack, the NEDC range of ET7 can reach over 1,000 kilometers.
Under NIO's services system, every user can choose to upgrade to different battery packs on demand. NIO is devoted to building an innovative model of battery vehicle separation and battery subscription with chargeables, wrappable, upgradable batteries as well as providing holistic power solutions to users along with the growing user base and expanding battery offerings, more and more users opt for battery as a service. But in February 2021, the take rate of bus among new orders has reached 65%. We believe FaaS and NIO's holistic charging and swapping service system can accelerate the conversion from ICEs to BEVs. The continuous development and the research of new products and technologies is the cornerstone of sustainable development.
NIO will decisively step up our R and D investments and speed up the development and production of core technologies and new products. In 2021, our R and D investment is expected to double and reach around RMB5 1,000,000,000. Our production capacity has reached 7,500 units in January. Our partner JAC has already kicked off a further production capacity expansion in the Hefei plant and plans to expand the annual production capacity to 150,000 units under 1 shift and 300,000 units under 2 shifts to prepare for the production of ET7 and future products. In February 2021, NIO entered into a further collaboration framework agreement with the Hefei government to jointly plan and build the Xingqiao Smart Electric Vehicle Industrial Park, including R and D and manufacturing, pilot demonstration and industrial supporting services and build a world class smart electric vehicle industry cluster with a full fledged industry value chain.
With regards to the sales and the service network, we now have 23 new houses and 303 new spaces covering 121 cities in China. In light of the continued contribution of the offline spaces towards brand awareness, order growth and user community operations, we plan to open 20 new houses and 120 new spaces in 2021 to further expand the network coverage, leverage NIO's competitive edges of direct sales, consolidating both online and offline traffic as well as improve the user experience and the efficiency of the overall sales process. NIO has viewed 191 swap stations in 76 cities. Starting from the Q2 of this year, we will gradually deploy the Power Swap Station 2.0, which offers better experience with lower cost. Our target in 2021 is to ramp up to at least 500 Power Swap stations in total.
Moreover, we will step up our efforts in building our supercharging network and the destination charger. We currently have 127 power charger stations and over 1700 destination chargers, which will reach 615,000 respectively by the end of 2021. While the user base grows, the operational efficiency of NIO's after sales services system is also improving. We now have 31 new services centers and 158 authorized services centers. To deliver better service experiences to the users, we will expand our after sales service networks to further optimize our after sales service
system.
NIO aims to build a community starting with smart EVs, where we share joy and grow together with users. The live broadcast of the New Day 2020 held on January 9, 2021 has attracted near 100,000,000 views. At the New Day, we launched the Blue Point plan and became the world's first auto company to help users to certify emission reductions and trade carbon credits. In 2021, the 2nd user council of the new user Trust has decided to focus their work this year on user care, industry sub communities, public welfare and environmental protection, the constant support of our users is the constant force to drive us to always move forward. 2020 is an important milestone on the development journey of NIO.
With the user support and the team's efforts, the company's overall operations are back on track and have entered into a rapid development stage. As a startup, we will stay true to our original mission, continue to make a decisive and efficient investment in the R and D of new products and core technologies and further expand the charging and swapping network and the after sales service network to provide the best holistic experience to new users. 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 quarter. Steven, please go ahead.
Thank you, Billing. I will now go over our key financial results for the Q4 of 2020. And to be mindful of the length of this call, I encourage listeners to refer to our earnings press release, which is posted online for additional details. Our total revenues in the 4th quarter were RMB6.64 billion or US1.02 billion dollars representing an increase of 100 and 33.2% year over year, an increase of 46.7% quarter over quarter. Our total revenues are made of 2 parts, vehicle sales and other sales.
Vehicle sales in the 4th quarter were RMB6.17 billion or US946.2 million dollars accounting for 93% of total revenues in this quarter. It represented an increase of 130% year over year, an increase of 44.7 percent quarter over quarter. The increase in vehicle sales year over year was primarily due to higher deliveries achieved from more product offerings and the expansion of our sales network through the continued launch of new spaces in 2020. Other sales in the 4th quarter were RMB467 1,000,000 or US71.6 million dollars representing an increase of 184.1 percent year over year, an increase of 80.2 percent quarter over quarter. The increase in other sales year over year was mainly attributed to sales of automotive regulatory credits as well as the increased revenues derived from the home chargers installed and accessories sold in line with incremental vehicle sales.
Cost of sales in the 4th quarter was RMB5.50 billion or US842.8 million dollars representing an increase of 77.3 percent year over year, an increase of 39.6% quarter over quarter. The increase in cost of sales year over year was mainly driven by the increase of delivered volume in the Q4 of 2020. Gross profit in the Q4 was RMB1.14 billion or US175 million dollars representing an increase of RMB1.40 billion from the Q4 of 2019, an increase of RMB556.1 million from the Q3 of 2020. The increase in gross profit was mainly contributed to increased vehicle sales and increased vehicle margin. Gross margin in the 4th quarter
was 17.2%,
compared with active 8.9% in the same quarter of 2019 and 12.9% in the Q3 of 2020. The increase of gross margin was mainly driven by the increase of vehicle margin
in the
Q4 of 2020. More specifically, vehicle margin in the 4th quarter was 7.2% compared with negative 6.0% in the same quarter of 2019 and 14.5% in the Q3 of 2020. The increase of vehicle margin was mainly driven by the increase of vehicle deliveries as well as the decrease in purchase price of certain production materials. R and D expenses in the 4th quarter were RMB829.4 million or US127.1 million dollars representing a decrease of 19.2 percent year over year, an increase of 40.4 percent quarter over quarter. The decrease in R and D expenses year over year was caused by the decrease of R and D expenses related to the EC6, which came to mass production in September 2020 and the coverage of all cost saving efforts and improved operational efficiency in R and D functions.
SG and A expenses in the 4th quarter were RMB1.2 billion or 100 and $85,000,000 representing an increase of 21.9% year over year, an increase of 28.3% quarter over quarter. The decrease in SG and A expenses year over year was primarily driven by the company's overall cost saving efforts and improved operational efficiency. Plus, for operations in the 4th quarter was RMB931.4 million or RMB142.7 million, representing a decrease of 67% year over year and a decrease of 1.5% quarter over quarter. Share based compensation expenses in the 4th quarter were RMB 16,200,000 or RMB 9,200,000, representing an increase of 17.6 percent year over year, an increase of 22.3% quarter over quarter. The increase in share based compensation expenses year over year was primarily attributed to the incremental options granted with relatively higher grand fare balance due to increased share price.
Net loss in the 4th quarter was RMB1.39 billion or $212,800,000 representing a decrease of 51.5 percent year over year, an increase of 32.6 percent quarter over quarter. The increase in net loss quarter over quarter was primarily attributable to the unrealized foreign exchange losses, derived from the depreciation of U. S. Dollar cash balance held by domestic entities with functional currency of RMB in the Q4 of 2020. Let us attributable to NIO's ordinary shareholders in the 4th quarter was RMB1.49 billion or 2 100 $28,700,000 representing a decrease of 48.4% year over year, an increase of 25.6 percent quarter over quarter.
Basic and diluted debt loss for ADS in the 4th quarter was RMB1.05 or RMB0.16 per ADS. Excluding share based compensation expenses and accretion on redeemable non controlling changes to redemption value. Non GAAP adjusted basic and diluted loss per ADS were both RMB0.93 or $0.14 per ADS. Our balance of cash and cash equivalents, restricted cash and short term investment was RMB42.5 billion or US6.5 billion dollars as of December 31, 2020. Additionally, we achieved positive cash flow from operating activities for the full year of 2020.
And now for this outlook. As William mentioned, for the Q1 of 2021, the company expects deliveries to be between 20,021,500 vehicles, representing an increase of approximately 4 21% to 4 34% from the same quarter of 2020, an increase of approximately 15% to 18% to the Q4 of 2020. The company also expects the total revenues in the Q1 of 2021 to be between RMB7.38 billion and RMB7.56 billion or between RMB1.13 dollars and $1,160,000,000 This would represent an increase of approximately 4 38% to 4 51% from the same quarter of 2020, an increase of approximately 11.2% to 7.8% for the quarter of 2020. This outlook reflects the company's current and preliminary view on the digitization and the marketization, which is subject to change. Now this concludes our prepared remarks.
I will now turn the call over to the operator to process our Q and A session.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. Your first question comes from Edison Yi from Deutsche Bank. Please ask your question.
Thank you very much. So first question I wanted to ask is on Neos focus in the premium market. It seems you're very focused on that and that's not going to change. Would you consider developing another brand to go after the mass market or more mid tier market? Second question is about the international expansion.
You've indicated that you'll enter Europe later this year. I'm wondering what kind of sales volume would you expect in the longer term? And in relation to that, there's a lot of speculation from the press lately that NIO is getting much more serious about getting to the U. S. Could you share your latest thoughts about that?
And I'll translate that
Thank you, Alison for your question. Of course, it's possible for us to enter the U. S. To enter the mass market. The new brand is going to focus on the premium market.
Simply speaking, new brand is not going to enter the mass market. But in the past few years, we have already tried different approaches to enter the mass market. For example, we established a joint ventures through investments with GAC and Chang'an. Previously, our shareholding in those joint ventures is around over 40% and now our shareholding has reduced to 5%. This gives us more flexibility and possibilities to try different approaches to enter the mass market and we would like it to be more active to do this.
This is going to be part of our long term strategy. Regarding the second question of the international markets or the global markets, Starting from this year, we're going to enter the Europe market. We will build our own sales and service network in the European market. Right now, we have already kicked off the preparations regarding the team setup products and the sales and the service network building basically covering all aspects of operations in Europe. This is going to be part of the long term strategy for us to enter the global market.
So we need to be patient. In the long run, of course, we would like to achieve significant shares in important major markets in the global arena, but it will require a lot of efforts and time to do this. Starting from day 1, we have over R and D operations and other operations in different regions and countries. But we understand that the sales and the service is going to be more complicated if we decided to enter different regions and the countries. Regarding the U.
S. Market question, we have already kicked off the research about the U. S. Market entry at a very early stage. We have started about the possible business models, strategies and the different approaches about how should we enter the U.
S. Market, but this will require lots of patience and we'll be glad to do this step by step.
Thank you, Edison.
Your next question comes from Ming Sun Lee from Bank of America Securities. Please ask your question.
Thank you, William and the management team. So my first question is regarding the margin improvement in Q4. If I adjust the contribution from the credit sales, the gross margin of the company is around 15.7% in this quarter, still improved a lot from last quarter. So could you give us some breakdown regarding margin improvement, for example, like ASP improvement in the quarter, phone calls improvement in this quarter. Besides, could you also elaborate more regarding on the battery supply and also the chip supply recently?
Especially, we already see a company will postpone the battery upgrade for certain customers in June. So could you elaborate more on this? And the second question is also regarding on battery related because recently we already see the upstream cost inflation. So we are interested about the cost trend in 2021 and also probably some rough gross margin guidance for this year? Thank you.
Sanjung Min. Sammy will answer the first question.
Yes. The vehicle gross margin increased from 14.5% in Q3 to 70.2% in Q4 was mainly driven by more ES8 and EC6 with higher gross profit margin delivered and the material and manufacturing cost of vehicles slightly decreased. And back to numbers, I think the selling price average selling price increase was 10,000 per unit and manufacturing costs and material costs slightly decreased. And to the overall gross margin, we booked RMB120 1,000,000 EV credit sales in Q4. The gross profit overall gross profit margin contribution was 1.8%.
That leads to the overall gross profit margin increase. And regarding the gross profit margin guidance in 2021, what I can see is the margin in Q1 can also be slightly improved, but the trend is not so large as much as in 2020. And for the full year guidance, I think it's too early for us to give at this moment. For the battery and cheap supplier, I can go back to William.
Okay.
Thank you for your questions. Regarding the chip supply and the battery supply, of course, this has a very big impact on the overall supply chain. This is also one of the constraints for us in the Q2 of this year. Of course, right now we have sufficient chip supply to support the normal production, but it's a changing time, so the situation will evolve gradually. For the Q2 of this year, we will still have some risks regarding the chip supply, but starting from last year, our team has already kicked off the communication and the collaboration with our supply chain partners to secure the sourcing of the chip.
We even have some direct communications with the chip suppliers to make sure we have sufficient supplies of the chipsets. We believe for the Q2, we should have the chip supply to meet our basic demand, but the risk is still quite high. Regarding the battery supply, this is another constraint for our 2nd quarter performance. We do have some limited supplies regarding the 100 kilowatt hour battery pack and other battery packs, which is actually less than our demand, because right now the market is actually quite booming and starting from July, we believe the battery supply should go back to the normal level and meet over demand. So because of the constraints of the battery supply and the chipset supply of our production capacity will kind of be limited in the second quarter to around 7,500.
For the battery cell cost, we believe the impact on us is not that big. For this year, the cost of the battery will further reduce to some extent, but we believe it's not going to be on a large scale. But the impact on us is quite limited because we have already locked the supply with our battery partners. We're still very important probably the most important customer for ZCL. So we have a very good pricing with ZCL's battery.
Thank you, Min.
Your next question comes from Bin Wang from Credit Suisse. Please ask your question.
Thank you. I just have one question about Liottoon TV sales because actually recently we got different picture. For example, your peers, you also have a pretty weak guidance. However, today's guidance seems to be surprised on upside, especially the March has been reaching new high for NIO. We're also facing the competition from Tesla Model Y.
Can we elaborate what's happening in the near term on EV demand is still a bad? So since that is quite confusing and meanwhile you seems to be quite positive about Q2 you got about $7,500 per month. Is that your guidance for the Q2? Thank you.
Thank you, Bing, for your question. And normally speaking, the Q1 of the year is the low season for the EV industry because of the subsidy and other policies. Model Y has announced their pricing for the locally manufactured vehicle, but this is the normal strategy and the practice of Tesla. Normally they cut the price and then they can boost the order backlog. Our approach is quite different from Tesla because we would like to make sure we have a stable order performance instead of these ups and downs in the order backlog.
For us, we don't actually want to cut the price to boost the order backlog. So it's quite different from Tesla. We would like to focus on the services and experience improvement as well as building a positive word-of-mouth reputation in the market because we do not want to cut the price. Because of our strategy, we can achieve a very stable and solid pricing with our products, which will also help with our gross margin and the vehicle gross margin. Just like I mentioned in February, the bus take rate among the new orders has reached 55% and these are growing every month.
So with our unique competitive edges and our long term capabilities, we believe we should be able to secure a strong footing in the market instead of being affected by those short term strategies and practices.
Your next question comes from Tim Searle from Morgan Stanley. Please ask your question.
Good morning management team. Congratulations on the strong result and good guidance. So I have two questions. The first question is about the vehicle sales this year because since our next model ET7 won't kick start the deliveries deal next year, how can NIO to meaningfully grow the vehicle sales in 2021? And will there be any spec upgrades or major model facelift on top of the aggressive channel expansion plan and BOS program?
My second question is about your comments from the NIO House, because I remember like last year you mentioned NIO House might be less cost efficient. So could you elaborate more about the key consideration when deciding to resume the deployment of NIO House? And what would be the overall investment and additional operating expenses to steal off the coverage of the new house based on the current estimates? Thank you.
Thank you, Tim, for your question. We will start the delivery of the ET7 from the Q1 of 2022. This means we will have a lot of preparations to do before the actual launch, especially in terms of autonomous driving technologies. We'll need to do sufficient testing at the development work for the autonomous driving technologies. Starting from now to the delivery of ET7, we will mainly rely on 3 current products including ES8, ES6 and EC6 for the sales performance.
Regarding the EC6, it's actually launched around September 2020 and for the all new ES8 is launched around March 2020. So for the ES6 it started the delivery from the second half of twenty nineteen. So in terms of the product lifecycle, we believe all the 3 models are quite competitive in the market compared with the gasoline cars and other EVs. We believe before the launch of the NT2.0, we do not need to have significant changes and face lift to our current three products. But on the other hand, we would like to further expand our sales and service network.
China is a very big market, so we will still have a lot of opportunities if we can further improve our infrastructure building. This can also help us to improve our sales performance. Starting from this year to next year before the launch of the NT2.0, we will mainly focus on the sales and service network and experience improvement to improve our sales performance. So we're quite confident that this should be able to help us to achieve our sales target. At the same time, we also have battery as a service and the 100 kilowatt hour battery pack delivery.
This is going to contribute to the conversion from ICE to BEVs. We're witnessing the trend is accelerating from this conversion. We believe our main competitors are the gasoline cars at the same pricing level that is around RMB300000 to RMB400 1,000. So in 2022, as you can see, Audi, BMW and Mercedes have achieved the sales of new highs. So it means that this is actually a very big market.
We believe other products are actually much better than their products. So it means that we have a lot of opportunities. We also do not have a very aggressive sales target because we're not going to sell 100 of 1000 vehicles in 1 year. So we believe with our current sales target, we should have the competence to achieve the objective.
Hi, Tim. I would like to elaborate the reasons why we bring new house back and the cost efficiency of our NIO House. I would like to remind you on the 3 key functions of NIO House. First, it helps us to convert these to orders and speed up the deployment will enhance the brand awareness, increase our user touch points. And second, Niho's also represents a very strong brand presence, increasing investment into brand communication will be conducive to the long term benefits of our brand.
3rd, NIO House is also very important for our user system and for our user community. And also on other hand, we have accumulated rich experience in operating offline stores and better control the satisfaction, planning and cost, which significantly lowers the investment and operating cost per store. To give you a rough number, the average store investment is just 40% of the original and the average rent and operating cost is just half of the original.
Your next question comes from Nick Lai from JPMorgan. Please ask your question.
Hi, good morning. It's Nick from JPMorgan. Great results, conversation indeed. So two simple questions. First, on NIO autonomous driving solution.
Yes, you mentioned that for the new ET7 model, which will be equipped with ADEN supercomputing solution and QR super sensing capability, I wonder whether these two solutions will be used for other existing models such as EC6 and ES8. And if so, how soon can we see this happening in the future? And related to this question is, is it fair to say that we'll broaden our monetization strategy beyond basic battery as a service and to more and more AD as a service in the future? And the second question is related to volume. You just mentioned that 2Q monthly capacity of production volume will be somewhere about 7,500.
But at the same time, you also mentioned that JC is expanding capacity to 115,000 unit capacity on a single ship basis. So as we move into second half of the year and hopefully the supply bottleneck on battery and the chip can be solved? And how should we think about capacity or monthly production increase into second half? And also related to volume questions, you just mentioned ET7 backlog order is beyond is well above expectation. What does that mean?
Does that mean 20,000, 40,000 units or anything? Any guidance will be appreciated. Thanks.
Thank you, Nick for your question. ET7 is the 1st model built on top of the NT2.0. Of course, all future models will be developed based on the new technology platform 2.0, but we're not going to kick off this work as soon as possible. But it's already in the pipeline for other products and the future models, we will leverage the latest technologies and we will share with more information with everyone regarding the product planning and the product portfolio at the
right time.
For the AD as a service, so we believe this is the right direction because we believe in the future all the AD services should be provided through the subscription model because it's going to benefit the users and from the technology point of view is also quite reasonable and feasible compared with ADAS business model. The ADAS service business model is based on the in store base. So it means that if one user's life cycle is 15 years, then within this 15 years, we should be able to generate revenue based on the AD as a service business model. In this regard, we believe that the ADAS as a service business model is much better than the traditional ADAS business model. If you look at the cloud service business like Amazon, Google, Microsoft and other domestic players in China, we believe this AD as a Service subscription model is going to be a very good revenue strength for us.
That is why we are going to be quite decisive to promote this business model and the subscription model. And from the battery as a service, we have already learned a lot of experience and the confidence and we believe that this means that the users should be quite acceptable regarding the ADS service. For the ADS service, in a nutshell, we believe the take rate is going to be higher and they can generate the revenue throughout the user lifecycle. It's also going to be beneficial for the users and we believe it's also going to be a very good business model and it's going to be quite sustainable. I would like to provide more information regarding the production capacity.
We have already achieved 7,500 units production capacity in January. I would like to explain a little bit about the overall supply chain production capacity concept, because this covers both our own plant and the supply chain production capacity. During the spring festival, the Hefei plant has already kicked off their production capacity ramp up. So we now have the capability to produce 10,000 units per month by having 2 shifts in some workshops. However, just like I mentioned, because of the constraints of the chipset supply and the battery supply in the second quarter, we may only be able to secure an overall supply chain production capacity of 7,500 units per month.
But starting from July, we expected to elevate the overall supply chain production capacity. And just like I mentioned before, our partner JAC has already kicked off as their further production capacity expansion. So it means that probably the annual production capacity is going to reach 150,000 units under 1 ship and 300,000 units under 2 ships by the end of this year or the beginning of next year. Another question is about the 87 order performance. Actually 87 was available for order on the new date on January 9, 2021.
The ET7 order backlog performance has exceeded all other models we have right now, but we cannot disclose the specific information regarding the order backlog. We would like to just focus on the delivery performance. But overall speaking, regarding the pricing of the EC7 is around RMB448000. With this kind of a pricing, we believe that the 87 has performed very well in terms of accumulating sufficient orders.
Your next question comes from Lei Wang from CICC. Please ask your question.
Good morning. This is Wang Li speaking from CCICC. I would say that's a very strong earning report and a very strong Q1 guidance. I have one follow-up question about the joint venture of ours. William just mentioned 55% of the take rate.
Could you please inform what is the capital status of the joint venture and how many battery services this company can support theoretically? Thanks.
Thank you, Lei, for your question. Regarding the battery assets, the management company, we have already finished 2 rounds of financing. Right now, we have 8 shareholders, including NIO. We have already raised around RMB4.4 billion. Right now, many new investors have approached me and asked whether it's possible for them to invest in the battery asset management company.
At the same time, we also secured sufficient credit facilities from the bank for the battery asset management company. As a very important player or a very important role in the battery as a service business model, the battery asset company has already secured sufficient cash to support this business model operation. But in terms of the penetration rate of the batteries among the battery as a service users, the delivery is going to be later compared with the orders, because we have a make to order business model. So first we have a penetration rate in the order backlog and then this will be gradually reflected in the delivery of the batteries to the vehicles to the users.
Your next question comes from Paul Geng from UBS. Please ask your question.
Yes. Thanks for taking my questions. I have two questions. The first one is relative to the near term sales. Do you foresee the lower tier cities increasing to be the key focus for your expansion?
And how do you think about your expansion of network and your ideal mix of the sales into Tier 1, Tier 2 versus Tier 3 cities? And do you foresee to gradually moving from Tier 1 focus into lower tier cities in the next 12 months? The second question is regarding the autonomous driving system development for the ET7. Obviously, you have put a very redundant, very powerful hardware on the vehicle. And for those who choose not to subscribe the AD system, will you still put the same hardware on the vehicle or will you choose to upgrade for the later stage when they choose to subscribe that?
And if you put such kind of redundant hardware, does that mean the costs tend to be higher and you will strategically accept a lower margin on the car sales than try to monetize it through the subscription in the later surface in the later life of the stage for the whole vehicle? Thank you.
Thank you, Paul, for your question. In fact, we have always been quite aggressive in building and expanding our sales network. Just like I mentioned, we have already got new houses and new spaces in around 12 cities and starting from last year, we have accelerated the expansion of the new spaces. In 2021, we're going to build 20 new houses and 120 new spaces. Our basic strategy or principle is to build our point of sales in those cities that has dealerships of the BMW, Audi and the Mercedes or Lexus.
Based on this principle, we haven't achieved full coverage yet in those cities, but we believe with our efforts this year, we should be able to achieve a full coverage. And for our existing new houses and the new spaces, we already got some in the Tier 3 and Tier 4 cities. We do not have any specific tactics regarding where should we have the new houses or new spaces is more driven by the sales performance. For example, in the Yangtze River Delta region, the sales performance is quite good. That It's why we decided to build the new houses and the new spaces in this region.
So of our speaking, we would like to expand our sales network coverage in more cities and more areas. But we would like to build more charging and swapping network in the remote places or remote cities, especially including the supercharger network and the destination chargers. For example, we would like to deploy over charging and swapping network in Inner Mongolia, Heilongjiang and other remote cities. In those cities they do not have very good infrastructure for the EVs. Starting from this year we're going to ramp up our infrastructure in those places.
Our principal and our vision has always been that the EV users can go everywhere with a very good user experience. So we would like to focus on those cities because right now the cities do not have a very high EV penetration that is why no third parties would like to view the infrastructure in those cities, but we would like to start this work first. Regarding the ADS service on ET7, the hardware including new accuracy for sensing and the new add on supercomputing of vehicle gross margin just because we are now using the AG as a service subscription model. We would like to still seek a reasonable vehicle gross margin at the time of the sales. Previously, we have already said that around 20% is a reasonable vehicle gross margin target.
So we're not going to lower this target. For the NAD, we believe that this is going to make long term contributions to our overall gross margin and vehicle gross margin.
Thank you, Paul.
Thank you.
Your next question comes from Geoff Chu from Citi. Please ask your question.
So I got three questions. What is the NOP and BOS attach rate in the past, right now and in the future? And how sensitivity does it relate to the GP margin and earnings? The second question is range estimate of full year's sales volume target. Thank you.
Thank you, Jeff, for your question. Just like we mentioned before, the take rate of Bats among the new orders in February is around 55%. Regarding the new pallet, we have 2 different packages. 1 is the full package and another one is the selected package. So the blended take rate of the NIO pallet with these 2 packages is around 50%.
We believe for some users they would like to choose to install or activate the new pallet after the vehicle purchase. So this is also going to help us to increase the take rate of the new pallet. But different people have different preferences that we think this is going to increase to some extent, but it's not going to be a very significant jump. For the battery as a service, this is not going to have a significant impact on our gross margin. For the impact, I think it's going to be quite minimum.
The MLP is going to contribute to our gross margin and it's going to be beneficial to the overall gross margin. The take rate increase of the MLP is one of the reasons that we have improved of the gross margin. The full package of the NOP is priced 39,000. So this is going to be a very good contribution to the gross margin. Starting from this year, we're going to focus on opted for NOP, half of them haven't opted for NOP yet.
So we would like to provide some innovative models or plans for those users. For example, we have tried some financing models for the NOP or new pallet to the users and received very good results. For the after sales installation of the NOPU activation of the NOP, this is going to contribute to the overall gross margin instead of the vehicle gross margin. Another question is about the overall supply chain. For the first half of this year, we would like to be more conservative and prepare for production based on the 7,500 units like I mentioned.
But for the second half of this year, we are quite confident about the demand, but we do not have the full visibility yet. We will further expand our sales and servicing network as well as our charging and the swapping network. We believe this can help us to improve the sales performance and this is going to help us to achieve a much higher sales in the coming second half of this year. Thank you, Jeff.
Our final question comes Fei Fang from Goldman Sachs. Please ask your question.
Yes, thanks for the opportunity. Congratulations on the strong performance. Just a quick question about your power swap station build out. How do you strategize your footprint? How do you choose location?
How often do you assume consumers will be using the infrastructure on a per vehicle basis? And then long term, how do you think about sort of the right size for your power swap network given the strong bus adoption? Thank you.
Thank you, Fei, for your question. Regarding the power swap, we actually provide services directly to the users and we can have the information regarding the users with whether they can store the home chargers or what should be their routine routes, what is the distribution of our user base. So based on all those informations and our make to order business model, we should be able to have a very good planning for the battery swap locations. Based on the location information of the users, we can make the optimal choices regarding where should we deploy the power swap stations. We can also have the information regarding how what should be the highways that are frequently visited by our users, so we can deploy the power swap stations in those highways.
Overall speaking, the efficiency of our battery swapping stations and the planning accuracy of the battery swap stations have significantly improved compared with the past. After the deployment of the battery swap stations, we have accelerated the speed of the service providing or the service offering to the users and achieved a very good performance. For example, during the peak hours, the battery swap stations can achieve around 10,000 battery swaps. Right now in China, we believe the long term trend is many users will not be able to install the home chargers. Although our installation rate of the home chargers is already quite high among the peers, But as our user base grows, we can see that this trend is going to gradually go down.
So it means that we would like to provide a more holistic power solution to the users, including the home chargers, the power swap stations and other services and that battery swapping shows that it can better support this part of the users' demand. Together with battery as a service, the battery swapping technology, battery swap stations and the 3rd party charging infrastructures, we believe we can provide the best holistic battery best holistic power solutions and experiences to the users.
Thank you, Wang Fei.
As there are no further questions, now I'd like to turn the call back over to the company for closing remarks.
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.
Thank you, everyone. Bye.