Hello, ladies and gentlemen. Thank you for standing by for NIO Inc. third quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. Today's conference call is being recorded. I will now turn the call over to your host, Mr. Rui Chen, Director of Investor Relations of the company. Please go ahead, Rui.
Thank you. Good morning and good evening, everyone. Welcome to NIO's third 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 Li, Founder, Chairman of the Board, and Chief Executive Officer, Ms. Steven Song, Chief Financial Officer, Ms. Stanley Qu, VP of Finance, and Ms. Jade Wei, AVP 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, go ahead please.
Hello, everyone. Thank you for joining NIO's 2020 Q3 earnings call.
In the third quarter of 2020, NIO delivered 12,206 ES8, ES6, and EC6, representing a strong growth of 154.3% year-over-year and 18.1% quarter-over-quarter. In October 2020, we delivered 5,055 vehicles, achieving another monthly delivery record. ES6 has been the best-selling electric SUV in China for 13 consecutive months. ES8 has reached the number one in sales this year in the premium electric SUV segment, priced above RMB 400,000 in China. Our third product, EC6, has started deliveries in September. We have gained and maintained a great word-of-mouth reputation for our product quality and service, and continuously received positive feedback from our users. In the 2020 China New Energy Vehicle Experience Index, released by J.D. Power in September, NIO has once again ranked highest in NEV new vehicle quality among all brands.
After the launch of the Battery as a Service, or BaaS, NIO's products and services have been increasingly accepted by more users. The new order intake in October broke the historic records and exceeded all expectations. In the fourth quarter, we are confident that deliveries will further grow to between 16,500 and 17,000 units. In terms of our gross profit, supported by the steadily growing quarterly deliveries, increase of higher margin products in our product mix, as well as continuous improvement on material cost and manufacturing efficiency, our gross margin in the third quarter has continued the upward trend.
With the vehicle margin and overall gross margin reaching 14.5% and 12.9% respectively, surpassing our previous expectation.
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NIO's system efficiency is getting more and more self-evident. The operating loss has further narrowed to RMB 946 million in the third quarter of 2020, representing an 18.4% decrease month-over-month, and a 60.7% decrease year-over-year. In addition, we have achieved a positive cash flow from operating activities for the second sequential quarter in Q3. We are confident to achieve a positive operating cash flow for the full fiscal year 2020.
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Next, I would like to share with you some key tasks of the company.
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With respect to R&D, we released the Navigate on Pilot feature, or NOP, to users via FOTA in October, which has further boosted the competitiveness of NIO Pilot over ADAS systems, and received rave reviews from users and the media. Through fusing the environmental data from the sensor suite with high-definition maps, NOP can guide the vehicle to follow the navigation route, automatically drive from on-ramp to off-ramp, and overtake slower cars. It can engage not only on highways, but also urban expressways, with optimizations based on specific use cases in China.
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We are accelerating the development of the second generation technology platform, NT2.0.0. The core of NT2.0.0 is industry-leading mass production autonomous driving system. We will share more details of NT2.0.0 at NIO Day 2020.
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On November 6th, NIO launched the 100 kW-hour battery pack. It features a highly integrated cell-to-pack architecture with 37% energy density increase, which significantly extends the drive range of our product lineup. It has also adopted other advanced technologies, including thermal propagation prevention design, all climate thermal management, and bi-directional cloud BMS to make the battery safer and better. The 100 kilowatt-hour battery pack will begin deliveries in December. Together with the launch of the 100 kW-hour battery pack, we also provide permanent upgrades and flexible upgrades by month or by year to users of the 70 kW-hour battery pack. As of today, we have successfully closed the loop for our innovative BaaS model through vehicle battery separation, battery subscription, and chargeable, swappable, and upgradable battery solutions.
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As for production capacity, our overall supply chain production capacity has already reached 5,000 units per month in September. The teams are working diligently together with other partners to further elevate our production capacity. We target to expand the overall supply chain production capacity to 7,500 units per month in January 2021 to meet the growing user demand.
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In regards of the sales and service network, NIO has opened 22 new houses and 159 new spaces in 106 cities, and 159 Power Swap Station in 70 cities in China. Moreover, we're developing the second-generation Power Swap Station with lower cost and a better experience, and are planning to deploy the second-generation swap station in the first half of 2021. As our user base continues to expand, the NIO user community is becoming ever more vibrant. November marks the second anniversary of the NIO user volunteer initiative. As of November 10th, 2020, there are 3,101 user volunteers from 118 cities. They've taken it upon themselves to promote NIO and contribute to the community at the showroom, auto shows, live streaming platforms, delivery centers, and the NIO Day. Users' trust and support have always been the biggest motivation for NIO to do more and to be better.
On November 26th, 2020, NIO will embrace its sixth anniversary. With users' support and the team's effort, we have achieved a milestone performance. We are still a startup with a rather short history. In the face of serious competition and intense challenges, we will remain committed to making decisive investment into products and the core technologies, and offering the best service and holistic user experience to live up to the expectations of our loyal user community. 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, Vivian. I will now go over our key financial results for the third quarter of 2020. To be mindful of the length of this call, I encourage listeners to refer to our recent press release, which is posted online, for additional details. Our total revenues in the third quarter were RMB 4.53 billion, or $666.6 million, representing an increase of 146.4% year-over-year, and increase of 21.7% quarter-over-quarter. Our total revenues are made of two parts, vehicle sales and other sales. Vehicle sales in the third quarter were RMB 4.27 billion, or $628.4 million, accounting for 94% of total revenues in this quarter. It represented an increase of 146.1% year-over-year, and an increase of 22.4% quarter-over-quarter. The increase in vehicle sales year-over-year was primarily due to the increase in sales of ES6 and ES8.
Other sales in third quarter were RMB 259.2 million or $38.2 million, representing an increase of 150.7% year-over-year, an increase of 11.3% quarter-over-quarter. The increase in other sales year-over-year was mainly attributed to increased revenues derived from the home charger installed, service packaging, and energy package subscribed, and accessories sold, which were in line with increased vehicle sales in third quarter of 2020. Cost of sales in third quarter was RMB 3.94 billion or $580.3 million, representing an increase of 91.4% year-over-year, an increase of 15.7% quarter-over-quarter. The increase in cost of sales year-over-year was mainly driven by the increase of delivered volume in the third quarter of 2020.
Gross profit in third quarter of 2020 was RMB 585.8 million, or $86.3 million, representing increase of RMB 807.4 million from our gross loss of RMB 201.6 in the third quarter of 2019, an increase of RMB 272.7 million from the second quarter of 2020. The increase in gross profit was mainly contributed by increased vehicle sales and increased vehicle margin. Gross margin in the third quarter of 2020 was 12.9%, compared with that is 12.1% in the same quarter of 2019 and 8.4% in the third quarter of 2020. The increase of gross margin was mainly driven by the increase of vehicle margin in the third quarter of 2020. More specifically, vehicle margin in the third quarter of 2020 was 14.5%, compared with that is 6.8% in the same quarter of 2019, at 9.7% in the second quarter of 2020.
The increase of vehicle margin was mainly driven by the decrease in purchase price of certain materials and lower unit manufacturing costs attributable to increased production volume of the ES6 and ES8 in the third quarter of 2020. R&D expenses in the third quarter were RMB 590.8 million or $87 million, representing a decrease of 42.3% year-over-year and increase of 8.4% quarter-over-quarter. The decrease in R&D expenses year-over-year was primarily attributable to hard design and development costs that occurred in the third quarter of 2019 for EC6 and all-new ES8 launched in the fourth quarter of 2019 at the company's overall cost-saving efforts and improved operational efficiency in R&D functions since the fourth quarter of 2019. SG&A expenses in the third quarter were RMB 940.3 million or $138.5 million, representing a decrease of 19.2% year-over-year, an increase of 0.4% quarter-over-quarter.
The decrease in SG&A expenses year-over-year was primarily driven by the company's overall cost-saving efforts and improved operating efficiency in marketing and other supporting functions. Loss for operations in the third quarter was RMB 946 million or $139.3 million, representing a decrease of 60.7% year-over-year and a decrease of 18.4% quarter-over-quarter. Share-based compensation expenses in the third quarter were RMB 49.2 million or $7.3 million, representing a decrease of 30.1% year-over-year, an increase of 8.3% quarter-over-quarter. The decrease in share-based compensation expenses year-over-year was primarily driven by the decline in numbers of employees and impact of part of the share-based compensation expenses recognized by using the accelerated method under which the expenses decrease gradually over the vesting period.
Net loss in the third quarter was RMB 1.05 billion or $154.2 million, representing a decrease of 58.5% year-over-year and a decrease of 11% quarter-over-quarter. Net loss attributable to NIO's ordinary shareholders in the third quarter was RMB 1.19 billion or $175 million, representing a decrease of 53.5% year-over-year and a decrease of 1.6% quarter-over-quarter. Basic and diluted net loss per ADS in the third quarter were both RMB 0.98 or $0.14 per ADS. Excluding share-based compensation expenses and accretion of redeemable non-controlling interests to redemption value, non-GAAP adjusted basic and diluted net loss per ADS were both RMB 0.82 or $0.12 per ADS in the third quarter. Our balance of cash and cash equivalents with restricted cash and short-term investments was RMB 22.2 billion or $3.3 billion as of September 30th, 2020.
Additionally, we achieved positive cash flow from operating cash activities for the second sequential quarter. Now for business outlook. As William mentioned, for the fourth quarter of 2020, the company expects deliveries to be between 16,500 and 17,000 vehicles, representing an increase of approximately 100.6% to 106.7% from the same quarter of 2019, an increase of approximately 35.2% - 37.3% from the third quarter of 2020. The company also expects the total revenues of the fourth quarter 2020 to be between RMB 6.26 billion-RMB 6.44 billion or between $921.8 million-$947.9 million US dollars. This will represent increase of approximately 119.7% to 126% from same quarter of 2019, an increase of approximately 38.3% - 40.2% from the third quarter of 2020.
This outlook reflects the company's current and preliminary views on the recent developments and market conditions, which is subject to change. This completes our prepared remarks. I will now turn the call over to the operator to participate our Q&A session.
The first question we have is from the line of Tim Hsiao from Morgan Stanley. Your line is now open.
Hi, William, Steven, Jade and Tim. This is Tim from Morgan Stanley. Congratulations on the strong result and thanks for taking my questions.
So I have two questions and will quickly go through them in Mandarin first. [Non-English content] So my first question, we saw NIO making solid operational progress this year at all fronts.
For example, like in the launch of EC6, BaaS and the 100 kW hour battery pack. Looking to 2021, in addition to the fourth model launch and ongoing investment in autonomous driving, what else would be our key focuses for R&D investment? If possible, could the management share any rough guidance regarding the overall R&D spending versus 2020? My second question is about BaaS, Battery as a Service. Could you please share some market feedbacks on the battery service program? With the launch of the 100 kW hour battery pack, what's our expectation of the take rate of BaaS services for 2021 and beyond? These are my two questions. Thank you.
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Thank you for your question. Regarding the R&D focuses for next year or of a recent focus, just like I mentioned in my prepared remarks, the NT2.0 is the focus in terms of the core technologies. The core of NT2.0 is the industry leading mass production autonomous driving system. Of course, we also have other ongoing projects. In terms of the vehicle models, we have already successfully launched three SUVs. For the next product we are going to launch, it's going to be a sedan on the NT2.0 platform. It means that we're going to enter the sedan market. At the same time, we are also developing other vehicle models. For example, the second new product in the pipeline is also going to be a sedan. With the launch of the next two new products, we believe we can complete our product portfolio.
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In terms of the BaaS take rate, after we announced the BaaS in August, we are very happy to see the increase with the take rate every week. In November, we can see that among all those new orders, the take rate of BaaS is around 35%, which is faster and better than our previous expectations. Our model is make to order, so this will be reflected a little bit later in our deliveries. We are very happy to see this BaaS take rate momentum. We believe that it is also going to improve in the future. BaaS can help us to lower the initial purchase price and eliminate the users' concerns regarding the battery degradation. Also provide flexible upgrade services to the user. The purpose of BaaS is to convert more gasoline car users to EVs.
After the launch of a 100kWh battery pack, we believe the competitiveness of BaaS has been significantly enhanced. As the users can get much better understanding about the benefits of BaaS, we believe that the take rate will increase in the future in the long run.
Perfect, clear. Thank you William, and congratulations again on the result. Thank you.
Thank you, Tim.
Thank you. The next question we have is from Ming-Hsun Lee from Bank of America. You may now proceed with your question.
[Non-English content] My first question is regarding the margin expansion from second quarter to third quarter, your gross margin improved around 5%. Could you give a rough breakdown how do you improve your gross margin?
Do you also see any extra contribution from the sales of the NEV credit? Those are my first questions. Thank you, William, and the management team.
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Hi Ming, this is Stanley. The vehicle margin increased in Q3 compared with Q2, mainly contributed by two factors. The first is the average selling price increased by RMB 10,000 per vehicle. Mainly because the more ES8 with higher price are sold in Q3. Second is BOM cost reduced by RMB 7,000 per vehicle, which are contributed by the cost reduction of battery pack and also EDS. You mentioned the revenue from selling dual credit points. We received the revenue in Q4 with total amount of RMB 120 million, and we will recognize this as revenue in Q4. In Q3, we not included in the financial results. That's your question about the vehicle margin. Regarding the service revenue, I think we are continuously working on to improve the service margin to reduce the loss. I think the trend will be positive in future. Okay, thanks Ming.
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About regarding the gross margin of the other service and the sales, we believe it be further optimized as our user base continues to expand, and this is going to be reflected with the growing economics of sale. In the Q2 and Q3, the change is not very evident, but we are quite confident that this is going to have a continuous optimization in the future.
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Hao Min, I think your line got stopped.
I'm very sorry, the participant's line got disconnected. May we suggest please press star one again if you have further questions. I'll move on to the next one. We have Bin Wang from-
Operator, let the management to answer the question first.
Yeah, even the management.
Sure. Go ahead.
Just to recap a little bit on the question. Basically, the question is about the average selling price. In the fourth quarter, it seems that the average selling price will increase compared with the third quarter by around RMB 12,000-RMB 13,000. We would like to know whether this is driven by the ES6 or the 100 kWh battery pack. We also would like to know for the battery packs, what is the take rate ratio between the 100 kWh battery pack and the 70 kWh battery pack.
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In terms of the sales revenue guidance, we would like to clarify a little bit, just like Stanley mentioned for the due credit revenues, this is going to boost the revenue for the other sales. In our guidance, we don't actually consider the increase of the average selling price as a part of the target. We believe the average selling price in the fourth quarter is going to be at the similar level as the third quarter, according to the orders we receive right now. We just started the deliveries of the 100kWh battery pack in the fourth quarter. We believe that this is not going to have any impact on the gross margin in such a short time, but we are very confident to continuously improve our gross margin throughout the fourth quarter.
Operator, we can move on to next question.
Certainly, sir. The next question is from Bin Wang from Credit Suisse. Your line is now open.
[Non-English content] actually, I just want to know what's the margin factors going forward, you know, in the past.
Going forward, we see a few factors. For example, BaaS adoption, 100kWh battery and some removal of the industry subsidy for the previous different battery, and it was factors for impact margin in the past. That's about a margin. Second, about a new product, because we've seen the two products will be the sedan likely to be lower pricing or maybe lower margin. Does there any plan for even bigger SUV or even bigger one? For example, maybe the names, the ES9, we've seen on a PS actually planning for much bigger one. Basically, what's the upcoming plan for even bigger products? Thank you.
Hello, this is Stanley. I will break down into the factors to further explain the gross margin improvement. The first you mentioned is about the subsidy. We further reduced the subsidy to the end users in Q3 with the launch of our BaaS model. In Q3, there's a little bit like factor due to the subsidy reduction. Second is the scale of economy. As you can see, the production volume in Q3 is 12,000 vehicles and over 20% increase compared with Q2. As William Li mentioned, priorly we invest more to improve our production capacity in September to 5,000 units. The manufacturing cost, I think almost all the same with the second quarter. About the BaaS and also the kilowatt impact, ask William Li to answer the question.
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I would like to add some points regarding the manufacturing cost and efficiency. In the long run, of course, we will further improve our manufacturing efficiency and cost. We believe this is going to reduce gradually. We're going to stop the reduction at a certain point. Of course, we can see more contribution in the third quarter compared with the second quarter. This is going to diminish in the future. We will continue to work on the optimization of the manufacturing efficiency and the cost.
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For the Battery as a Service, we will sell other cars to the users and the battery to the battery asset company under the BaaS model. It means that this is not going to affect the vehicle gross margin. With our battery upgrade service, this is going to provide some good benefits to other revenues. In the long run, this is not going to have any significant impact on the vehicle gross margin, but it will give some incentives to other revenues.
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For the due credits, we actually include this in other revenues or other sales. We have different approaches compared with Tesla, because Tesla considers the revenue of the credit in the vehicle margin, but we include that in the other revenues.
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For the new product planning, we have a very comprehensive product and market entry planning. This is going to be carried out step by step. For example, we started with our flagship SUV ES8 in the mid and large segment. We entered the mid-size SUV segment with the ES6, then the Coupé SUV with the EC6. This is a very systematic approach. For the next step, we're going to enter the sedan market. When selecting different market segments, we need to balance the size of the segments and the volume objectives. At this moment, the niche markets are not going to be our focus.
I think Wang also mentioned the one-time factors in Q3. We did not receive significant like sales rebates from the suppliers in Q3. I don't think we have the material factors. Yeah. Okay.
Okay. Can you also answer me about the 100 kWh battery, whether that will improve your margin? I think in this flow, you also mentioned about 150 kilowatt-hour battery coming. Did you think that margin for the upside from the battery upgrade?
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For the 100 kWh battery pack, the users can purchase the battery pack as an option, which is going to improve the vehicle gross margin. At the same time, we also provide flexible upgrades, which can contribute to the gross margin of other services and sales. These are two different stories and approaches. After the launch of the 100 kWh battery pack, we have seen some users choose to install the 100 kilowatt-hour battery pack as an option. At the same time, we also provide the flexible upgrade. We also have some users opt to the flexible upgrade by month or by year. We believe this is going to improve the gross margin of the company. In terms of the new car gross margin or new vehicle gross margin, we think it's not going to have a significant impact.
In the long run, this is going to give us some boost to the gross margin of the other sales and the revenues.
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Our logic for this approach is basically the 70kWh battery pack can meet the daily needs of the users. If the user can make to travel for long distance, then they can subscribe to the bigger batteries or the batteries with higher density or capacity. Users can choose this service on demand. This is quite flexible and this is the advantage of our service. We believe that this is also going to contribute to the possibilities of gross margin growth in the long run. The battery pack is going to provide a very good opportunity for us to improve the gross margins among the existing users. This is a very unique advantage of our business model.
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The 100 kWh battery pack or the future bigger battery packs can, in the end, improve the attraction of the 70 kWh battery pack. The users of the 70 kWh battery pack will have the opportunity to upgrade the battery pack on demand. They don't actually need to have the 100 kWh battery pack or 150 kWh battery pack right from the beginning. They can just use the 70 kWh battery pack to meet their daily usage needs. They can upgrade to the bigger batteries. We believe that this is going to significantly improve the competitiveness of our 70 kWh battery pack.
Thank you.
Thank you, Wang Bing.
The next one is from Edison Yu from Deutsche Bank.
Thanks everyone for taking the questions. First, can you talk a little bit about the operational plan to boost the production target in January? What needs to get done just on the ground? Secondly, as it relates to the next gen autonomous platform, can you talk about your latest thinking in terms of insourcing the chip design? Maybe the implications for Mobileye and that relationship and how you think about the use of LIDAR.
Thank you, Edison. [Non-English content]
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We have always been emphasizing on the overall supply chain production capacity, not just about the production capacity of our own plants. We would like to work together with all the supply chain partners to make sure they can support us to boost our production capacity. The users right now will need to wait for some time to pick up their cars because of the production capacity constraints. We are also trying to speed up the delivery to satisfy the users' demand. Right now, we are working on our own plant production capacity expansion and also working together with the supply chain partners to improve their production capacity. We're very confident to be able to improve our production capacity to 7,500 units.
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The second question is about the chipset of the NT2.0. We understand this attracts a lot of attention in the industry and in the market, but we still need some time to disclose the specific information at the NIO Day 2020. It's still too early for us to share those information. Of course, we have already made our decision internally. We believe that we should be able to provide the most advanced chipset with the best performance in the industry, and this can also help us to guarantee our leading position in the industry for the coming years.
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For the LIDAR question, I would like to share some thoughts on the autonomous driving direction first. When thinking about autonomous driving, we should evaluate the two aspects. The first one is how much time we can free up for the users. This is a question of the availability or usability. The second question is how many accidents can we prevent with the autonomous driving system? This is a matter of reliability. We need to think about these two aspects when we evaluate the strategy of autonomous driving. We believe that LIDAR should be able to help with both aspects.
This is a very simple math, but we will need to tackle the issue of cost when it comes to LIDAR, and we need to balance this out with our product strategy. In the future, with the improvement of cameras and the compute powers, we still believe that LIDAR can play a role in some cases and the domains, because they can help us to reduce the accident rate in some corner cases. LIDAR is a very good addition to the technology competence.
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If a company put users' interest first, then they should find ways to tackle the technical issues in terms of cost and performance.
Thank you, Edison.
Thank you. We have the next question from Nick Lai. Your line is now open.
[Non-English content] Let me translate my question very briefly. The first question is regarding the cash burn and the CapEx and investment in the next one year, for instance. William just mentioned that our monthly capacity can ramp up to 7,500 in January. And would that mean that in the next one year also, we need to expand our capacity at the JAC Motors plant?
On top of that, how should we think about the CapEx needed to build a swap station as well as new NIO Space? The first question is about cash burn and CapEx related. Second question on longer term autonomous driving solution or strategy. Based on what Chairman William just comment just now, is it correct to understand that our long term strategy is to procure chip from top vendor, but at the same time, we will do most of the software and capability or solution in-house? Thank you.
With regard to the CapEx to improve our production capacity, most of the CapEx will covered by JAC. Of course NIO will spend very little CapEx on our own, the majority will be covered by JAC.
Yeah. Invest more in the expansion of sales and service network, and also the Power Swap Station. We will manage well the progress, so I don't think there will be a very big cash burn I think in next year. That's about the question of the CapEx.
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For the current development plan and the cash position, we believe we have no need for financing in the short term. We should be able to have sufficient resources to support the business development of the company. With respect to autonomous driving directions, our objective is to build in-house full stack capabilities for autonomous driving. We have always had this capability in our company in-house. Recently, we have even enhanced our capabilities in terms of the algorithm and system development. Starting from 2016, we have developed the NIO Pilot first generation by ourselves in-house. For the first generation NIO Pilot, chipset is closely bundled together with the algorithm. For the second generation NIO Pilot, we would like to make sure we can have the in-house capabilities, especially in terms of the algorithm, data and system development.
Thank you, Nick.
Thank you.
Thank you.
We have the next question from the line of Jeff Chung from Citi Group, Your line is now open.
[Non-English content] My first question is about first quarter next year's sales volume outlook, whether they can still expand Q on Q. The second question is about the differences between vehicle GP margin and non-vehicle GP margins growth outlook and forecast. Thank you.
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Thank you for your question, Jeff. It's very early to provide the guidance for the first quarter of 2021. Of course, we need to be fully prepared in terms of the production capacity, make sure we can meet the user demand and the order backlog. According to the current order momentum and the current backlog, we will need to have a sufficient production capacity for the first quarter of next year to meet the order backlog right now. In our company, our business model is make to order. We would like to focus on the level of order. For other companies, they talk about the inventory level, but we focus on the order level. We would like to control the order level within a reasonable range, so users don't need to wait for a long time to pick up their car.
We would like to improve our production capacity to make sure we can control the order level within one month. It means from the order placement to the user delivery, the lead time should be between three to four weeks, then we can achieve a good user experience. At this moment, we still need a long time to meet this target, but we will need to ramp up our production to make sure we can improve the user experience, and we are quite confident that we can achieve this target in the future.
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The gross margin has been on the rise. In the past, we made a consistent trend that is the non-vehicle gross margin is lower than the vehicle gross margin. In the past few quarters, we have seen both the vehicle gross margin and the non-vehicle gross margin have been increasing. Just like I've mentioned, the carbon credit revenue will be included in the non-vehicle gross margin in the future. This year, we can see the value of the carbon credit has become more and more evident in China. In the coming years, going forward, we believe that the carbon credit is going to contribute to the improvement of the non-vehicle gross margin. At the same time, the revenue from our services and the Power Swap can also help us to narrow the operating loss. This is going to improve together with the expansion of our user base.
Overall speaking, the non-vehicle gross margin is going to improve in the long run, and the Battery as a Service part can also improve the non-vehicle gross margin. Everything is going according to the plan.
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In the fourth quarter, we're going to receive the revenues on the carbon credit, which is generated by the vehicles sold in 2019. In this year, because of the sales increase, the carbon credit number has increased by over 2.5x , and we believe that the piece price of the carbon credit will also double next year. The overall revenue on the carbon credit will be 4-5x more next year compared with this year. A lot of OEMs are in discussion with us about the purchase of the carbon credit. We believe that this due credit system and mechanism is going to be very beneficial to the development of the EV industry.
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[Non-English content] So my last two questions are about the carbon credit.
Will it be impacting on our PNL next year in 4Q as well, rather than spread evenly throughout the four quarters? This is number 1. Number 2 is about the attach rate on our NOP and BaaS right now and going forward. Thank you.
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The confirmation of the carbon credit revenue is quite flexible. We are not going to put the revenue confirmation in a specific quarter next year, because this depends on the specific market conditions. If we sell too early, maybe it's a little bit too cheap. For the BaaS take rate, just like I mentioned, in November, the take rate of a BaaS has reached 35% among the new orders. We believe this is going to further improve in the long run, and the take rate of the NIO Pilot is around 50%. After the launch of Navigate on Pilot, we believe this is going to have a much better performance.
Thank you.
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Thank you.
Thank you. We have the next question from the line of May Yi from the Tiger Securities. Your line is now open.
Hi, thanks for taking my question. Great quarter, guys. My question first is could you please comment on your thoughts about Tesla's made in China Model Y. Will it impact all your order momentum? Secondly, could you please give us some updates on your internationalization plan? For instance, do you have a timetable for multiple steps of going global? Where could be your first market? What kind of models are you going to introduce to international markets? How to hire a local and competent team?
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Thank you for your question, May. Tesla has officially announced that they are going to have the local production of the Model Y. We believe this is actually good for the users because if we have more options for the users, this can help us to accelerate the popularization of the EVs in the market. Of course, we believe the Tesla strategy is quite different from NIO. Starting from last year, Tesla has cut their price multiple times, and they basically have the pricing strategy based on the cost. At the end of last year and the beginning of this year, their price cut has affected us for about one week, but afterwards, our order intake bounced back very quickly. After this price return, they also had several rounds of price cuts. The most recent one is around the 1st of October. The price cut is around 10%.
We didn't see any specific impact on our order intake. Actually, in October, our order intake has broken the historic record and exceeded our expectations. Our transaction price is around RMB hundreds of thousand higher than Tesla's average selling price. We believe this proves that we have our own unique advantages with our products and services. Model Y's introduction to the China market is going to be beneficial for the overall market. We believe that the competition is more about the competition between Model Y and the Model 3 because we have our own unique advantages regarding our products and the services. For the market situation, basically, we believe the pie is growing bigger and our main competitors in this market should be the gasoline cars.
The China premium market is a very big market with the volume of millions and this gives us a great confidence that we can have a sustainable growth in the long run.
This is Steven. I'll give you some high-level update of our globalization efforts. First, we have a very concrete short-term target. That is we will enter EU market in the second half of 2021. At the same time, globalization is a very long-term vision for NIO. NIO is a global brand, and we will be very patient to implement this strategy step by step. We have three principles. First, we will stick to our user enterprise, this model. We believe it's a global and universal philosophy. Second, we will maintain our premium brand positioning. Our key competitors are BMW, Audi, and Tesla. Third, our sales and service must be localized to suit the European customers' needs. That's the update of our globalization efforts.
Thank you.
Perfect. Thank you.
Thank you. That will be the last question for today. I'd like to turn the call back over to the company for closing remarks.
Thank you again for joining us today. If you have any further questions, feel free to contact NIO's investor relations team through the contact information on our website. This concludes the conference call. You may now disconnect your line. Thank you.
Thank you, everyone.
Thank you.
Thank you, everyone.
Thank you, everyone. That will conclude our conference for today. Thank you all for participating. You may now disconnect.