Hello, ladies and gentlemen. Thank you for standing by for Neo Incorporated Third Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen only mode. Today's conference call is being recorded. And I will now turn the call over to your host, Mr.
Ray Chen, Director of Investor Relations of the company. Please go ahead, Ray.
Thank you. Good morning and good evening, everyone. Welcome to NIO's Q3 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, Support and Chief Executive Officer Ms. Dylan Feng, Chief Financial Officer Ms. Danny Qi, VP of Finance and Ms. Jane Zai, AVP of Capital Markets and Investor Relations. Before we continue, please be timely 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 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 Niel'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 Q3 of 2020, NIO delivered 12,206, Yates8, Yates6, 86, 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 1 in sales this year in the premium electric SUV segment, priced above RMB400000 in China. Our 3rd 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 continually received positive feedback from our users. In the 2020 China NIO Energy Vehicle Experience Index released by JD Power in September, NIO has once again ranked highest in NEV new vehicle quality among all brands. After the launch of battery as a service or FaaS, new products and services have been increasingly accepted by more users.
The new order intake in October broke the historic record and exceeded our expectations. In the Q4, we are confident that the deliveries will further grow to between 16,517,000 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 3rd 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. Getting more and more self evident. The operating loss has further narrowed to RMB946 1,000,000 in the Q3 of 2020, representing an 18.4% decrease month over month and a 60.7% decrease year over year.
In addition, we have achieved positive cash flow from operating activities for the 2nd sequential quarter in Q3. We are confident to achieve a positive operating cash flow for the full fiscal year 2020. Next, I would like to share with you some key tasks of the company. With respect to R and D, we released the Navigate on Palette feature or NOP to users via quota in October, which has further boosted the competitiveness of NIO Palette over ADAS system and received rave reviews from users and the media. Through using the environmental data from the sensor suite with high definition maps, MLP 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. We are accelerating the development of the 2nd generation technology platform, NT 2.0. The core of NT 2.0 is industry leading mass production autonomous driving system. We will share more details of NT2.0 at New Day 2020. On November 6, NIO launched the 100 kilowatt hour battery pack, a 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 the bidirectional 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 kilowatt hour battery pack, we also provide permanent upgrade and the flexible upgrade by month or by year to users of the 70 kilowatt hour battery pack. As of today, we have successfully closed the group for our innovative bus model through vehicle battery separation, battery subscription and chargeable, swappable and upgradeable battery solutions. 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 our 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. In regards of the sales and service network, NIO has opened 22 new houses and 159 new spaces in 106 cities and 159 Howard Swap stations in 70 cities in China. Moreover, we're developing the 2nd generation power swap station with lower cost and a better experience and are planning to deploy the 2nd generation swap station in the first half of twenty twenty one. As our user base continues to expand, the new user community As of November 10, 2020, there are 3,101 user volunteers from 118 cities.
They take it upon themselves to promote NIO and contributed to the community as a showroom, auto shows, live streaming platforms, delivery centers and NIO Day. Users' trust and support have always been the biggest motivation for NIO to do more and be better. On November 26, 2020, NIO will embrace its 6th anniversary. With huge support and team effort, we have achieved a milestone performance. But we are still stuck with a rather short history.
In the face of a fierce competition and intense challenges, we will remain committed to making decisive investments into product 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 Stephen to provide you the financial details on the quarter. Stephen, please go ahead.
Thank you, William. I will now go over our key financial results for the Q3 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 3rd quarter were RMB4.53 billion or RMB666.6 $6,000,000,000 representing an increase of 146.4 percent year over year, an increase of 21.7 percent quarter over quarter. Our total revenues are made of 2 parts, vehicle sales and other sales.
Vehicle sales in the 3rd quarter were RMB4.27 billion or US600 dollars to US8.4 million dollars accounting for 94% of total revenues in this quarter. This represented an increase of 146.1 percent 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 this quarter were RMB259.2 million or US38.2 million dollars representing an increase of 150.7 percent 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 Q3 of 2020.
Cost of sales in the Q3 was RMB3.94 billion or US580.3 million dollars representing an increase of 91.4 percent year over year, an increase of 15.7 percent quarter over quarter. The increase in cost of sales year over year was mainly driven by the increase of delivered volume in the Q3 of 2020. Gross profit in Q3 of 2020 was RMB585.8 million or $86,300,000 representing an increase of RMB807.4 million for a gross loss of RMB201.6 million in the Q3 of 2019, an increase of RMB272.7 million from the Q2 of 2020. The increase in gross profit was mainly contributed by increased vehicle sales and increased vehicle margin. Gross margin in the Q3 of 2020 was 12.9%, compared with active 12.1% in the same quarter of 2019 and 8.4% in the Q3 of 2020.
The increase of gross margin was mainly driven by the increase of vehicle margin in the Q3 of 2020. More specifically, vehicle margin in the Q3 of 2020 was 14.5% compared with effective 6.8% in the same quarter of 2019, up 9.7% in the Q2 of 2020. The increase of vehicle margin was mainly driven by the decrease in purchase price of certain materials and lower unit manufacturing costs, which are based on increased production volume of ES6 and ES8 in Q3 of 2020. Oil expenses in Q3 were RMB590.8 million or US87 million dollars representing a decrease of 42 point 3% year over year, an increase of 8.4% quarter over quarter. The decrease in R and D expenses year over year was primarily attributable to higher design and development costs incurred in the Q3 of 2019 for EC6 an all new ES8 launched in the Q4 of 2019 at the top of all cost saving efforts and improved operational efficiency in R and D functions since the Q4 of 2019.
SG and A expenses in the 3rd quarter were RMB940.3 million or US138.5 million dollars representing a decrease of 19.2 percent year over year, an increase of 0.4% quarter over quarter. The decrease in SG and A expenses year over year was primarily driven by the company's overall costly efforts and improved operating efficiency in marketing and other supporting functions. Plus, for operations in the 3rd quarter was RMB946 1,000,000 or US139.3 million dollars representing a decrease of 60.7 percent year over year and a decrease of 18.4% quarter over quarter. Share based compensation expenses in the 3rd quarter were RMB49.2 million or US7.3 million dollars represent a decrease of 30.1 percent year over year, an increase of 8.3% quarter over quarter, The decrease in share based compensation expenses year over year was primarily due to less options broadly driven by the decline in numbers of employees and impact of part of the share based compensation expenses being recognized by using the accelerated method under which the expenses decreased gradually over the Western period. Net loss in the Q3 was RMB1.05 million or RMB154.2 million representing a decrease of 58.5 percent year over year and a decrease of 11% quarter over quarter.
Net loss attributable to NIO's ordinary shareholders in the 3rd quarter was RMB1.19 billion or $175,000,000 represent a decrease of 53.5 percent year over year and a decrease of 1.6 percent quarter over quarter. Basic and diluted net loss per ADS in the 3rd quarter were both RMB0.98 or $0.14 per ADS. Excluding share based compensation expenses and accretion of redeemable non controlling interest to redemption value, non GAAP adjusted basic and diluted loss per ADS were both RMB0.82 or $0.12 per ADS in the 3rd quarter. For a balance of cash and cash equipment, restricted cash and short term investments was RMB22.2 billion or US3.3 billion dollars as of September 30, 2020. Additionally, we achieved positive cash flow from operating cash activities for the 2nd sequential quarter.
And now for our outlook. As Vinay mentioned, for the Q4 of 2020, the company expects deliveries to be between 16,517,000 vehicles, representing increase of approximately 100.6% to 106.7% from the same quarter of 2019, an increase of approximately 35.2% to 16.3% from the Q3 of 2020. The company also expects the total revenues of the Q4 2020 to be between RMB6.26 billion to RMB6.44 billion or between RMB921.8 million to RMB947.9 million. This will represent increase of approximately 119.7 percent to 106% from the same quarter of 2019, an increase of approximately 38.3% to 42.2% on the start of the quarter of 2020. This split outlook reflects the company's current and the preliminary view on the risk mitigation and market conditions, which is subject to change.
Now this concludes our prepared remarks. I will now turn the call over to the operator to facilitate our Q and A session.
Ladies and gentlemen, we'll now begin the question and answer session. The first question we have is from the line of Tim Shao from Morgan Stanley. Your line is now open.
Hi, Will and Steven, Jade and Tim. This is Tim from Morgan Stanley. Congratulations on the strong result and thanks for taking my questions. So I have 2 questions and we'll quickly go through then and Mandarin first. So my first question, we saw NIO making solid operational progress this year at all fronts.
For example, like in the launch of EC6 buff and 100 kilowatt hour battery pack. So looking into 2021, in addition to the 4th model launch and ongoing investment in the Tom's driving, what else would be our key focuses for R and D investment? And if possible, could Matt then share any rough guidance regarding the overall R and D spending versus 2020? My second question is about BOSS battery as a service. Could you please share some market feedbacks on the battery service program?
And with the launch of the 100 kilowatt hour battery pack, what's your expectation of the take rate of bus services for 2021 and beyond? These are my two questions. Thank you.
Thank you, Tim.
Thank you for your question. Regarding the R and D focus for next year or our recent focus, just like I mentioned in my prepared remarks, the NT 2.0 is the focus in terms of the core technologies. The core of NT 2 point zero is 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 3 SUVs.
For the next product that we are going to launch is going to be a sedan on the MT2.0 platform. It means that we're going to enter the sedan market. At the same time, we're also developing other vehicle models. For example, the second new product in the pipeline is also going to be a sedan. So with the launch of the next 2 new products, we believe we can complete our product portfolio.
In terms of the FAS take rate, after we announced FAS in August, We are very happy to see the increase with the take rate every week. And in November, we can see that among all those new orders, the take rate of Grab is around 35%, which is faster and better than our previous expectations. Because of the model is make to order, So this will be reflected a little bit later in order deliveries. We're very happy to see this fast take rate momentum and we believe that this is also going to improve in the future. Fast can help us to lower the initial purchase price and eliminate users' concerns regarding the battery depreciation and also provide flexible upgrade services to the user.
The purpose of Bus is to convert more gasoline car users to EVs. After the launch of a 100 kilowatt hour battery pack, we believe the competitiveness of a bus has been significantly enhanced. And as the users can get much better understanding about the benefits of bus, we believe this 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,
team. Thank you. And the next question we have is from Ming Li from Bank of America. You may now proceed with your question.
So my first question is regarding the margin expansion From Q2 to Q3, your gross margin increased around 5 percentage points. Could you give a rough breakdown on how do you improve your gross margin? And do we also see any extra contribution from the sales of the NEV credit? So that's my first question. Thank you, William.
Hi, Ming. This is Danny. The vehicle margin increased in Q3 compared with Q2. Mainly contributed by 2 factors. The first is the average selling price increased by RMB10,000 per vehicle mainly because the more ES8 with higher price are sold in Q3.
2nd is BOM cost reduced by RMB7000 per vehicle, also which are contributed by the cost reduction of factory pack and also EDS. You mentioned the revenue from selling of dual credit points, we received the revenue in Q4 with total amount of RMB120 1,000,000 and we will recognize this as revenue in Q4. So in Q3, we're not included in the financial results. Yes. So that's your question about the weaker margin.
And regarding the service revenue, I think we are continuing to working on to improve the service margin to reduce the loss. So I think the trend will be positive in the future. Okay, thanks
other service and the sales, we believe it will be further optimized as our user base continues to expand and this is going to be reflected with the growing economics of scale. In the Q2 and Q3, the change is not very evident, but we are quite confident this is going to have a continuous optimizations in the future.
I will move on to the next one. We have Bin Wang. Operator,
let the management to answer the question first.
Sure, sir. Please go ahead.
Just to recap a little bit on the question, basically the question is about the average selling price In the Q4, it seems that the average selling price will increase compared with the Q3 by around 12,000 to 13 1,000. So we would like to know whether this is driven by the 86 or the 100 kilowatt battery pack. And we also would like to know for the battery packs, what is the take rate ratio between the 100 kilowatt hour battery pack and the 70 kilowatt hour battery pack? In terms of the sales revenue guidance, we would like to clarify a little bit, just like Danny mentioned, for the due credit revenues, this is going to boost the revenue for the other target. We believe the average selling price in the Q4 is going to be at the similar level as the Q3 according to the orders we receive right now.
And we just started the deliveries of the 100 kilowatt hour February pack in the 4th quarter. So we believe that this is not going to have any impact on the gross margin in such a short time, but we're very confident to continuously improve our gross margin throughout the Q4.
Operator, we can move on to next question.
Certainly, sir. The next question is from Binwang from Credit Suisse. Your line is now open.
Actually, I just want to know what's the margin factors going forward in the past. Going forward, we see a few factors, for example, the bus adoption, 12 hours factoring and some removal of interest rate subsidy for the previous battery. Any one off factors for impact margin in the past? That's about the margin. 2nd, about the new products because we've seen the 2 plus will be the sedan, likely to be lower pricing or maybe lower margin.
So does there any plan for even bigger SUV or even bigger one because for example, maybe the names, the ES9, we've seen other peers actually branding for much bigger one. So basically, what's the upcoming plan for even bigger products? Thank you.
Hello, this is Danny. I will break down into the sectors 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 bus model. And so in Q3, there's a little bit like factor kind of like due to the subsidy reduction.
And second is the skills of economy. As you can see, the production volume in Q3 is 12,000 vehicles and almost over 20 increase compared with Q2. As Ueland mentioned in prior year and we invest more to improve our production capacity in September to 5,000 units. So the manufacturing cost I think almost all the same with the Q2. And about the bus and also the 100 kilowatts impact, I ask William to answer the question.
I would like to add some points regarding the manufacturing cost and the efficiency. In the long run, of course, we will further improve our manufacturing efficiency and the cost. And we believe this is going to reduce gradually, but we're going to stop the reduction at a certain point. Of course, we can see more contribution in the Q3 compared with the Q2, but this is going to diminish in the future. But we will continue to work on the optimization of the manufacturing efficiency and the cost.
For the battery as a service, we will sell other cars to the users and the battery to the battery asset company under the class model. So it means that this is not going to affect the vehicle gross margin, but with our battery upgrade service, this is going to provide some good benefits to other revenues. So 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 revenue. For the dual credit, we actually included 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, but we include that in the other revenue.
For the new product planning, we have a very comprehensive product and the 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, then we entered the midsize SUV segment with the ES6, then the coupe SUV with the EC6. This is a very systematic approach. So 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 rich market are not going to be over focused.
I think Wang Yan also mentioned the one time factors in Q3. We did not receive a significant live sales rebate from the suppliers in Q3. So I don't think we have also the material factors.
Okay. Can you also answer me about the 100 sorry, the 100 kilowatt hours battery, whether that will improve your margin? Also, I think in this flow, you also mentioned about 150 kilowatt hour battery will come in. So did you think that margin fell upside from the battery upgrade?
For the 100 kilowatt hour battery pack, the users can purchase the battery pack as an option, which is going to improve the vehicle gross margin, but at the same time, we also provide flexible upgrades, which can contribute to the gross margin of other services and sales. These are 2 different stories and approaches. After the launch of the 100 kilowatt hour battery pack, we have seen some users choose to install the 100 kilowatt hour battery pack as an option. And at the same time, we also provide the flexible upgrade. So 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. But in terms of the new car gross margin or new vehicle gross margin, we think it's not going to have a significant impact. But in the long run, this is going to give us some boost to the gross margin of the other sales and the revenue. Our logic for this approach is basically the 70 kilowatt hour battery pack can meet the daily needs of the users. And if the users need 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 this is also going to contribute to the possibilities of gross margin growth in the long run. And the battery pack is going to provide a very good opportunity for us to improve the gross margins among the existing users and this is a very unique advantage of our business model. The 102 Watt hour battery pack or the future bigger battery packs can in the end improve the attraction of the 70 kilowatt hour battery pack, because the users of the 70 kilowatt hour battery pack will have the opportunity to upgrade the battery pack on demand.
They don't actually need to have the 100 kilowatt hour battery pack or 150 kilowatt hour battery pack right from the beginning, they can just use the 70 kilowatt hour battery pack to meet their daily usage needs. Then when it needed, they can upgrade to the bigger batteries. And we believe that this is going to significantly improve the competitiveness of over 70 kilowatt hour battery pack.
Thank you.
Thank you, Wang Bin.
Thank you. The next one is from Edison Yu from Deutsche Bank. Your line is now open.
Thanks everyone for taking the questions. First,
can you talk
a little bit about the plan, the operational plan to boost the production target in January, what needs to get done just on the ground? And then secondly, as it relates to the next gen autonomous platform, can you talk about your latest thinking in terms of in sourcing the chip design, maybe the implications for Mobileye and that relationship and how you think about the use of LiDAR?
We have always been emphasizing on the overall supply chain production capacity, not just about the production capacity of our own plant. 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 parts because of the production capacity constraints. We are also trying to speed up the deliveries to satisfy the users' demand. So right now, we are working on offering our own fund 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. 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 new 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. 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 2 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. So we need to think about these two aspects when we evaluate the strategy of autonomous driving. We believe 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 do believe 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. So, YDai is a very good addition to the technology competence. If a company puts users' interest first, then they should find ways to tackle these 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.
Let me translate my question very briefly. The first question is regarding the cash burn and the CapEx and the investment in the next 1 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 1 year or so, we need to expand our capacity at the Shanghai plant? On top of that, how should we think about the CapEx needed to build a swap station as well as NIO space?
So the first question is about cash flow and CapEx related. And second question on longer term autonomous driving solution or strategy. Based on what William's Chairman just commented just now, is it correct to understand that our long term strategy is to procure cheap farm top vendor, but at the same time, we'll do most of the offerings and capability of solution in house. Thank you.
So with regard to the CapEx to improve our production capacity, most of the CapEx will be covered by JAC. Of course, NIO will spend a very little CapEx on our own, but the majority will be covered by JMP. Yes. And we also will invest more in the expansion of sales and service network and also the power substation, but we will manage well the progress. So I don't think there will a very big, big cash burn in next year.
So yes, that's about the question about the CapEx.
Of course, 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. Of course, 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 new pallet 1st generation by ourselves in house. But for the 1st generation NIO Palette, chipset is closely bundled together with the algorithm. For the 2nd generation new 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 Chang from TD Group. Your line is now open.
So my first question is about Q1 next year's sales volume outlooks, whether they can still expand Q on Q? And second question is about the differences between vehicle GP margin and non vehicle GP margins growth outlook and
Thank you for your question, Jeff. It's very early to provide the guidance for the Q1 of 2021. But of course, we need to be fully prepared in terms of the production capacity to 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 Q1 of next year to meet the order backlog right now. So in our company, our business model is make to order.
So 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 1 month. It means from the order placement to the user delivery, the lead time should be between 3 to 4 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 for the user experience and we're quite confident that we can achieve this target in the future. The gross margin has been on the right. In the past, we have we made a consistent trend that is that 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.
And this year, we can see the value of the carbon credit has become one more evident in China. In the coming years going forward, we believe 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 PowerSquad can also help us to narrow the operating loss. So 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 bus can also improve the non vehicle gross margin.
Everything is going according to the plan. In the Q4, 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 2.5 times, and we believe the piece price of the carbon credit will also double next year. So the overall revenue on the carbon credit will be 4x to 5x more next year compared with this year. Now a lot of OEMs are in discussion with us about the purchase of the carbon credit.
So we believe that this dual credit system and mechanism is going to be very beneficial to the development of the EV industry.
So my last two questions is about the carbon credit. Will it be impacting on our P and L next year in 4Q as well rather than spread evenly throughout the 4 quarters? This is number 1. Number 2 is about the attach rate on our NOP and BOS right now and going forward. Thank you.
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 bus take rate, just like I mentioned in November, the take rate of bus has reached 35% among the new orders. Going forward, we believe this is going to further improve in the long run and the take rate of the new pallet is around 50%.
After the launch of Navigate on pallet, we believe this is going to have a much better performance.
Thank you. You have the next question from the line of Mei Yi from U. S. 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 on your order momentum?
And 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? And where could be your focus market? What kind of models are you going to introduce to Internet market? And how to hire a local and competent team?
Thank you for your question, Mei. Tesla has officially announced that they are going to have the local production of the Model Y. We believe that this is actually good for the users, because we have more options for the users. This can help us to accelerate the population of EVs in the market. Of course, we believe the Tesla's 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 1 week, but afterwards our order intake bounced back very quickly. After this price downturn, they also had several rounds of price cuts. The most recent one is around the 1st 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 broke the historic record and exceeded our expectations. Offered transaction price is around 100 of RMB 1000 higher than Tesla's average selling price. So we believe this proves that we have our own unique advantages with our products and services. Model wise introduction to the China market is going to be beneficial for the overall market, but we believe the competition is more about the competition between Model Y and Model 3 because we have our own unique advantages regarding our products and services. For the market situation, basically, we believe the pie is growing bigger and our main competitors in this market should be the gasoline parts.
The China premium market is a very big market with the volume of 1,000,000 and this gives us great confidence that we can have a sustainable growth in the long run.
This is Stephen. 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 2 meeting with 1. At the same time, globalization is a very long term vision for NIO.
So NIO is a global brand and we will be very patient to implement this strategy thereby step. And so we have 3 principles. 1st, we will fit to our user enterprise business model. We believe it's a global and universal philosophy. 2nd, we will maintain our premium brand positioning.
So our key competitors, BMW, Audi and Tesla. 3rd, our sales and service must be localized to suit the European customers' needs. That's the update of our good acting 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. So this concludes the conference call. You may now disconnect your lines. Thank you.
Thank you, everyone.
Thank you, everyone. That will conclude our conference for today. Thank you all for participating. You may now disconnect.