Hello, ladies and gentlemen. Thank you for standing by for Nios Incorporated Second Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen only mode. Today's conference call is being recorded and will last approximately 1 hour. I'll now turn the call over to your host, Ms.
Jade Wei, Senior Director of Investor Relations of the company. Please go ahead, Jade.
Good evening and good morning, everyone. Thanks for joining NIO's Q2 2019 earnings conference call. The company's financial and operating results were published in the press release yesterday and are posted on the company's IR website at ir.nio.com. On today's call, we have Mr. William Li, Founder, Chairman of the Board and Chief Executive Officer Mr.
Luis Hsieh, our Chief Financial Officer and Mr. Nick Wang, our VP of Finance. 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 Niu'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 CFO, Luis Hsieh, for opening remarks. Luis, please.
Thank you, Jade, and good morning and good evening, everyone. Before we get started, I would like to take this opportunity to explain our decision to cancel the original call scheduled on September 24 and why we are having this call now. We have made significant positive progress in NIO China funding projects with certain parties. As you can imagine, we are in a very sensitive period during which we are not at liberty to disclose the confidential information related to those projects, which led us to initial decision to cancel the original call on September 24. Further, we believe the Q2 earnings release distributed yesterday provided a good update on the company's operations and financial performance.
This is a very fast moving and fluid situation with many advisors helping to navigate this period of time. And it has not been easy to find a path that is best for everyone. However, after receiving numerous investors' inquiries since the original call cancellation, we ultimately decided that resuming our original plan to hold the call provides more transparency and serves the interest of our investing community better. As it relates to the call, please understand that we will not be able to disclose any specific information or answer any questions regarding the Neo China funding projects today. We will disclose further information when the projects reach a stage that would subject us to a disclosure obligation.
With this, I will turn the call over to William Li for our business highlights.
Thank you, Louis. Thanks to everyone for our call today. I will speak mainly in Chinese and the music time will interpret
In the Q2 2019, NIO delivered 3,550 3 vehicles, exceeding 3,140 ES8, our 6 and 7 seater high performance electric flagship SUVs and 413 S6 over 5 seater high performance premium smart electric SUV, which commenced to user deliveries in late June. In the Q3, we expect to deliver between 4,200 and 4,400 vehicles and bring over cumulative deliveries of ES8 and ES6 to over 23,000 by the end of September to users in over 270 cities throughout China. As of today, our ES8 and ES6 users have driven more than 250,000,000 kilometers. And to support our users on the road, Niu Power has completed more than 200,000 charges through over one click for power services. We achieved our 2nd quarter delivery results against the backdrop of 4 factors.
Factors. First, continued overall weakness in the Chinese auto market, which saw a 14.3% drop in passenger vehicle wholesale sales from a year earlier. 2nd, fierce competitive discounting among premium auto brands, with data showing that average selling price in this segment has dropped 20% to 25% compared to its peak level. 3rd, electric vehicle subsidy reductions starting from late March and again in late June, which affected demand for electric vehicles and lastly, slowing consumer discretionary spending as a result of economic uncertainties that revamping US Despite the overall environment, for the 1st 8 months of 2019, sales of our ES8 ranked 1st in China's premium electric SUV market. ES8 was the only electric vehicle among other 9 IMCE models in top 10 of the overall premium mid to large
SUV market.
We started the deliveries of our Yandex. Since then, we have received broad based positive reviews on the end of 6 from both media and our users, particularly for its outstanding driving experience, extended driving range and competitive design features. We have seen growth of our order backlog accelerating in the last 4 weeks as we started to roll out a more expanded sales network. And more importantly, as more and more NEXX users act as our unofficial brand ambassadors and spread favorable word-of-mouth. From the production perspective, we will begin producing and delivering the YI6 standard version at a more competitive retail prices at the end of September.
In addition, starting in October, we will begin delivering the ES6 and ES8 with an 84 kilowatt of battery pack, extending their NDC driving range to 510 kilometers and 430 kilometers, respectively. Going forward, we'll continue to enhance product competitiveness and strengthen sales by further advancing our software and autonomous driving technology. We believe in the commitment to long term competitiveness supported by cutting edge technology, outstanding products and excellent services. NIO continues to invest in leading technology and commonly has filed over 4,200 patents. And in Q2, our new pilot has achieved a comprehensive level Q12 agent after version release and update.
Furthermore, as of August, NIO and the ES8 both ranked first in brand and the product quality according to research by GeGe Tower on China's new energy vehicle user experience. Our users have given us an average rating of 4.9 out of the clients with 100 of 1,000 services In response to these challenging market conditions, we are aggressively expanding our sales efforts to accelerate orders, taking comprehensive measures to reduce our costs across the organization and improve overall operational efficiency of the company. Louis will share more details on this initiative later in the call.
Louis, please go ahead.
Thank you, William. Facing the challenges in China's auto industry, we are focusing our sales initiatives in 3 areas: creating retail points of sales called NIO spaces, strengthening regionally driven promotions and implementing commercial leasing options for corporate users and fleet operators. 1st, NIO space. We are expanding our sales network through NIO branded sales zones called NIO spaces. NIO Spaces, which are normally less than 200 square meters, will allow us to quickly cost effectively and meaningfully increase the number of sell points in the market.
They will be primarily located in shopping centers and malls, communities with high traffic flow. The majority of the NIO spaces will be invested by our selected partners. By the end of 2019, we aim to have established around 200 NIO spaces in over 100 cities across China. These will vastly expand our sales footprint throughout China, where more potential users can see, touch, feel and drive and truly enjoy the exhilarating ES6 and ES8 driving experiences. 2nd, we are significantly strengthening our sales approaches by encouraging more regionally driven promotions.
In September, we introduced the free battery swapping policy, and it is attracting a large group of potential users to the cities with existing swapping stations. In Beijing, ICE vehicle users have opportunities to buy an ES8 or ES6 with extra incentives. In addition, we offer more than 8 different auto financing programs with 7 banks to our users, which significantly diversifies the solutions available to meet different users' cash needs. With these actions being implemented, we have seen order growth accelerating significantly since September, beginning of September. We are also driving sales through selling cars to corporate users and fleet operators.
Moreover, we have introduced the membership subscription program in which users have opportunities to rent and drive our products for 1 month or more to fully experience the product and services. In addition to these sales initiatives, we are implementing comprehensive cost control measures across the organization. These measures primarily focus on increasing efficiencies and streamlining operations within our sales service network and our R and D functions as well as reducing our headcount. First, our sales and service network. As mentioned previously, we are expanding our offices sales network by adding NIO spaces.
NIO spaces are cost of way to implement significantly larger footprint in the market and much less capital intensive compared to our flagship NIO houses. Turning to R and D. We remain committed to advanced driving technologies and development of our 2nd generation platform, MP2. In the future, our R and D investments will focus on mass production applications and will actively seek strategic partnership opportunities and advanced technology development as a means to prudently manage our spending in this category. We'll also be reducing costs by further optimizing the size of the workforce.
After extensive internal reviews, we have determined that our headcount can be further reduced. We target to reduce our headcount to around 7,800 by the end of the 3rd quarter from over 9,900 in January 2019, and we expect further headcount reductions by the end of this year through both restructuring and spinning off some business units. With this, I will now turn the call over to our Vice President of Finance, Nick Wong, to provide the financial details for this quarter. Nick, please go ahead.
Thank you, Luis. I will now go over some of our financial results for the Q2 of 2019. To be mindful of the length of this call, I will address financial highlights here and encourage listeners to refer to our earnings press release, which is posted online for additional details. Our total revenues in the Q2 of 2019 were RMB1.5 billion or US219.7 million dollars representing a decrease of 7.5 percent from the Q1 of 2019. Our total revenues are made of 2 parts: vehicle sales and other sales.
Vehicle sales in the Q2 of 2019 were RMB1.4 billion or $206,100,000 representing a decrease of 7.9% from the Q1 of 2019, mainly due to the decrease in sales volume caused by electric vehicle subsidy reduction announced in late March and slowdown of macroeconomics in China, which has been exaggerated by the U. S.-China trade war. Other sales in the Q2 of 2019 were RMB94 1,000,000 or $13,700,000 representing a decrease of 2% from the Q1 of 2019, mainly attributed to the sales decline in charging piles, which was in line with decline in vehicle sales. Cost of sales the Q2 of 2019 was RMB2 1,000,000,000 or $293,200,000 representing an increase of 8.8 percent from the Q1 of 2019, mainly caused by accrued recall costs in relation to the company's voluntary recall of 4,803 vehicles announced on June 27, 2019. Total recall costs accrued in the Q2 of 2019 were RMB339.1 million or $49,400,000 including RMB283.3 million or $41,300,000 recorded in cost of vehicle sales and RMB55.8 million or $8,100,000 recorded in cost of other sales, respectively.
Excluding the accrued recall costs, cost of sales in the second quarter was RMB1.7 billion or US243.8 million dollars representing a decrease of 9.6 percent from the Q1 2019. Gross margin in the Q2 of 2019 was negative 33.4% compared with negative 13.4% in the Q1 of 2019. Excluding accrued recall costs, gross margin in the 2nd quarter was negative 10.9%. More specifically, vehicle margin in the Q2 of 2019 was negative 24.1%, decreased from negative 7.2% in the Q1 of 2019, mainly driven by the accrued recalled costs. Excluding accrued recalled costs, vehicle margin in the 2nd quarter was negative 4%.
Research and development expenses in the Q2 of 2019 were RMB1.3 billion or $189,400,000 increasing 20.6% sequentially, primarily attributed to the increase in the rigorous testing activities of the ES6 before its mass production in the Q2 of 2019. Selling, general and administrative expenses in the Q2 of 2019 were RMB1.4 billion or $207,000,000 increasing 7.7% sequentially, primarily driven by the company's marketing expenditures on the Shanghai Auto Show and ES6 test drive campaign in the Q2. Loss from operation in the Q2 of 2019 was RMB3.2 billion or US469.9 million dollars increasing 23.2 percent sequentially. Excluding accrued recall costs and expenses, loss from operations in the Q2 was RMB2.9 billion or US418 million dollars Our net loss was RMB3.3 billion or $478,600,000 in the Q2 of 2019, increasing 25.2 percent from the Q1 of 2019. Basic and diluted net loss per ADS in the 2nd quarter were both RMB3.23 or $0.47 Our balance cash and cash equivalents, restricted cash and short term investment was RMB3.5 billion or US503.4 million dollars as of June 30, 2019.
And now for our business outlook. For the Q3 of 2019, the company expects deliveries of vehicles to be between 4,200 and 4,400 units, representing an increase of approximately 18.2% to 23.8% from the Q2 of 2019. Total revenues to be between RMB1593 1,000,000 or US232 million dollars and 1 point 663,000,000,000 or US242.2 million dollars dollars representing an increase of approximately 5.6 percent to 10.3% from the Q2 of 2019. This concludes our prepared remarks. I will now turn the call over to the operator to facilitate our Q and A sessions.
Thank you.
Ladies and gentlemen, we will now begin the question and answer session. First question comes from the line of Feng Wei from CICC. Please go ahead.
Alex, thank you for taking my questions. Have two questions. The first question is about your cash flow from Selenium's FTT. Would you please share the progress of your capital leases in China? And despite the Tencent Sherman's EBITDA, will you try other financing options?
That's the first question. And my second question is about the steel cargo of CX-eight and CS-six. We have observed a 1st strong momentum of CS-six. The CS-eight ES6? ES6?
Thank you, Fang. I think on the first question, we're not going to take that question for now because it relates to the China financing projects. You do know that from the release that we do a US200 million dollars convertible bond deal. So that one is the one that has already disclosed. Regarding to the ES8, ES6 orders, William, do you want to address that question, please?
Okay.
Thanks for your questions. The sales of PS8 in July August is quite challenging. That's the fact. And this is the same challenge faced by other ZE companies. Because with the subsidy reduction starting from the 20th June, we can see the majority of the
them.
As you can see, in July August, we didn't take any initiative to provide rebates for the price reduction for the TSA users. If you consider the transaction price from the users year ago, the price of year date actually increased my incentive base. But just now, I have mentioned that the price of those premium EVs in the market has the premium cars in the market actually has reduced. So this means that it will affect the sales of our cars in the July and August We are quite confident about the competitiveness of the ESA product and the service. As you can see, in September, the list and the sales of the VFAs are picking up in the market.
And in October, we're going to deliver the 80 4 kilowatt hour battery version, ES8. We believe this can actually help us to extend the wide range of DSA, which has been an issue for years 8 in the past. And this can help us to improve the competitiveness of our ES8. In this specific segment for ES8, ES8, we believe that it can actually compete with other IT parts and the printing From January to August, the sales of August 8 ranked as the top 3 for the 7 seater and the 6 seater SUV market segment.
Thank you.
Thank you for the questions. Next question comes from the line of Bin Wang from Credit Suisse. Please go ahead.
I actually have two questions. The number one is about the recall because originally we think the company client recall cost will mainly go to the battery supplier, which is CATL. But right now, we've seen the design is that most of the cost go to the new are more than half or is there a reason due to such a difference? That's for the first one question. The second one is about the margin outlook because we've seen the organic margin, gross margin in the Q2 actually has been improving compared to the Q1.
But we see 2 new developments. Number one is that NIO will open the NIO house over the 3rd party partners to choose share part of the profit with the 3rd party. And second thing is that NIO since do not do more promotion since the 3rd quarter such as the free auto insurance sorry, auto finance and free battery swap. So what's the margin guidance because previously, we guided margin were improving in the second half? Thank
you. Nick,
you want to do the gross margin question?
Let Eva translate the first part about battery recall.
Actually, we have a very clear responsibility with our battery supply chain partners regarding this issue. And this has been made clear in the announcement in the National Market Monitor Bureau. But you need to understand, our relationship with the battery supply chain partner is a long term one. We have agreed on how we are going to cover the cost of the battery recall, but the battery recall is a very significant cost because it will cover the new battery pack projection, logistics and execution. We believe the share of the responsibility is actually quite reasonable and the cost segmentation is also quite
reasonable.
But the responsibility is quite clear
Yes. This is Nick. I'm happy to answer the second question about margins. I'm going to speak only in English for the sake of audience. Actually, in Q2, you're right, Wang Bin, we accrued our portion of the battery recall related costs at roughly RMB283 1,000,000 in the cost of vehicle sales.
If you exclude accrued battery recall costs, the company's overall gross margin was around negative 11% in Q2. But out of it, actually, our vehicle margin vehicle sales margin is negative 4%, so better, okay? Gross margin were better than Q1 margins essentially. But we also expect we're going to deliver more vehicles in the second half of twenty nineteen, which I believe will certainly help the gross margin from the scale economy, especially production related. However, we also expect some mixed margin trend coming from the model mix and options.
That's the you can call it a controllable element, but market driven. Okay? With that, the gross margin will highly depend on the volume of the deliveries and unit price, including options of each vehicles we sell. So with our best estimation so far, the gross margin will still be negative for the rest of the year, I think conservatively speaking. So that's my answer for this margin related part.
Next question comes from the line of Ryan Brinkman from JPMorgan. Please go ahead.
Great. Thanks for taking my questions. The first one relates to gross margin in the context of a softer volume environment. So So backing out the higher warranty costs in 2Q, would the underlying margin of negative 4% or so have been roughly in line with your expectations? And how should investors expect vehicle gross margin to trend going forward given this backdrop of lower industry and NIO volume?
Nick, you want to take
I think, yes, you're absolutely right. Q2, the vehicle gross margin is negative 4%. Again, like I said, the second half, we're probably still going to see a pretty tough market, but we also see a potential up stake in our volumes. I think so overall, the current estimation range for the vehicle margin in Q3 is going to be around, I would say, vehicle margin, I mean, around negative 6% In Q4, it's between negative 6% to negative 10% conservatively speaking.
Okay, great. Thanks. And the second and last question just relates yes.
Let me finish that. We're going to start delivering the base model of the ES6 at the end of this month, probably next week. So the ES6 base model will have a lower margin if it doesn't have all the options. It will be counterweighted somewhat by the 84 kilowatt battery versions that will start shipping next month for Q4, which will have a higher gross margin. And then as Nick said earlier, it depends on the uptake of the volume of the options.
The options are very high margin. So, but volume will also would definitely help the vehicle gross margins. That's very helpful. Thank you.
Thank you. Just my last question is on the distribution strategy. If deliveries remain fewer than anticipated for longer, could that cause you to consider potential adjustments to distribution strategy, particularly with regards to the presumably largely fixed cost NIO houses? Can you talk about the relative cost and capabilities of a NIO space compared to a NIO house?
Well, the NIO space sometimes are paid by partners. And also, the cost would be less than RMB 1,000,000 if we had to do it all ourselves on average. So it's very economical. It's also in high traffic areas. So that's the direction we're going.
The larger NIO houses were done initially to help the company build a brand and to get users into the NIO brand and NIO user experience. So those have 3 to 5 year lease terms. So they will going forward, you'll see our strategy will be to build more smaller NIO space type operations. And if we do renew NIO houses, they won't be as big and as luxurious as the ones that are in the original ones in Beijing and Shanghai and other large cities.
I would like to add to few points about the new space. Our cooperation model for the new space is different from the traditional dealership corporation because of what we still control the touch points and the user relationships in the new space. We have our own follow-up to We just work with our partners to allocate the facilities and the initial investment at the beginning. So basically, the cost is going to be based on the deals that we have made in the NIO spaces.
Ryan, we're actually very excited about NeoSpace. Just as we begin to roll it out in September, we've seen a significant uptake in orders the last 3 weeks. So this whole month of September has been something much better than July August. July was quite slow, August is a little bit better, and then September is really picking up. And I think it's very important as we reach touch points.
Now by the end of this year, we'll be in over 100 cities, and it's a very cost effective way for us to increase our reach throughout China's large cities.
Okay.
Next question comes from the line of Dan Galves from Wolfe Research.
I think as a result of market conditions and kind of the things the way things have played out this year, it seems like you have a lot of plans of changes to the business. I was wondering and probably thinking about the business at lower volumes longer term, I was wondering if there was any way you could roughly talk to us about, given kind of changes to cost structure that you're planning and changes to distribution strategy, is there a volume level that you believe that you can breakeven at in the future? And how much capital do you think that you need to kind of execute and have a reasonable balance sheet?
Yes, I mean that's a very good question. I think it's we don't have enough data. We just started rolling out the NIO spaces. And as you know, on the volume side, at the beginning of this year, when we did our forecast for this year, we didn't expect the China's auto market has never shrunk, as far as I know. And then it shrunk 14 months in a row.
So we want to see how and you also know we just released a new car, ES6. So we would like to see how the momentum in the market to sales pick up. We will do our budgeting at the end of this year. By then, we'll have 3 or 4 months with dozens of NIO spaces to see how the economics work versus the traditional model. And I think is that you're going to see us cut costs significantly, Dan.
So you will see a much leaner operation from NIO. So I think the volumes won't be the 120,000, 150,000 that we had talked about last year with these big NIO houses. And the other thing is, we have R and D initiatives in place to reduce our battery pack costs, significantly, which will come out next as well. So those will all be calculated together as we do budgets and as we get more track record. It's a little bit too early.
I'm not trying to avoid your question, but we don't have the strategic budget for next year yet given all these turmoil and all the changes in the markets this year. But give us about give us until the end of the
year. Thanks, Louis. That's fair. And just a follow-up, if I could, is the cash burn, I was wondering if you could talk to us about kind of the level of prelaunch cost for ES6 in terms of marketing and engineering that may go away in Q3. But on the other side, it seems like most of the cash cost for the recall happens in Q3.
So I mean, maybe just talk
to us
about, is there a potential to meaningfully reduce the cash burn that you saw in Q2, in Q3 and Q4?
The answer is yes. We cannot do $3,200,000,000 in operating loss. You'll see a significant reduction in Q3 and a further reduction in Q4. There's we have to do it.
Okay. Thanks very much.
Yes. I mean, don't forget, we've already cut headcount from 9,900 down to 7,800 and there's further to come. We also have strict expense controls in place. We're not expanding capital for NIO spaces, but not for a lot of other things. We have not started adding any swap centers.
We're not there's not as much cash usage and with a lower headcount. And we also plan to spin off some non core businesses as well, which we will disclose as the deals get done. William, did you want to add something? Yes.
Like voice mentioned, right now, we are taking some major in case to cut down the cost and improve the efficiency With the ongoing financing projects and the cost reduction initiatives as well as the incentives initiatives to improve the operational efficiency, we believe that the company will have a sustainable development and operation. The company has been very transparent on our financials, including cash flow and cash position. We would like the investor situation. Has reported some inaccurate numbers about our cash situation. In the report, the media mentioned that we had operating loss that is around US5.37 dollars which is not accurate.
So I would like to use this opportunity to make some clarifications. In their report, they have commented in the accretion on the preferred shares issued to private equity investors prior to the IPO last year. Our non GAAP operating loss was RMB22 1,000,000,000, which is significantly lower than the US5.7 billion dollars the media has reported. Among the US22 billion, over RMB10 1,000,000,000 was spent on the R and D efforts and the projects. We have always been considered R and D and user services our priority in our investment and spending.
We have filed 4,200 patents globally and build a very strong EV brand in the premium sector. In terms of the service network, we have built a comprehensive service network nationwide, covering users in 270 cities in China. As everyone knows that the R and D for the auto industry requires a long wait time. We are now committed to developing the MP2 to use the advanced and cutting edge technologies and autonomous driving technologies in our products. With that, we have to raise sufficient capital to support our future development as the only Chinese premium smart EVs brand and a very premium global competitive brand, we are confident that investors will support us.
Yes. I think I found the Bloomberg article very, very insulting. I mean, the headline was $5,000,000,000 loss. As William said, that's not that they didn't break out the fact that a lot of those were preferred shares pre IPO that were marked up at the IPO. So those the real number is close to the US3 $1,000,000,000 over 4 years.
And as William said, most of that is toward R and D. So I don't we weren't very happy with the way Bloomberg uses that as a headline. He's not very accurate. Okay. Next question.
Thank you. Next question comes from the line of Paul Gong from UBS. Please go ahead.
Hi. Thanks for taking my question. I have two questions. The first one is regarding the regional promotion mentioned by Luis. Given this involves a lot of detailed measures like the battery swap surface and some extra incentive, including the financial lease, Can you help us to quantify what is the rough amount per vehicle?
And is this only applicable to ES8 or is also applied to ES6 as well? This is the first question regarding the incentive. My second question is regarding the cost cuts on the cost of goods sold, especially from the procurement. Have you renegotiate with your supplier on the cost cut after the subsidy cut in late June? If yes, can you help us to give a rough idea how much has been cut in the second half versus first half, especially on the battery side?
Thank you.
William, do you want to discuss the incentives? And then, Nick, you can discuss the financial impact of the batteries in the supply chain. Nigga William
Recently, we have launched the free Power Swap services to the users if they drive their car to the Power Swap station, which has been quite widely welcomed by Every day, we have around 1,000 users drive their car to the power swap stations to use their service. But as you know, the power swap stations cost, meaning includes the construction cost and the renting cost. The electricity cost is actually quite low. So for 1 power swap, it may cost around 50 kilowatt hour and this means that the cost will be around RMB50. And in this calculation, it means that every day, the additional cost will be around RMB 50,000.
We have a very high home charger installation rates, which is close to 80%. Overall speaking, the free power swap services will not contribute a lot to the company's cost. They will not impact the cost very significantly. Previously, we have already promised to our users that they can enjoy the intercity or out of city free power swap services. So this can be considered as a part of the cost.
Right now, there is a very popular concept among the users that is they would like to get a house close to the Power Swap Station. And
then, I think a lot of the supply chain costs, we are renegotiating with a lot of suppliers as our volume begins to get larger. 2nd is also I think the battery pack cost has come down on a year over year basis and will continue to go down, we believe, each year on a per kilowatt basis by 10% to 15%. Nick, is there anything else on the supply?
In terms of the salary cost, we can predict the quarterly salary cost reductions. This is mainly due to the volume increase by the industry and NIO in terms of the battery pack. Right now, we can go from now to the next year's Q4, we will witness continuous reduction of the battery cost. But right now, I cannot share with you about the specific percentage because we have reached agreement with our supply chain partners regarding this. But we believe for the next Q3 and Q4, we should for the next year, Q3 and Q4, we should be able to
reduce the mix and cost reduction. Thank you, Paul.
Hi, Paul. I think okay. Yes. Your first part of question also involving what the financial leasing actually. Yes, we actually have a very successful financial leasing plan rollout nationwide with 7 partner banks, some of the big commercial banks, I mean.
And these are track the serve the purpose of attracting a lot of traffic into our showroom and we can see a clear trend upward trend in the past 2 months. And also in terms of per unit cost, it's a function of the overall percentage of how many customers pay 100% or take destination product and how much percentage actually they take sort of interest subsidy program essentially. So, namely our we used to have this RMB 1,000 better leasing program. Now, we replace it in a majority way 3rd party financial institution, I think financial loans with a similar amount, but we actually have a discount subsidy on this interest subsidy on this. So overall, I think the per unit basis on a rough estimate, I think it's roughly RMB10,000 per unit, roughly.
RMB 10,000 per unit?
Yes, roughly.
Okay. Thank you.
Thank you, Paul. Thanks. Operator, does that conclude the hour?
Yes, certainly. There are no further questions at this time. And the call is now around the hour. I'll turn the call back to the company for closing remarks.
Okay. Thank you once again for joining us on this quarter's conference call. We look forward to talking to you next quarter. Have a good evening
or have a good day. Good day. Thank you very much.
Thank you. This concludes this conference call.
You may now disconnect your lines. Thank you.