Hello, ladies and gentlemen, and thank you for standing by for Neyo Incorporated's 4th Quarter and Full Year 2019 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. Ray Chen, Director of Investor Relations of the Company.
Please go ahead, Ray.
Good evening and good morning, everyone. Welcome to NIO's 4th quarter and full year 2019 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 Feng, Chief Financial Officer Ms. Danny Chu, VP of Finance and Ms. Jade Wei, AVP of 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. We also note that NIO's earnings press release and this conference call include discussions of the 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, and thank you for joining our 2019 Q4 ending quarter today. We delivered a combined 8,224 ES8 and ES6X vehicles in the Q4 of 2019, representing a 71% sequential increase from the prior quarter. Cumulative deliveries of ES8 and ES6 reached 20,565 in 2019, representing an 81% increase from 2018. The COVID-nineteen has broken out in China since January 2020. The overall sales and deliveries of the auto industry in China are materially impacted and the passenger vehicle sales in China slumped 41% in total in January February 2020 compared to the same period last year.
Against this backdrop, NIO has delivered a total of 2,305 vehicles in January February, which is lower than our target prior to the outbreak. In response to the microenvironment, on one hand, we have actively explored a variety of online channels, including live streaming platforms and fully leveraged the well developed online functions of NIO app to promote online sales. NIO's end to end direct sales business process has enabled us to continue our sales efforts during this special time. On the other hand, from Spring Festival to now, NIO has maintained 20 fourseven maintenance and power services through our cloud based service system to support users' daily usage. Our products and the service system have withstood the arduous test during the outbreak and won wide recognition of our user community.
Thanks to our loyal user community and superior word-of-mouth reputation, recently, orders generated through user referral have reached 69%, much higher than the 45% average user referral rate in 2019. With the joint efforts of our users and teams, the total number of new production orders reached over 2,100 in the past 30 days, representing 70% of the order growth level in December 2019. As the outbreak gradually brought under control in China, new houses and new spaces are cautiously being reopened with increasing food traffic in stores. Based on the current trend, we would hope that daily new order rates to return to the level of last December in April. In terms of production, the work resumption has been postponed across China, which has impacted over production and supply chain to various extents.
Although our Hefei plant resumed production on February 10th and the production of most of our supply chain partners have basically returned to normal. Partners located in Hubei province will still need some time to recover. Constrained by the limited supply capacity, we expect the aggregate deliveries of Q1 2020 to be around 3,400 to 3,600. We have been monitoring the supply chain very closely and have seen positive changes every day. We do see the supply chain recovery has speeded up since the mid of March.
So we hope that the production capacity can return to normal in April. In the Q1, the safety of our employees and users remain our top priority. Thanks to the efforts of our users and team, we have weathered a storm and passed the decades of time. In particular, thousands of NIO users joined various public benefit activities during the outbreak and made contributions to the prevention and control initiatives in Hubei and other regions. Looking forward to 2020, there are many challenges facing the China and the global economy, which is bound to significantly affect the overall auto industry in China.
We believe that NIO will stand out from the competition in this difficult market environment. We are confident about our product competitiveness, integrated online and offline operations and innovative business model based on user enterprise. After the organizational adjustment and the efficiency improvements in 2019, our teams are well prepared to achieve the 2020 sales target, continuously improve gross margins and systematically optimize the overall operational efficiency. First, facing the pressure of the outbreak, we are still confident to achieve the preset sales target for 2020. NIO's product family will be more competitive and diverse in 2020.
In April, NIO will start the delivery of the all new ES8, a smart electric flagship SUV. The all new ES8 has made nearly 188 improvements. And most importantly the NEDD range will be gradually improved. In September, we will kick off the delivery of the EC6, a smart electric coupe SUV. In the Q4, over 100 kilowatt hour battery pack will be launched to the market.
The iterative product experience is the most important cornerstone for NIO to maintain our leading position in the premium smart electric SUV market in China. In addition, we'll continue our efforts in sales network expansion and build more new spaces, which are estimated to be around 200 by the end of this year. User referral is another important driver of sales growth. With the growing user base and industry leading word-of-mouth reputation, we believe that the orders generated from user referrals will increase at an even faster rate in the future. 2nd, gross margin improvement is one of the top objectives of NIO in 2020 with the supply chain optimization, continuous cost reduction of battery pack and manufacturing cost saving per vehicle brought forward by production scaling up and management optimization, we have confidence to achieve our goals that our gross margin can turn positive in the 2nd quarter and reach 2 digits by the end of the year.
3rd, we'll continuously improve operational efficiency. We have made significant organizational optimization and business adjustment in 2019. The overall headcount has reduced from close to 10,000 at the beginning of 2019 to less than 7,000. Due to one off expenses in Q4, the operating loss in the Q4 of 2019 was higher than that of the Q3. We have basically finished all the adjustments, which has laid a solid foundation for 2020.
In 2020, the company has set up a very strict expense control and efficiency improvement targets and implemented rigorous measures in daily operations accordingly. We are pleased to see encouraging results year to date and expect around 35% expense reduction compared to the prior quarter given under the pressure of the outbreak. Lastly, with regards to the financing efforts, NIO issued US435 million dollars convertible notes in February March to several unaffiliated Asia based investment funds to support the company's daily operations and business development. At this moment, we have already finished all the private placement. On February 25, we signed the collaboration framework agreement with Hefei Municipal Government.
The JV Neo manufacturing plant for ES6 and EC6 is located in Jose, which enjoys a strong automotive and digital legacy and resources and is one of the core cities and transportation hubs in the Yangtze River Delta Economic Group. Under the framework agreement, NIO plans to establish NIO China headquarters in Hefei and Hefei government plans to provide resources and funding support for the long term growth of NIO China. Both parties expect to sign the definitive agreement before the end of April. Thank you for your support. With that, I will now turn the call over to Steven to provide the financial details for the quarter.
Stephen, please go ahead.
Thank you, William. I will now go over our key financial results for the Q4 of 2019. As we're mindful of the length of this call, I encourage listeners to refer to our earnings press release, which is posted online for our full year results and other additional details. Our total revenues in the 4th quarter were RMB2.85 billion or 409.1 million dollars representing an increase of 55.1 percent quarter over quarter. Our total revenues are made of 2 parts, vehicle sales and other sales.
Vehicle sales in the 4th quarter were RMB2.68 billion or 3 100 and $85,500,000 representing an increase of 54.8 percent quarter over quarter and accounted for 94% of total revenues in this quarter. The increase in vehicle sales quarter over quarter was attributed to higher deliveries achieved from our existing users referrals and expansion of our sales network through the continued launch of new spaces in the Q4 of 2019. Other sales in the Q4 were RMB164.4 million or US23.6 million dollars representing an increase of 59.0 percent quarter over quarter. The increase in other sales over last quarter was mainly attributed to the increase of home chargers installed and accessories sold, which was in line with improvement of vehicle sales in the 4th quarter. Cost of sales in the 4th quarter was RMB3.10 billion or $445,600,000 representing an increase of 50.7 percent quarter over quarter.
The increase in cost of sales was mainly driven by the increase of delivered volume of the ES6 and ES8. Gross margin in the 4th quarter was active 8.9% compared with active 12.1% in the Q3 of 2019. The improvement in gross margin over last quarter was mainly driven by the improvement of vehicle margin. More specifically, vehicle margin in the 4th quarter was negative 6.0% compared with negative 6.8% in the Q3 of 2019. Net improvement of vehicle margin was mainly due to improved efficiency, driven by the increase of production and delivered volume of ES6 and ES8.
Earnings expenses in the 4th quarter were RMB1.03 billion, represented a decrease of 32.3 percent year over year, an increase of 0.3% quarter over quarter. The slight increase in R and D expenses over last quarter was primarily attributed to the incremental design and development costs for EC6 and all new ES8 launched in December 2019, offset by less employee compensation due to reduced number of R and D personnel. SG and A expenses in the 4th quarter were RMB1.55 billion representing a decrease of 20.5 percent year over year, an increase of 32.8 percent quarter over quarter. The increase in SG and A expenses over last quarter was primarily attributed to increased marketing and promotional activities and additional costs on the optimization of our organization and sales network offset, but less employee compensation due to reduced number of selling, general and administrative employees. Loss from operations in the 4th quarter was RMB 2,830,000,000 representing a decrease of 18.0 percent year over year, an increase of 17.3 percent quarter over quarter.
Share based compensation expenses in the 4th quarter were RMB 51,200,000 representing a decrease of 63.9% year over year and a decrease of 27.3 percent quarter over quarter. The decrease in share based compensation expenses over last quarter was primarily attributed to the continuous decline of employee numbers and the impact of part of the share based compensation expenses being recognized using the accelerating method, under which the expenses decreased gradually over the western period. Net loss was RMB2.8386 1,000,000,000 in the 4th quarter, representing a decrease of 18.2% year over year and an increase of 7.6% quarter over quarter. Net loss attributable to INEOS ordinary shareholders in this quarter was RMB2.89 billion, which is a decrease of 17.7% year over year, an increase of 13.3% quarter over quarter. Basic and diluted debt loss per ADS in the 4th quarter were both RMB2.81 or $0.40 per ADS.
Excluding share based compensation expenses and accretion on redeemable non controlling interest to redemption value, non GAAP adjusted basic and diluted loss per ADS were both RMB2.73 or $0.39 per ADS in the 4th quarter. Our balance of cash and cash equivalents, restricted cash and short term investment was RMB1.06 billion as of December 31, 2019. And now for our business outlook. As William mentioned, for the Q1 of 2020, the company expects deliveries to be between 3,400,300 vehicles, representing a decrease of approximately 56.2% to 58.7% from Q4 of 2019. The expected decrease is primarily attributed to the constrained production and delivery impacted by the novel coronavirus outbreak.
Mid Continent also expects the total revenue of the Q1 2020 to be between RMB1.21 billion to RMB1.27 billion or between $173,000,000 to $183,000,000 This would represent a decrease of approximately 35.3 percent to 57.6 percent from the Q4 of 2019. This business outlook reflects the company's concurrent and the preliminary view on the business situation and market condition, which is subject to change. Now this concludes our prepared remarks. I will now turn the call over to the operator for facilitating our Q and A session.
First question comes from the line of Lei Wang of CICC. Please go ahead.
Good evening, William and Steven. This is Wang Li speaking from CICC. CICC. Congratulations on the recent financing activities. I do believe that means a lot.
So basically, I got some questions. So in the business outlook, it guides a quarterly degree between 3,400 to 3,600 in the Q1 of 2020. So do you mind providing some guidance on the sales target over this year? So would that be something close to like 30,000 units? That's the first question.
Thanks for your questions. In our previous remarks, we have provided the guidance for Q1 that is 3400 to 36 100. But just like we mentioned, this is mainly affected by the production capacity. Although our Hefei plant has resumed the production on February 10, but the production capacity is still limited by the supply capacity, especially for those partners located in Hubei province for the February March delivery. Although at this moment, most of the partners have resumed their production, but we still have some limitations and constraints regarding the part supply.
So for the partners in Hubei, they will still need some time to recover. The main challenge for the delivery in January is because of the production constraints, because after we produce our products, we will need to ship our products to the delivery centers and also make the appointment with our users to deliver the product to them. For the Q1 delivery, the main reason of the constraint is because of the production. But just like I mentioned, in the past 30 days, our orders have increased and right now the new orders have accumulated for over 2,100 or close to 2,200. It means that the daily new orders is around 17.
So for the level, it's actually quite similar or actually close to the 70% of the December level last year. At this moment, we're seeing the orders is ramping up, so we're quite confident about our annual sales target, because our model is make to order. So if we can resume the normal production, then it means that we can deliver our products to the users at a much faster rate. Every day, we have accumulated some new orders from the users and at this moment, we have around 5,000 order backlogs. I cannot give you a a specific number regarding our annual sales target, but according to all the data that I have shared, we're quite confident to achieve our internal annual sales
target. Your next question?
Hi, operator. We think that May was dropped. So please continue with next analyst, please. Thank you.
All right, sure. Thank you. Our next question is from the line of Mr. Dan Galves of Wolfe Research. Please go ahead.
Thank you very much for taking my questions. So volume was much higher in Q4 versus Q3, but the gross margin only improved a small amount. Can you talk about some of the things that maybe offset the impact of better scale?
This is Stanley.
As you mentioned the volume increased in the Q4 as the gross margin slightly increased. The main reason is about the volume mix of our products. We sold all ES6 based version in the 4th quarter. So the selling price is a little bit lower than the ES8. So that's the main reason for the gross margin slight increase in the Q4.
Okay, okay. That makes sense. And then as you're looking ahead, I think that you said that you're expecting double digit gross margin by the end of the year, but maybe you could clarify that comment. Can you give us a sense of what volume level that would require to get to that double digit gross margin target? And if you can achieve that, would that support a cash outflow of neutral or would do you think that there would still be a cash outflow once you get to double digit margins on the vehicles?
Thank you.
Okay. Yes, as William mentioned in his speech and the gross margin improvement in the 2020 is mainly because our supply chain optimization and continuous cost reduction of battery pack and also manufacturing cost saving brought forward by production scaling up and management of optimization. And we have confidence that we can achieve this in 2020. Regarding the volume and also as we mentioned before is we have clear time but it's difficult for us to mention this volume scale here for you, but we are confident to get achieve this target.
I just want to add one point. In terms of the production capacity of the Hefei plant, we think the best economy of scale should be around 4,000 per month.
It's not bad, that is a One shift. One
shift production. So the one shift production should be around 4,000 per month. If we can get to this, then probably this can basically support our operation target. We believe for this year, we should have some opportunities to achieve this.
And then perhaps some comments from Stephen. If you look at our GP margin, it's related with several parameters. Of course, first the volume and second that's our price. 3rd, our cost. Of course, we don't change our sales target for 2020 and we're very confident we can achieve this sales target although the outbreak of lower coronavirus in January February.
And if we look at our sales choice, we think and we are confident we are able to raise the ASP as more attractive options such as new pilot. And also if you look at our cost side, of course the battery cost will anyway decline. Then if we look at our other BOM cost at the auto parts from other suppliers, we believe a 10% decrease is reasonable. 3rd, and if you look at our previous accounting
records,
we actually compensate the SMEOS plant. That means with the production volume to rise, our manufacturing expenses will gradually drop, decline and we expect that to achieve a 30% decline this year just from its manufacturing cost.
That's very helpful. Thanks a lot.
Thank you. Our next question is from the line of Tianxia of Morgan Stanley. Please go ahead.
Hi, Will and Stephen and management team, thanks for taking time to host the call. Just a few quick questions. First of all, could I just have a quick follow-up question regarding the gross margin because you just mentioned about the favorable product mix. So could we have a little bit more color about the gross margin of EC6, the model launch in the upcoming September? Would that be similar to ES6 or ES8 or could be a slightly higher or similar or lower?
And separately, we noticed that the selling and marketing expenses rose a bit in Q4 last year sequentially. So could we expect that to become a norm or further trend up considering that we target to open up to 200 stores, I mean new space by end of this year. And lastly, is our collaboration agreement binding on Hefei government before the deal is officially signed by end of April? Will the collaboration or potential investment take place at our China owned or at the listed company level? Thank you.
Thanks for your questions. Because we haven't disclosed or announced the specific pricing of the EC6 and offer EC6 is actually benchmarked against Model Y. We launched the EC66 at the end of last year and we received very positive feedback from the public and our users. We will determine the specific pricing of the H86 based on the market situation. We think probably we will announce the specific pricing around July.
Gross margin is a very important objective for the company just like I mentioned in my speech. YC6 shared many components together with ES6. At the same time, ES6 battery cost can be significantly reduced. In terms of the unit cost per watt hour in this Q4 will be reduced by 25% compared with the same period last year. So with all those factors in consideration, we are quite confident about achieving the good gross margin target for the ASIC regardless of the pricing.
Just like we have mentioned, NIO Space started from last actually last year Q4. The main cooperation model for the NIO space is to work together with our partner to set up and expand the NIO spaces in the market. We work together with the partner based on the orders or the specific transactions that they can achieve in their stores. So this transaction is based on the offline traffic and the orders that they can settle in their own new spaces. Although speaking, the new space model is quite efficient and is different from the new houses, we're not going to increase the number of the new houses this year.
So we believe the new space will not have a significant impact on our SG and A and the efficiency of the new space is actually quite high. Under the collaboration framework agreement with the Hefei municipal government, NIO China is an independent entity for the RMB financing activities. The Hefei Municipal Government will support the new China's long term growth through the RMB financing project. It's not part of the New Inc. Equity financing project.
We haven't signed the definitive agreement yet with the municipal government. After we signed the final agreement, we will disclose the specific
details.
Thank you.
Thank you, Hugh.
Thank you. Our next question is from the line of Ryan Brinkman of JPMorgan. Please go ahead.
Thanks for taking my question. I'm just curious how you are thinking about the likely sales or pricing outlook for battery electric vehicles, including for your vehicles relative to internal combustion engine vehicles in light of the almost unprecedented recent decline in the price of oil and presumably soon gasoline? Thank you.
Actually today the China government has adjusted the oil price and reduced this by 15%. But the government will adjust this oil price based on the international oil price, but it will not go any lower than US40 dollars because the crude oil price is US40 dollars At this moment, the crude oil price in the international market is around US30 dollars So it means that the Chinese government will not have any space to reduce the price hike further. Based on the current price, the cost of EV usage is still much better than that of the combustion card. So we think they will not have any significant changes regarding this cost of usage. I think it's the market consensus that in the long term EV is going to replace combustion cars.
The main reason for this trend is not because of the cost of usage, it's mainly because the EV is better fitted for the autonomous driving technologies and ADAS in terms of the response time of the motors. At the same time, the Chinese government is quite determined in terms of the emission reduction. For example, the government has released many favorable policies for the EVs in terms of the license plate and tax reductions. So those are the main impetus for the users to choose EV over combustion cars.
Thank you. Thank you. Thank you. Our next question is from the line of Ping Wang of Credit Suisse. Please go ahead.
Thank you. I actually want to clarify several numbers. Number 1 is about our gross margin. You mentioned the gross margin will be improving in 2020. So it's the vehicle gross margin or it's the overall gross margin including vehicle.
That's number 1 I want to clarify. The second thing is about one off expense. Can you quantify how big is the size of a one off expense and what's the detail about the expense. That's the second thing. And the third thing is actually you mentioned in the Q1, the cost will decline by 35%.
Another translation is that the loss making in the number one quarter will decline by 35%. So what's the base for the decline for 35% in the Q1 this year? That's the 3 things I want to clarify. And besides, actually, I have one question about financing because think about the share price right now, the CB actually have a potential risk of 20,000,000 B debt is not converted to the share. So for upcoming, do you have any further financing after the ongoing Phase 2FA tie up, any further financing plan?
And actually you can see in the media report, a few of the automakers may actually show your investments such as the JD, such as the JC. So do you see any synergy if you really got a shareholder from the traditional carmaker, for example, if you can share their supply chain and there maybe the component supply with much lower cost? Thank you. Okay. So, Parash, I want
to start with the GP margin question. Yes, we think we will achieve positive GP margin for Q2 of 2020 and a double digit GP margin in Q4 of 2020. Of course, we first refer it as our vehicle GP margin. And you can see our over because vehicle sales accounted for 94% of our total revenue. So our overall revenue our overall GP margin will be close to our vehicle GP margin is first.
2nd, if you look at our other sales GP margin, it also improved in Q4 2019 and we are confident that with our efforts, our other sales GP margin will also improve in 2020. That's the first and I think Stanley will give you more explanation about this one off, one time cost. Yes, the second question is about the one off, time off expense. The majority will relate to organizational restructuring across all functions, facility leasing contract termination compensation and also the strategy adjustment around the manufacturing and supply chain. So that's the second question.
Yes. Total number is around RMB400 1,000,000. Okay, that's the second question. 3rd is about the our forward looking about the net loss of the Q4 of 2020. The comparison is way with the Q4 of 2019.
So compared with Q4 of 2019, we expect the Q1 of 2020 will decrease by 35, yes, it's quarter on quarter comparison.
I understand. So it's not OpEx, it's the bottom line. So it's about RMB2.9 billion decline 35%. Is that true? So it's not OpEx, it's the bottom line, net loss.
Yes, net loss. Yes.
Okay.
Yes, net loss.
So the 4th question goes to William
As we have been working together with other OEMs in various ways, for example, we have been working together with JAC in terms of the manufacturing and we also have a very good collaboration with JAC in terms of the JAC NIO joint venture. Recently both parties have decided to increase investment in this joint venture and this joint venture is going to kick off the mass production of their vehicle models. We will continue this cooperation with those OEMs. Regarding other OEMs, we will continue to explore other possibilities to work with them in terms of the supply chain and R and D, but in terms of the equity or capital aspect, we don't have any specific information that we can disclose at this stage. If we have any information that we would like to disclose, we will share those information as soon as possible.
Thank you. Our next question is from the line of Lei Wang of CICC. Please go ahead.
Hi, William. This is Lei again. Sorry, I was disconnected and wasn't able to finish the last question. So do we have some guidance on what the CapEx is going to be this year? Because it was reported that we are about to invest R and D center, a new R and D center and also the 2nd manufacturing site.
In terms of the CapEx for 2020, the majority will be used for the new product model launch. For example, the tooling required for the product launch, it is less than US200 $1,000,000 In terms of the cooperation with the Hefei municipal government, after we signed the definitive agreement with the government, we are not going to invest to build the R and D center or the manufacturing base in the Hefei, Maisipo City. And this is not going to cause any pressure on our CapEx.
Okay. Thanks, Weiwei. Very clear.
Thank you. Our next question is from the line of Fei Fan of Goldman Sachs. Please go ahead. Hello, Fei Fan of Goldman Sachs. Your line is open.
You can ask your question. Our next question is from the line of Paul Gong of UBS. Please go ahead.
Hi, Wei Liang. Hi, Stephen. Thanks for taking my question. Two questions. The first one is, I remember in Q1 last year, you have to pay you have to prepay the battery purchase to CATL for the full year.
Is it still the case heading to 2020 or heading to this year? This is my first question. And my second question is regarding your assumption on the battery price declining throughout 2020. You mentioned that in Q4 of 2019, your battery cost is 20% cheaper than Q4 of 2018. But in Q4 of 2019, you were still making negative gross margin despite of 8,000 delivery.
So when you mentioned by end of this year, you are going to achieve double digit gross profit margin. What's further battery cost decline assumption are you used? I think Steve mentioned 10% decrease on the other BAM cost, but I just want to have your assumption on the battery cost assumption for this? Thank you.
Thanks for the questions. Last year, due to the subsidy reduction, the passenger vehicle sales in China has swamped significantly. But because our users are private users and for other OEMs, normally they sell their cars for the operating usage. In this case, our sales didn't decline that significantly compared with the sales of other OEMs. That is why right now we are one of the most important partner with the ZCL.
This year, our collaboration with ZCL is going to be even closer. This means we can get a much better deal together with the ZCL compared with last year. For example, in terms of the payment terms. In terms of the price, starting from 1 year and half ago, we have been working together with the Zetail to reduce the price of the battery. This year, we have witnessed a significant cost reduction.
Starting from the Q2, we will have a continuous cost reduction every quarter. In the Q4 of this year, we will launch the 100 kilowatt hour battery pack and the CTP battery pack. With those new battery packs, we can further reduce the cost without affecting the performance and the drive range of our vehicle models. The cost the unit cost per watt hour is going to be reduced by 20% compared with last 4th quarter at the battery pack level. So we're confident that we can improve the gross margin.
Just like we have mentioned in terms of the gross margin improvement, the main drivers are the battery cost reduction, other cost reduction and the manufacturing cost savings. We're quite confident to see the positive results from those gross margin efforts.
Thank you very much. That's very helpful. Very glad to know that. Thank you. Thank
you. Thank you. Our next question is from the line of Ming Li of Bank of America Merrill Lynch. Please go ahead.
Thank you. Thank you, William, and the management team for your time. So I just have a few quick questions. So my first question is that right now because the overall EV consumption sentiment is still not very strong in China. So, how do you think about any new strategy to help you regarding sales?
I know you're talking about new products and also the new space expansion. But do you have any new strategy to have on the volume? That's my first question. 2nd question, some of your competitors already think discussed to use our FFP battery to lower the battery cost. But do you think it's a feasible choice for you since you have swap service and you have a lot of ACM battery for swap.
So, do you think it's a possible choice or you don't think it's a good choice for you to lower your loan cost of taxes? That's my second question. And my third question is that, how what's the CapEx do you plan to spend on the battery swap and the battery charging station for this year? That's my third question. Thank you.
Yes, it's a quite unique advantage for NIO in terms of the battery related innovations. This year, we are going to launch a new concept called battery as a service. This is going to leverage the power swap stations and the swapping technologies we have. It's quite important to improve the overall system efficiency. In the world, only NIO can provide this kind of services to the users.
Users can waste the battery or swap the battery and upgrade the battery according to the specific needs. Right now, we have already launched the 84 kilowatt hour battery pack to the users in our battery circulation system. So the users are free to are allowed to upgrade their battery packs with this 84 kilowatt hour battery. In terms of the battery as a service, this is going to be a very important strategy for us to boost our sales besides all the other strategies we have mentioned. We are now having very close discussions with the government authorities regarding the specific policies for the battery as a service.
The current progress is quite positive if there is any kind of important information that we will share with everyone right away. Because we have the swapping technology in place, so we're quite willing to explore different technologies and materials for the battery packs. But when we make these decisions, we will consider the performance experience and the cost. For example, we have the same battery pack size with different kind of energy density like 100 kilowatt hours battery pack and 84 kilowatt hour battery pack. This year with the C2P technologies, we will be able to launch this 100 kilowatt hour battery pack.
This is our unique advantage. This means that we should also be free to explore the possibilities in terms of the LPD material. In terms of the swap station and the CapEx investment related with the battery, will increase the investment a little bit this year because our user base is increasing, but overall speaking for this year is going to be around RMB100
1,000,000. Thank you.
Thank you,
Our next question is from the line of Fei Fang of Goldman Sachs. Please go ahead.
Hey, great. Let me try my luck this time. Thanks, William, Steve and Jay. Just two quick questions. Apologies if this has been covered before.
So for the Q1 volume guidance, is it possible to break it out by ES8 and ES6? And then the second question is that we noticed the net cash in the Q4 didn't really change much from the Q3 despite we still have a RMB 2,800,000,000 below. So can you maybe walk us through some of the major items in the cash flow statement? What has been sort of driving the better than sort of earnings free cash flow in the 4th quarter? Thank you.
In terms of the sales for the Q1, the majority of the sales are contributed by the ES6 because we are about to deliver the all new ES8 in April. This means that the orders for the current ES8 is going to decrease because people would like to place order for the all new ES8. Our model is a make to order, so this is quite unique for us because at the end of last year, we have launched the annual ES8 and started to accept the orders from the public.
Okay. Regarding the second question about the cash flow of Q4 2019, I think first is about we closely monitored our cash position in Q4. So the operating cash flow I think decreased compared with last quarter. Secondly, as we mentioned in our Q3 2019 earnings release, Williams CB was closed in the 4th quarter. So there is still some cash injection in this quarter.
So combined with those effects, I think the total net cash outflow is a little bit lower than the total loss. So I think that's the reason. Thank you.
And sorry, just want to confirm, the Williams' CV was $100,000,000
That's the inflow financing inflow in the 4th quarter?
Yes.
We had greater surprise totally US100 $1,000,000 and the majority came in, in the 4th quarter.
That's great. Very helpful. Thank you.
Thank you. As there are no further questions, now I'd like to turn the call back over to the company for closing remarks. Thank
you again for joining us today. If you have any questions, feel free to contact NIO's investor relations team through the contact information provided on our website. So this concludes the conference call. You may now disconnect your line. Thank you.
Thank you. Thank you everyone. Bye.
Thank you. Ladies and gentlemen, that concludes the conference for today and thank you for participating. You may now all disconnect.