Ladies and gentlemen, thank you for standing by for NIO Inc. third quarter 2022 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, Ms. Eve Tang from Capital Markets. Please go ahead, Eve.
Good morning and good evening, everyone. Welcome to NIO's third quarter 2022 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 the Chief Executive Officer, Mr. Steven Feng, Chief Financial Officer, Mr. Stanley Qu, Senior Vice President 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 here today.
Further information regarding risks and uncertainties is included in certain filings of the company with the U.S. Securities and Exchange Commission, the Stock Exchange of Hong Kong Limited, and the Singapore Exchange Securities Trading Limited. The company does not assume any obligation to update any forward-looking statements except as required under applicable law. Please also note that NIO's earnings press release and this conference call include discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. Please refer to NIO's press release, which contains a reconciliation of the unaudited non-GAAP measures to comparable GAAP measures. With that, I will now turn the call over to our CEO, Mr. William Li. William, please go ahead.
Hello, everyone. Thank you for joining NIO's third quarter 2022 earnings conference call.
In the third quarter 2022, NIO delivered a total of 31,607 smart electric vehicles, up 29.3% year-over-year, setting a new quarterly high.
Based on our latest technology platform, NT 2.0, we have launched and delivered three new product, which has improved the competitiveness of our product lineup in all aspects and enabled NIO to enter more premium segments, catalyzing continuous demand growth.
In October, overcoming the production and supply chain volatilities, we delivered 10,059 vehicles, representing a 174.3% increase year-over-year. We will continue to collaborate closely with our supply chain partners to stabilize component supply and to further accelerate the vehicle production and delivery. We expect the total number of deliveries in the fourth quarter of 2022 to be between 43,000 to 48,000.
Next, I would like to share some recent highlights of our R&D and operations.
In September, as the show cars of ET5, a smart electric mid-size sedan, began to be on display in our stores. Store traffic reached a record high and order intake witnessed a strong growth momentum. On September 30, we officially kicked off the delivery of ET5, and the preliminary user satisfaction rate exceeded our expectations.
Over the past couple of months, Banyan, the digital system of NT 2.0, has iterated and upgraded multiple times with continuous user experience improvement. We have strong confidence in the market competitiveness of the new models based on the NT 2.0 platform.
With respect to the sales and service network, we now have 399 NIO Houses and NIO Spaces in 149 cities, and 280 Service Centers and Delivery Centers in 163 cities.
In terms of the charging and swapping network, NIO has installed a total of 1,210 Power Swap Stations and provided 14 million battery swaps for users. NIO has installed 2,055 charging stations with 5,765 Power Chargers, and 6,077 Destination Chargers in place. In the meantime, our Power Map has connected to over 590,000 third-party chargers in China and more than 380,000 chargers in Europe.
Since we entered the Norwegian market last September, our products and services have been well received by local users, and the user community has been growing rapidly, which has laid a solid foundation for and boosted our confidence in entering more markets in Europe.
On October 7 this year, we held NIO Berlin 2022, where we comprehensively introduced our products and services to users in Europe, marking our official market entry in Germany, the Netherlands, Denmark, and Sweden.
NIO Berlin 2022 drew a lot of attention and recognition from users and auto industry in Europe. We are now organizing large-scale test drives and kicked off user delivery in Europe.
Yesterday, NIO ET7 won the 2022 Golden Steering Wheel Award granted by the prestigious German magazine AUTO BILD , as ET7 was voted the best car in the medium and upper class category.
Both our products and innovative technology have been highly recognized by the users, industry experts, and professional media in Europe.
To better serve user communities in Europe, we plan to open NIO Houses and NIO Spaces in 10 major European cities such as Berlin, Frankfurt, Rotterdam, Copenhagen, and Stockholm. We also plan to install 20 Power Swap Stations in Europe by the year-end, and another 100 by the end of 2023, so that more users can experience NIO's chargeable, swappable, and upgradable power system in Europe.
In addition, we have established an R&D center in Berlin for localized development and deployment of digital cockpit and ADAS to continuously improve the intelligent digital experience of local users.
On September 27, NIO announced the collaboration with the Danish Society for Nature Conservation and the Danish Nature Foundation on the Clean Parks Initiative.
NIO hopes to actively engage with the local communities, share their responsibilities, and jointly make contributions to a more sustainable future.
On September 30, upholding NIO's original aspiration of Blue Sky Coming , NIO released the first NIO Environmental, Social, and Governance Report 2021, where NIO shared its ESG management practices and performance in 2021.
2022年，我们在产品、核心技术、充换电和销售服务网络等方面进一步投入和布局，为参与全球市场的长期竞争打下了坚实基础。虽然外部环境的变化给我们的运营带来了巨大的挑战，我们相信公司有能力在专注于产品技术创新、服务能力提升的同时，进一步优化成本结构，提升运营效率，为全球用户提供超越期待的产品和服务。
In 2022, NIO has further advanced in product core technologies, charging and swapping network, as well as sales and service network, which has laid a solid foundation for us to compete in the global market for the long run. In spite of the operational challenges brought forward by the changing macro environment, we believe that NIO is fully capable of staying focused on product and technology innovations as well as service capability improvement, while further optimizing the cost structure and improving operational efficiency to introduce more beyond experience products and services to users worldwide.
感谢大家的支持！现在Steven将为大家介绍2022年第三季度的财务业绩。欢迎Steven。
As always, thank you for your support. With that, I will now turn the call over to Steven to provide the financial details for the third quarter 2022. Over to you, Steven.
Thank you, William Li. I will now go over for the third quarter of 2022, and to be mindful of the length of this call, I will reference RMB only in my discussion today. I encourage listeners to refer to our earnings press release, which is posted online for additional details. Our total revenues in the third quarter were RMB 13.0 billion, representing an increase of 32.6% year-over-year and 26.3% quarter-over-quarter. Our total revenues are made of two parts, vehicle sales and other sales. Vehicle sales in the third quarter were RMB 11.9 billion, representing an increase of 38.2% year-over-year and 24.7% quarter-over-quarter. The increase in vehicle sales year-over-year and quarter-over-quarter was mainly attributed to higher deliveries as a result of more diversified product mix offered to our users.
Other sales in the third quarter were RMB 1.1 billion, representing a decrease of 8.5% year-over-year and increase of 48.2% quarter-over-quarter. The decrease in other sales year-over-year was mainly due to the decreased revenue derived from sales of automotive regulatory credits, offset by the increase in other revenues in line with the incremental vehicle sales. The increase in other sales quarter-over-quarter was mainly attributed to the increased revenue derived from sales of automotive regulatory credits and increase in other revenues in line with incremental vehicle sales. Gross margin in the third quarter of 2022 was 13.3%, compared with 20.3% in the third quarter of 2021 and 13.0% in the second quarter of 2022. The decrease of gross margin year-over-year was mainly attributed to, first, the decreased revenue derived from sales of automotive regulatory credits with high sales margin.
Second, the decrease of vehicle margin. Third, the reduction of the sales margin resulting from expanding investment in power and service network. The increase of gross margin quarter over quarter was mainly attributed to sales of automotive regulatory credits with high sales margin. More specifically, vehicle margin in the third quarter was 16.4%, compared with 18.0% in the third quarter of 2021 and 16.7% in the second quarter of 2022. The decrease of vehicle margin year over year was mainly attributed to the increased battery cost per unit, which was partially offset by decrease in subsidization in user vehicle financing arrangements. Vehicle margin remained stable quarter over quarter. R&D expenses in the third quarter were RMB 2.9 billion, representing an increase of 146.8% year over year and 37% quarter- over- quarter.
The increased R&D expenses year-over-year and quarter-over-quarter was mainly attributed to the increased personnel costs in research and development functions, as well as incremental design and development costs for new products and technologies. SG&A expenses in the third quarter were RMB 2.7 billion, representing an increase of 48.6% year-over-year and 18.8% quarter-over-quarter. The increase in SG&A expenses year-over-year and quarter-over-quarter was primarily due to. First, the increase in personnel costs related to sales and the general corporate functions. Second, increased expenses related to the company's sales and service network expansion. Third, increase in marketing and promotional activities to promote our vehicle in China and Europe.
Loss from operations in the third quarter was RMB 3.9 billion, represent an increase of 290.2% year-over-year and 36.0% quarter-over-quarter. Other losses in the third quarter of 2022 was RMB 495.6 million, represent an increase of RMB 528.2 million from other income of RMB 32.6 million in the third quarter of 2021, an increase of RMB 305.6 million from the second quarter of 2022.
The increase of other losses over the third quarter of 2021 and second quarter of 2022 was mainly due to loss from the revaluation of our overseas RMB related assets as a result of the depreciation of RMB against U.S. dollars in the third quarter of 2022. Net loss in the third quarter was RMB 4.1 billion, represent an increase of 392.1% year-over-year and 49.1% quarter-over-quarter. Net loss attributable to NIO's owner shareholders in the third quarter was RMB 4.1 billion, represent increase of 44.9% year-over-year and 50.9% quarter-over-quarter. Our balance of cash and cash equivalents, restricted cash, short-term investment and long-term deposits were RMB 51.4 billion as of September 30, 2022.
Now, this concludes our prepared remarks. I will now turn the call over to the operator to proceed with our Q&A session.
Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the key. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. For the benefit of all participants on today's call, please limit yourselves to two questions, and if you have additional questions, you can reenter the queue. At this time, we will pause momentarily to assemble our roster. Our first question comes from Ming Hsun Lee with Bank of America. Please go ahead.
William、Steven 还有管理层，你们好。那我这边就是两个问题，那第一个问题呢，是关于这个供应端的问题，那想了解，因为我们原来的预期是今年应该目标是十五万台，那也就是约当是四季度在六万七、六万八千台。那我们现在这个指引的话，可不可以理解，就是说因为包括疫情，然后还有供应端的这个紧张的影响，所以我们大概就是损失了两万多台的一个产能。那也想请 William 这边可以跟我们更新一下，就是包括副车架跟芯片，先前较紧张的零部件的供应的情况。那假设一季度，就是合肥这边没有疫情的影响的话，我们正常的一个月或者是一个季度的话，我们这边的零部件的产能，大概能够供应多少的车？
那我翻译一下这个问题啊。Previously, your capacity is kept by component supply especially the welding part as well as chips. Could you also update your latest capacity, component capacity, if there is no COVID control impact? Thank you.
好，谢谢 Ming。确实在十月份的话呢，我们整个的交付量和我们自己的生产吧，和我们自己的预计确实是少了几千台。就十月份的话，当然好几个因素的影响吧，这个有我们像讲到的副车架，对我们的这个是有一些影响。但副车架的话，在十一月份的话，应该我们是基本上就已经解决了。那么第二个来讲的话呢，我们确实也是，因为我们 ET5 的话呢，用到了我们新的这个 EDS 的工厂，这个就在我们的这个 F2 边上，我们建了一个全新的工厂，这个工厂，EDS 工厂的自动化程度是非常高，我们大概三十多个工人就能支持这个，就能支持整个的工厂，但是这个里面的爬产的话呢也确实影响了不少，大概影响了我们大概两三千台的产出了。那么另外还有一个当然就是这个，疫情也确实影响了一些，这个大概我们前后加起来影响了一周多的产能吧。所以这几个因素加起来的话呢，让我们十月份确实是少产了不少。当然这个对十一月份，现在我们已经生产已经恢复了，我们的 EDS 的这个在十一，在下周我们也会新增加一条产线，到月底差不多也能爬坡，爬上来。那么副车架的问题已经解决了，那么我们预计在十二月份的话，我们应该是就 ET5 能够达到我们爬坡的预期，ET7 和 ES7 目前基本上没有大的障碍。
谢谢 William。那我这边第二个问题。
翻译，稍等一下。
I'm sorry.
翻译一下，谢谢。
Thank you Ming for your question. Yes, regarding the production in October, there have been some impacts due to several reasons, and the impact is around several thousand. One of the factors is because of the subframe just like you mentioned, but we expect this will be resolved in November. The second reason is the new EDS for ET5. We actually have a new EDS plant next to our Factory Two , and the automation level of the new EDS plant is very high.
We only need to have around 30,000 people to support the overall operation of this new EDS plant. Due to the ramp up volatilities of the EDS, overall production is affected by around 2,000-3,000. The third reason is the COVID-19 situations, I believe this has impacted the production for around one week. Overall speaking, all those factors have affected the production in October. We have resumed normal production now, and we expect to have a new production line for the new EDS next week, and probably by the end of this month this new EDS line will be ready and we can ramp up the production. We have already solved the sub-frame issue and I believe probably in December, ET5 production will not be an issue.
As of now, I don't believe there is any production issue for the ET7 and the ES7.
谢谢William。第二个问题，美国半导体芯片的限制对公司以及行业的影响如何？英伟达现在可以卖A800芯片到中国，那跟A100这边的话，是否会对我们的自驾的进步的迭代速度会有什么影响吗？The U.S. semi ban, how will this impact the development for the industry and also NIO?
Besides Nvidia currently can sell A800 chips to China, if compared to A100, how do you see the impact to the progress of our autonomous driving training? Xie xie.
英伟达的芯片的竞争力，它主要是涉及到我们的云端的AI的训练芯片。目前呢，我们手上有足够多的A100的芯片，可以完全满足我们很长一段时间的AD的训练的需求。当然我们也在积极地评估相关的动态，包括和一些云服务商去进行合作，也在积极评估一些长期的方案，支持整个AD的持续的迭代。从目前来讲，我们认为不会影响我们，目前来说不会影响我们整个在这方面的需求。
Thank you for your question. Regarding the CHIPS Act, I believe there's many effects on the chips used for cloud training. Right now I believe that we have sufficient chips like the A100 to satisfy the need for the AD training in the long run. At the same time, we are also exploring different opportunities. For example, we're considering working together with some cloud service providers, and we are also evaluating some long-term solutions to support the iteration of our AD solutions. As of now, I don't actually see any impact on overall operations.
Thank you, Ming.
谢谢, William.
The next question comes from Paul Gong from UBS
谢谢，谢谢 William。我两个问题吧，就第一个问题是，您刚才提到了就是这个 ET5 的消费者的满意度是超过了预期，但是没有说这么一个订单超过预期，就我想听一听，就说您现在所看到的这个 ET5 的一个订单的情况，跟之前的一个预期相比怎么样？因为对于为这个准备的产能，整个二工厂其实还是挺多的。尤其是从那个十月二十五号之后，特斯拉又再掀起了另一波的降价，就降价了之后，不知道这边有没有看到一些那个影响和冲击。So my first question is regarding the ET5 order. Just now you mentioned that the satisfaction level has beat your expectation, but you didn't mention how the orders intake has been. How do you see the orders intake since the launch, and especially after late October or after Tesla launched another wave of price cuts? Do you see any impacts from there?
This is my first question.
谢谢Paul。确实，这个ET5的订单，因为现在大家都关注什么时候交，所以确实这个ET5的订单，目前来讲的话，对我们来说确实不是一个问题。当然，我们目前还是专注在这个生产的爬坡，包括大家知道ET5刚，就是我们所有的新车，在刚交付初期的话，我们都非常关注它的这个质量爬坡的一个过程，所以这个我们是为什么要特别强调一下。但ET5整个的需求毫无疑问是非常强劲的，这一点的话，就是，是和我们预期的是一样的，当然我们肯定是预期越多越好。但从另外一个角度来讲的话，这个我们也不希望用户等太长的时间。特斯拉的降价对我们应该讲，因为它以前都一直降价，所以对我们来说也不是那么新鲜事，所以我们并没有看到对我们的需求有什么特别的波动的影响。就因为特斯拉现在这个，它从它的这个Model Y、Model 3的话，它跟我们的价差本身就是一直都是比较大的。Model Y的话，它因为做一个SUV的话，它跟我们的包括ES6的价差也一直是比较大的，所以我们其实不严格地认为他们跟我们在一个这个市场的区间，从一个价格带的角度来讲的话，所以so far的话，我们目前没觉得对我们有什么特别大的影响。
Thank you, Paul, for your question. Of course I understand, regarding the ET5 orders, the more important thing for us is right now to find a way to deliver the ET5 to users and shorten the waiting time for the users. Generally speaking, order is not an issue for us regarding ET5. Regarding the ramp up of ET5, because this is still at a relatively early stage, so we would like to pay more attention to the quality improvement and make sure we can stabilize the quality of the ET5. The demand for ET5 is very strong as we expected. Of course, if the order can be even stronger, the stronger the better. At the same time we don't want the user to wait for a really long time.
If we come back to Tesla often cut its prices, so we don't actually think this affect the users demand regarding new products. If we look at the specific product like the Model 3, there is a big price gap compare with other product. If we compare the Model Y with our ES6, we don't actually believe we're competing in the same segment. If we look at the pricing of our product and the positioning of our product, strictly speaking, we're not competing with Tesla in the same segment.
啊
Next-
我的第二个问题——
Paul。
我的第二个问题是关于费用的，因为这个季度不管是从研发费用，还是销售、营销费用都相对于上个季度增加了不少。我想问一下，就是说这是一个阶段性的，就在这一刻要有新产品的上市，然后又在开拓新的欧洲市场的一个短期的情况呢，还是就是说这会是一个结构性，甚至就是说趋势性的进一步的增加，有没有就说一个大致的预期吧，它应该到一个什么样的水准。My second question is regarding the expenses, including both R&D and SG&A, it seems to be climbing up a lot Q on Q this quarter. Is that just temporary because you have new products and trying to explore the new market in Europe? Or is it more like structural? And if so, what is your expectation for its trend going forward?
Yeah，Stanley。
Hi, Paul, this is Stanley. Yeah, the increase of SG&A in Q3 compared with Q2 is because our sales and service network in China and also in Europe, since we entered more country market in Europe this third quarter, and also some marketing and promotion activities, more marketing and promotion activities in Q3 compared with Q2. From the long term, I think also you can check with this result from Q3, SG&A as a percentage of sales revenue will continue to be optimized along with the improvement of our operation efficiency. I think in 2023 and also the coming years, you will see a stable trend for further improvement of this ratio. Thank you, Paul.
研发方面的话，我补充一下，研发费用我们确实大家看到了Q3的增长比较多，我们主要还是跟我们的这个研发节奏，特别是我们新的品牌，还有我们围绕着电池，围绕着这个，也包括这个芯片等等在内的一些研发投入，这个进入到了，这个包括人员，包括这个一些测试，包括一些这个EDD等等方面的一些支出的增加，那这个都是我们计划的一部分吧，并不是一个有什么特别的。
Regarding the R&D expenses. Yes, we do see some increase in the third quarter compared with the second quarter. This is mainly because of our new product development cadence, as well as other initiatives like the battery chipsets and the test and validations when we enter new markets, as well as the employee cost and the EDD cost. This is actually part of our plan, and we don't think there's any other additional R&D expenses that is out of the planning of the company.
不过在研发费用这一部分的话，我们基本上现在我们的整个研发的布局和我们的工作的开展基本定型了。应该讲我们以后差不多每个季度的研发投入的强度，包括人员费用在内，整个的研发费用差不多会保持在一个季度30亿人民币左右。所以总体上来讲，我们还是会控制这个，会持续地提升这个研发的体系化的效率。从投入强度方面的话，我们基本上会保持一个季度30亿人民币左右，差不太多会稳定在这个水平，在一段时间之内。
Regarding the R&D operations, I believe right now we have entered a relatively stable phase regarding the R&D development work as well as the operations. For us, we believe when it comes to the R&D expenses including the human resources costs, it will stay at a relatively stable level. For example, probably every quarter it should be around RMB 3 billion. Of course at the same time we will continue to improve the system efficiency of our R&D efforts. For some time for now, I believe it will stay at this level to make sure we can have more products and technology innovations to provide better experience for the users.
好，谢谢 Paul。
我跟进一下，SG&A 这个季度欧洲能够占到几成的 一个比重。What is roughly the ratio of Europe accounts for this quarter's SG&A?
Hi, Paul, you know Europe is now at a quite initial stage, so currently the overall expense is not a big percentage of the overall SG&A. The sales and marketing team for our Europe business is about 500 headcount. That's basically the information for our Europe business.
Okay, thank you very much. 非常感谢.
谢谢。
Our next question comes from Tim Hsiao with Morgan Stanley. Please go ahead.
广义成你们好，非常感谢接受我的问题，恭喜这个ET5取得非常好的市场反馈。我这边两个问题，第一个问题想跟进一下，就是整体这个生产交付的部分。因为刚才也提到就是四季度的guidance，但实际上大概imply了就是十一、十二月个别大概会有一万七到一万九的一个交付水平。那William提到了我们现在复产的这个速度非常的好，那是不是可以分享一下，就是我们到了年底大概两个厂的这个产出的峰值可以达到什么样一个水平？那明年的话我们现在有任何预期吗？就这个产出的这个单月的一个速度可以到什么样的一个水平。那另外您会担心这个生产瓶颈会不会长期变成一个结构性的问题啊？因为现在看起来整个总体可能国内这个状况还是比较管得比较严。那另外的话，市场有更多的玩家，更多的车型，那供应商我们看起来好像这个产能的扩产跟良率的提升都比原先预期慢许多，所以这个会不会其实延续到明年，变成是一整年的一个结构性的问题？好，这是我的第一个问题。So my first question is about the production and delivery. So I think based on the fourth quarter guidance that basically the average delivery in November, December could be around 17,000-19,000 . So what would be the peak monthly output NIO can reach by end of this year?
How would the trajectory look like into first half next year? With the supply chain bottleneck become a structural issue, given the unchanged COVID policy and more new models, new players and likely longer time for suppliers to expand their capacity to increase their production yields. 好，谢谢，这是我的第一个问题。
谢谢Tim。总体上来讲，我觉得从我们来这个看的话，当然我们这个疫情防控方面带来的一些短期的一些压力的波动性，这个我们确实很难去预计，这个也请大家理解，这个我们非常难去对这个事情做一个预计。但从这个供应链，还有包括这个我们自己的这个整车生产的角度来讲的话，应该讲我们现在的这个整个的这个链条应该能支持我们明年整个的一个交付的目标。当然整车生产已经不是问题了，那供应链的话，还会有一些问题。举个例子来说的话，比如说我们十二月份的一些整个的交付量，我们就会受到我们的这个功率半导体的这个芯片的一些约束，它最大的量，比我们碳化硅的这个芯片的量，它有一定的，它有一个总量的限制，会有点限制。但我们觉得从明年来讲的话，这些应该总体上都还好。所以从供应链和生产的角度来讲的话，从一个总体的那种能力来讲的话，不考虑疫情的这个影响的话，我觉得基本上已经不太会是我们的瓶颈了。
It's quite difficult for us to make an estimation regarding the impact of the COVID control and prevention measures on the operation of the company. If we talk about the supply chain and the vehicle production, I believe the vehicle production capability should be able to meet the delivery target we set for next year. If we speak of the supply chain, we do see some challenges. For example, in December, we will face some constraints regarding the supply of the silicon carbide. If we look at 2023, I believe the supply chain and production capacity has the capability to meet the demands and the target we set up for ourselves.
从明年的整车生产的角度来讲的话，我认为对我们会是一个非常舒服的一个节奏，因为我们两个工厂都保持可以在一个单班十五万辆这么一个产出的话，那其实对我们整个的生产节奏，还有质量各方面来讲的话，运营效率都是比较好的一个节奏。
For 2023, I believe, for the vehicle production, we will have a relatively sufficient production capacity to meet the demand. If we can achieve a 150,000 production capacity on one shift, I believe the production of the vehicle will be carried out in a very smooth manner.
那我第二个问题想跟管理层请教一下，因为过去一段时间观察下来，感觉好像这个国内这边智能电动车的这个产品生命周期啊，相较于燃油车来比，好像是缩短而并非拉长。那如果考虑到前期我们，比较大量的一个研发投入啊，和供应，这个制造成本的一个提升，那想听听看您怎么看，啊，这个中长期我们所谓的智能电动车的一个稳态毛利率啊，或者经营利润率，啊。是否原先，市场本来是预期可能这个稳态的毛利率是在20到25之间，那这个是不是太过乐观了，或者说我们怎么去看，啊，这个长期的一个盈利能力，好。So my second question is about the profitability, because, based on our own observation, we notice the life cycle with smart EV in China is actually getting shorter, rather than longer than traditional cars. So considering the very sizable R&D and manufacturing investment, what would be the more reasonable terminal growth your operating margins? We should look for, especially I think the competition is getting more intense. Thank you.
确实这个整个智能电动汽车，因为这个智能化的这个它的迭代速度比较快，我们确实看到整个的这个产品的迭代周期肯定是更快的。那我们基本上认为差不多三年吧，会是一个大的一个换代的这么一个大的，大的这样一个节奏。这个其实我们整个，NIO也是按照，大体上按照这个节奏在迭代我们的智能化的技术。那在这件事情上的话呢，可能每个公司的特点有些不一样，你比如从NIO来说的话，大家如果去看的话，我们一代车所有的这个软件硬件我们都是一个平台，比如说我们NT2，我们是所有的车都一样的，我们NT1所有的车都是一样的。那并且的话呢，我们的电池包也都是，大家也都知道，我们都是unified battery pack，那我们的动力系统其实也是很有限的组合，我们只是在这种外形造型，这个top hat的方面的话，我们有一些差异化，满足不同用户的需求。所以总体上来讲，我们觉得我们这样的一个研发效率还是非常非常高的。那当然这个20%到25%的毛利率，我不觉得这个是一个大的问题。大家如果去看看，从NIO来说的话，即使考虑到今年的电池涨了这么多的价，因为我们的整车虽然也提了一些价，但是并没有提那么多，那我们仍然也能够保持还是有，这个，还是有一个还算OK的一个毛利率吧。那其实我们以前到过20多的毛利率，如果我们假设电池能够回落到一个正常的理性的这么一个价格的话，我们觉得20%到25%的毛利率其实不太是一个问题。当然长期来讲，随着垂直一体化，我们的这个在电池芯片方面的投入，我们觉得我们仍然有提高毛利率的空间。所以从我们总体的一个长期的战略的角度来讲，我们认为25%到30%之间的毛利率我们是能够看得到的，不是一个看不到的，那种看不到的事情。但massive market这个挑战会大一些。事实上来讲，如果我们去看massive market的话，把所有公司加到一块的话，我估计毛利，整体的毛利可能都是负的，整体的毛利都是负的。这是我这么一个大概的一个看法。当然BYD因为它有这个电池，和很多零部件方面的一个垂直整合，当然它确实还是非常，还是做得非常的好。所以我觉得在massive market这一部分的话呢，如果没有垂直的一体化的能力，其实要达到20%到25%，20个点以上的毛利率是非常难的，这是我们总体的一个观察吧。
Thank you for your question. Regarding the smart electric vehicles, I believe we have a much faster iteration cycle compared with the traditional vehicles. We believe that the iteration cycle should be around three years, and this is how we're iterating over smart technologies in NIO. Of course, different companies have different strategies and different iteration cycles. But in NIO, if we look at our technology platforms and we believe that with one technology platform, we actually have the same kind of hardware and software for all the vehicles based on that technology platform. For example, previously we have explained we have the NIO Technology 1.0 and the NIO Technology 2.0.
For all the products that based on NIO technology 1.0, they have the same kind of software and hardware when it comes to the smart technologies, and that's the same for NIO technology 2.0. At the same time, we also have the unified battery pack, and we also share a lot of commonalities when it comes to the vehicle platforms. Of course, previously we mentioned we would like to offer different kind of top hats to meet the diversified demands and taste for different users. If we think about the technology platforms and a platform strategy, I think 20%-25% vehicle gross margin is not a very big challenge for us. But if we look at 2022, specifically, the cost of the battery skyrocketed.
Of course, at the same time we have increased the price of our products. Even against this backdrop, we have, I believe, achieved a relatively reasonable vehicle gross margin. Previously, we have also achieved a 20% vehicle gross margin in the past. In the past, we didn't have the battery cost increases. This is a relatively reasonable vehicle gross margin for our products. In the future, if the battery cost can come down to a reasonable level, I think, it's possible for us to regain the 20%-25% vehicle gross margin with our product.
In addition to that, with our vehicle technology vertical integration, including the battery, the chipset, I believe we will have a more room to improve for the vehicle gross margin, and it's possible for us to achieve a 25%-30% vehicle gross margin. If we look at the mass market, I believe the challenge is much bigger, because if we combine all the companies in the mass market right now, I think the overall gross margin is actually negative. Of course, BYD is an exception because they have the vertical integration of the batteries and other technologies. If we do not have the vertical integration capabilities in the mass market, it will be quite challenging to survive in the mass market.
If we have these capabilities in place, I think it's possible for us to also achieve 20%-25% with our mass market products.
Thank you, Tim.
Our next question comes from Bin Wang with Credit Suisse. Please go ahead.
My question, first one is about your guidance. It actually has three things. Number one, the ET5 will be higher volume than BMW 3 Series. Number two, guidance is that you will break even in the fourth quarter next year. Number three, guidance is that this year you will have 18%-20% gross margin for the vehicle. Do you maintain this guidance for this? Thank you.
Thank you, Bin Wang, for your question. About speaking, that's still the direction we're aiming for. For the core business of NIO, we are still aiming to achieve break even in the third quarter of 2023, and this is still our plan. At the same time, we're also working on different strategic new business. For example, we have two new brands and the battery chipset and the smartphone business at the same time. If we look at 2023, the investment for those strategic new businesses is going to be around RMB 3 billion-RMB 4 billion, it means that probably around RMB 1 billion every quarter.
If we take all those strategic new business aside, we are still very confident to achieve a break-even for NIO core business in the fourth quarter of 2023.
For the second question regarding ET5, you mentioned previously our co-founder mentioned that the ET5 volume is going to exceed the volume of the BMW 3 Series in an event. Of course, this is not a guidance for us, but because I believe ET5 is much, much better than BMW 3 Series, so we're very confident to achieve this target.
The third, gross margin. If we say this year, indeed, there are challenges. We mainly because of the price of batteries. Everyone knows that the price of lithium in recent times has remained high and it has increased a lot. With the lowest reaching more than RMB 40 million, now it is around RMB 60 million. Because our battery price is linked to this does impact us, it impacts our Q4, about several percentage points of gross margin. This is indeed out of our control. We can't do anything about it but raise prices.
This will put some pressure on us, but maintaining the stability of gross margin is something we can achieve. Relatively speaking, the gross margin for Q4 will remain relatively stable at the level of Q3. I don't think the price of lithium is a supply and demand issue. If we look at it, I don't think there is any electric vehicle company in China that cannot supply because of the lack of battery supply. Everyone should have heard of it. The inability to purchase batteries has impacted delivery. Currently there is none. I generally judge that it is not a supply issue. Let's take a look. I think the lithium price, it should definitely come down.
The timing of this, when exactly, this is indeed something we also find it difficult to predict. It has a very big impact on us. You all know that each of our battery packs uses a relatively large amount of batteries. On average, it's about 70 kWh, 80 kWh-some, close to 90 kWh. If the price of lithium remains this high, it will indeed have an impact on our gross margin. We can give you an estimate. That is, for every RMB 10 million of this price, it will affect our gross margin by about two percentage points. For lithium, every RMB 10 million in price will affect our gross profit by about two percentage points. If it drops from RMB 60 million to RMB 40 million, then our gross margin will be four percentage points.
If it can drop to its reasonable tenfold level, it can basically release eight percentage points of gross margin for us. This is reality. This is the change in the external environment we face now.
For the vehicle gross margin in 2022, I believe there are still many challenges for us, especially when it comes to the lithium carbonate cost. Right now, the lithium carbonate cost is still at a very high level. Previously it has dropped to around RMB 400,000 and now is going back or actually reached a new high that is around RMB 600,000. This has significantly affected the battery cost. For us, this is actually out of our control and it's very difficult for us to predict.
But I believe we can still remain a relatively stable vehicle gross margin in the fourth quarter compared with the third quarter. For the lithium carbonate cost, I would like to probably share some insights. I don't think that the price or the cost of the lithium carbonate is due to the supply situation, because right now, if you look at the car companies in China, I don't think there's any car companies that cannot deliver their products because of the battery shortage. Of course, in the future, we believe the lithium carbonate cost will go down, but we cannot predict when. This has a relatively big impact on us because for all the products we have a relatively high battery capacity.
On average speaking, for each of our vehicle, the battery is around 80kWh-90 kWh. If the lithium carbonate cost stays at a very high level, this is going to have a big impact on the vehicle gross margin. For us, maybe I can give you some numbers, which will probably help you to understand the situation. If we think about RMB 100,000 cost for the lithium carbonate, this is actually affecting our vehicle gross margin by around 2.02%.
If we can see the lithium carbonate cost drops from RMB 600,000 to RMB 400,000, then this is going to improve our vehicle gross margin by around 4%. If it is a lithium carbonate cost can drop to even lower, probably around RMB 100,000, which is a reasonable price for the lithium carbonate. It means that our overall vehicle gross margin can improve by probably around 8%. This is the reality we are facing.
好的，谢谢。那我还有一个问题，也是最后一个问题，就是我们看到ET5好像现在下了订单要到三月份才能拿到车，显然地成为一个爆款，也成为我们未来的Model 3。我的问题就是说我们未来的Model Y会是哪个车型呢？因为有媒体报道说我们会出一个，ET5的猎装版本，或者说是一个wagon版本，请问这个车型会在未来的十二月份的NIO Day上出现吗？我翻译一下。Actually we just do some dealer check about ET5 pre-order today, you actually can only get a car in February or March. It's probably a better selling product than NIO's Model 3. My question is about what's the NIO's Model Y, we learned from media, NIO may launch a product called, ET5 Touring, and we think it's going to be showcased in the upcoming NIO Day in December this year. Thank you.
谢谢黄斌。明年的话，明年上半年我们有五款车型会推出，所以总有一款属于Model Y。我的意思就是我们还是看总量吧，就是我们其实一个总的策略还是，我们在一个整个平台上，我们的一个总量，这个还是我们更看重的。如果从NIO的策略的角度来讲，我们在一个premium的市场里边，我们相信这个满，用一个更高效的方式去满足用户的个性化需求，是我们总体的一个philosophy。所以大家如果想象一下，明年的上半年到六月份的时候，我们有八款车型，所以我们相信它能满足在三十万到五十万的这个区间里面的用户的一个基本上满足这个除了MPV，没有，我们确实没有MPV，这个满足这个用户的各种各样的需求，我们是觉得，这是我们一个总的策略，这个我希望大家从这个角度去看这个。当然，加起来的量我相信还是能达到我们的预期的。我们也并不期望某一款车能到几万辆一个月的水平，在中国就能到几万辆一款车，这也不是我们的策略，像我们ET5一个月一万多台的话，我觉得也不能太多了，太多了，接车也不好，一个月真的ET5卖三万台，我也不太喜欢，其实这个事情。
For the product lineup in the first half of next year, we're going to have 5 new products and I believe probably one of them is going to be like the Model Y to Tesla, like you mentioned. For us, we focus more on the overall volume of all the product lineup. We are in the premium market segment, so our philosophy is to satisfy the diversified user demand with high efficiency. In the price range from RMB 300,000- RMB 500,000, we will provide different products to satisfy the diversified user demands and the taste.
I believe with our product lineup, we should be able to achieve a good overall delivery volume that can meet our expectations. I don't actually expect that one product can sell over 100,000 units in China. For example, for ET5, if it can sell probably over 30,000 units per month, it's going to be a very common street car and I don't think this is good for the ET5 or for NIO.
谢谢，谢谢。Mass market different story，mass market，今天我刚刚开完我们的一个另外一个品牌的会，我觉得那当然一款车，我们希望它一个月卖五万台，对吧？这个，这个是不同的，不同的细分市场，应该是不同的用户利益。
For the mass market, this is a different story. We just had a meeting today with the mass market team, and for us, we believe the mass market product can sell probably over 50,000 units per month, because-
For one model.
For one model, because this is different market segment and different target user group.
Use R&D chip different. Thank you, Bin Wang.
Thank you.
Our next question comes from Jeff Chung with Citi. Please go ahead.
William，你好，我是花旗的Jeff，想问一下，就一个短的问题，是关于四季度的目标。如果用最少的四万三来看的话，而这个爬坡是线性的话，就是说每个月是37%的一个环比增长，那就是说达到十二月的峰值，大概一万八千八百左右。那我想问，这个第一，您感觉是一个线性的这样的一个爬坡吗？还是可能更多的这个weight？
会放在十二月份，可能十二月份实现突破两万台这样。这是第一。第二就是想问，那如果，无论十二月是一万八，或者是两万或者怎么样，您感觉这个ET5，我们可以维持一个七千台左右的一个判断吗？大概就是我的第一个问题。
那我翻译一下。My first question is about the sales volume growth into November and December. In order to meet our minimum quarterly target for the 3,000 units, and if the month-on-month improvement to be linear at around 37%, we should be reaching around 19,000 units monthly run rate by December. From which, could you break down the volume of ET5? And the second question is if this ramp-up pace is going to be nonlinear, with most of the weight concentrated in December. Could you tell us what kind of elements will determine our run rate overshoot in December but not in November? Thank you.
谢谢 Jeff。我们十一月份的话呢，确实还是有一个爬坡的过程。从 ET5 的角度来讲的话，包括 EDS 啊，包括本身它也有一个很自然的这个爬坡的这样的一个过程吧。那十二月份的话呢，我们认为它基本上能够，除了那个碳化硅的这个芯片的这个影响以外，我觉得应该是它能够到应该是超过你刚才说的这个量的，嗯。所以总体上来讲，当然这个十二月份肯定会比十一月份产的要多一些吧。我觉得我们还是希望十二月份能够突破一个月两万台的这个目标吧，这是我们总体上的一个想法。
Thank you Jeff for your question. In November, we will still need some time to ramp up the production including ET5, considering the factors I just mentioned, like the EDS. In December, except the silicon carbide I just mentioned, I believe we will have more production compared with the production of November. Of course in December, we hope that we can still achieve over 20,000 production run rate.
好的，谢谢。我没有其他问题了。
谢谢 Jeff。
No more question. Thank you.
Thank you.
The next question comes from Nick Lai with JP Morgan. Please go ahead.
大家晚上好。谢谢 William 跟 Steven，还有管理层。我就两个简单的问题，是有关财务的问题。就是我们手上现金到九月三十号，大概有五百多亿，是近期现在客户比较多关心的是行业的这个需求的可能的回落，然后竞争加剧等等。那公司的这个 cash burn 大概是多少？那我刚听了，就是刚刚提到说 incremental 你们会增加的，就是三十几亿左右。就是假设我们去看明年 2023 年到 2024 年全年的这个资本开支或者 cash burn，跟今年的这个 delta，这个改变会是增加或是减少，是会哪些部分？就我们看这个手上这个现金足够是能够支持未来几年的这个营运，就可以跟咱们谈一下这个 cash burn 的这个 annualized 2023 年跟今年的 delta。如果假设有这个 CB 快到期的话，也可以把这个考虑进去。那这是第一个问题。那第二个问题的话，还是有关这个芯片的问题。刚刚 William 有提到说我们这个芯片储备是比较多的，就是 NVIDIA 的芯片储备比较多，然后也有跟其他不同的 solution 去谈，那这边，这个东西我想再多深入了解一下，这部分应该是在上法相关的这个需求，那在车载芯片就需要算力比较强，比如说我们这样车载的芯片，NVIDIA 的这个国外芯片，需要比较强这个算力的芯片，这边也有一些其他的一些类似的 strategy 可以跟我们分享一下。
Really the first question is about the cash burn and the CapEx expansion as we move into 2023 and 2024, and also take into account of incremental investment CapEx as well as potential RTP. The second question again is on AI and the chip price strategy. You can just talk about the potential alternative solution. We have enough stock of NVIDIA A100 chip, and we're also looking for car solution not related to algorithm, but what about the chip that's being used in the car? Thank you.
Hi Nick, this is Stanley. As introduced by William and myself, we will further improve our SG&A operating efficiency. Furthermore, our R&D expense will keep relatively stable compared with 2022. Operating cash flow wise, I think we are quite optimistic to achieve a positive operating cash flow in future years. Our cash burn mainly depends on the capital investment. Now we are planning our next year's budget. Generally, I think the total scale of CapEx in next year will not increase so significantly compared with this year.
As you know, we are planning more like sales and service network, and also we are planning more production and also supply chain capacity. At this moment, I won't give you the clear guidance. We are also confident that our cash on hand can supply our ongoing operation till breakeven is finally achieved.
Yeah。
Thank you.
对，所以总体来讲，我们当然清楚现在市场有很多的这种不确定性啊，从我们总体来讲，我们相信以我们现在的这个现金的这个储备，加上一些这个合理的一些包括银行方面的这样的一些这个资金的支持，我们应该是可以足够的有足够的信心，我们可以到公司的一个全面的盈利的，这个我们还是有信心的。我们在财务方面的纪律还一直都是非常的严格的。那么当然说到芯片的问题的话呢，你要不先把它放在芯片上面。
Speaking about, we understand there are still many uncertainties in the market, but I believe with our current cash reserve and also the bank facilities, we should be able to support the company's operation until we break even. We don't think this is going to be a huge challenge for the company.
那芯片的问题的话，当然我们前面也讲过了，A800的这个事情，这个训练芯片，这个云端的训练芯片我们也讲过了，车端的这个芯片的话呢，我也可以简单地讲一下这个进展。就是，当然我们是全球第一个首发这个英伟达的这个Orin芯片的，比我们同行要早六个月。那么我们和英伟达的合作关系当然非常的紧密。那另一方面的话呢，我们从去年开始也在积极地研发这个我们的这个AD的这个芯片，那目前我们已经有这个五百人的团队在这个项目上，那么进展还是非常的顺利。其实大家应该很清楚，这个AD的芯片，它和算法——他们之间的这个关联度是非常高的，如果从我们AD的这个算法的角度来讲去定义这个芯片，它的效率会要高很多，当然也能够显著地改善我们的毛利。所以这方面的话呢，总体进展是比较顺利啦。
Regarding the chipset, previously we have already addressed the AI training chipset that is the NVIDIA H100. Now I'd like to probably elaborate more on the onboard chipsets. We are the first company in the world to launch our product that is equipped with NVIDIA Orin, which is actually six months earlier than other companies. We also have a very close collaborations with NVIDIA, but at the same time, last year, we have already kicked off the R&D of our AD chipsets. Right now, we have around 500 people working on the AD chipsets. I believe it is a commonly acknowledged that AD chipset is closely coupled with the AD algorithm.
If we can use the AD algorithm to define the design of the AD chipset, the overall efficiency can be significantly improved, which can also contribute to our vehicle gross margin. The overall progress of the AD chipset R&D is on track, and we have seen some positive achievement from the team.
谢谢。我可以追问确认，这个就是刚 Stephen 提到说，明年的 operating cash flow 是预计 turn positive，是对吗？就确认这个事情。
Yes, we yeah.
好，谢谢管理层，谢谢，拜拜。
Our next question comes from Jane Zhang with CICC. Please go ahead.
好的，非常感谢管理层非常详尽的分享。我这边再追问几个小的问题。首先第一个问题是关于这个生产爬坡方面，就是鉴于现在目前比较复杂的外部环境，大家其实在生产爬坡方面都遇到很多的困难。稍微如果往中长期看一点的话，就这个整车生产这个环节，我们是否会考虑从现在的这个代工模式转向这个自建产能，然后关于说进一步比方说获得这个生产资质方面，不知道未来如果我们想要去做的话，会有什么难点吗？然后以及说如果这样模式转变，是否会对我们的新车爬坡以及这个制造成本产生一定的优化。这是第一个问题。然后第二个还是关于这个研发和CapEx的一个投入和边界的问题，就是按目前当前这个资本市场环境可能并不是特别好的一个状态，那考虑到未来几年以及国内比较激烈的一个竞争环境的话，对于研发和资本支出的投入和边界的问题，我们在什么情况下可能会采取更保守的一些战略，以及我们的组织或架构方面能否比较灵活地进行这样的一个调整。然后第三个一个小的问题，就是刚刚这个黄斌总这边也提到关于MPV车型，可能我们目前还没有这样的品类，然后我们怎么去看这个可能MPV EV的这个细分市场，因为确实有很多的竞品品牌在推出这样的车型，那我们会有这个打算说未来会有这方面的新车规划吗？主要是这三个问题。 My first question is about, in the current external environment, everyone encounters a lot of difficulties in production. So in the longer term, will we consider switching from OEM mode to self-build production? Are there any difficulties in obtaining qualification? And will it optimize our new product ramp-up speed or manufacturing cost? My second question is regarding R&D investment and CapEx, about the boundary of our in-house R&D.
As we can see, in the third quarter our R&D further extends to RMB 2.8 billion. Consider the current capital market environment and the much more intense competition in Chinese EV market in a few years, will we adopt a more conservative strategy for R&D and CapEx? Under what circumstances will we adjust our current strategy? Whether our organization is flexible enough to adjust. The last question is about just mentioned MPV models. What do we think of the MPV market? Will we launch the new product pipeline in this segment in the future? That's all my three questions.
For the factory two, we are still working together with JAC. I believe our joint manufacturing cooperation has been quite positive. Regarding the vehicle production, I believe the vehicle production capacity can support the company's delivery target in the short term. Previously, I've already mentioned that for one plant we should be able to achieve 150,000 units under one shift. If we combine the two plants together, the Factory One and Factory Two, then it means that under one shift we should be able to achieve a production capacity of 300,000 units. If we double this to two shifts, then the production capacity can also be doubled. When it comes to the supply chain, of course, there are some volatilities for the whole industry, not just for NIO.
But as we ramp up our production capacity and the delivery, I believe we have the capability to mitigate the risk of the supply chain. For the second question regarding the boundaries of our investment, previously I've already mentioned we do have a sufficient cash reserve to support the company's operations. When it comes to the overall investment for R&D, every quarter, we expected to invest around RMB 3 billion for R&D efforts. This includes all the R&D initiatives that we have explained previously. For the CapEx, we will improve the efficiency on the CapEx investment.
We do have a very strict management regarding the finance and the investment of the company.
Okay. Zhang, regarding the MPV market, our strategy is very simple. In the short term, we have no plan to launch MPV model. Of course, long term, we'll keep monitoring this niche market. We have also noticed that meanwhile, this market is very hot. From the supply side, several Chinese brands have launched their high-end MPV models. From the demand side, at least right now, the MPV segment still remains a niche market. That's why we would like to keep monitoring and then decide what to do in the next several years.
Our next question comes from Yuqian Ding with HSBC. Please go ahead.
谢谢管理层，谢谢刚才的分享。我有两个想跟进的点，就是刚才讨论过毛利率和智能驾驶。想请教一下公司明年毛利率提升的空间，这个主要是来自于规模效应提升，还因为我们看到Mix，大概有多少，因为从Mix的角度，如果ET5卖得更多的话，可能看起来会往下走一些。明年Q4的这个break even里面，我们管理层的假设，对于锂价的假设大概是多少？是目前六十万吗？还是说明年我们Q4 break even需要锂价做一下normalization。然后第二个想请教智能驾驶，目前我们对于城市场景的能力的推出大概是什么时间表，什么时候智能驾驶能从一个辅助帮忙卖车的项目变成能够support、支持我们的利润率。
I got two questions. First is to follow up on the margin side. Next year's gross profit margin improvement will that be mainly coming from the increasing economic scale? Could we have some quantification over there? 'Cause we see from the mix side with more ET5 in the mix could be coming down a little bit. Also we talked about a Q4 break even, does that based on the current lithium price assumption or in our Q4 break even assumption that basically baking normalizing of the lithium price? Second part is to ask what's the city pilot on the autonomous driving side, what's our timeline to push for city pilot? When do we expect our autonomous driving capability to improve from a help selling vehicle item to support materially on the margin side.
好，谢谢 Yu Qian。这个我们当然目前来看的话，确实这个锂的，碳酸锂的价格，锂的价格确实这个，没有按照大家预期的那样，在今年 Q4 有一个显著的下降啊。那当然我们现在在对明年总体上来讲，当然就我就像我前面说的，我不觉得这是一个供应的问题啊，这个其实现在确实也没有哪个汽车公司买不到电池啊，这都能买得到电池。那我们当然也看到了，在过去的这一段时间，也有一些这个新的这样的一些，这个锂矿的这样的一些投产，我们自己是觉得明年锂价，碳酸锂每吨的当量，碳酸锂的这个当量的话，我们觉得应该是会回落到三十到四十万的一个区间啊。当然我们现在可能在做预算的时候，我们还是会保守一点，我们基本上按照四十来万去做这样的一个预测，去做这样的一个展望啊。那这是我们大体上的一个在锂的这一块价格，在这个方面的一个判断吧。
Thank you, Yu Qian, for your question. As of now, of course the lithium carbonate cost is not going down as we expected in the fourth quarter. Like I explained previously, I don't believe this is a supply issue, because if we look at the market right now, all the car companies who can actually get sufficient supply of the batteries. For us regarding the lithium resources, we have seen some lithium resources enter the market in the past year, in the past, and we expect probably next year the cost of the lithium carbonate is going to be around RMB 300,000-RMB 400,000. When it come to the budget planning of the company, of course we would like it to be more conservative, so our assumption is around RMB 400,000. This is basically our judgment regarding the lithium carbonate cost, probably for the next year.
AD这个作为一个服务去提升毛利率，确实它需要一些时间，但有一些是因为这个开发的这样一些功能开发的时间，但也有一些法规方面的这样的一些需要等到法规进一步去成熟。我们看到最近中国工信部和公安部刚刚推出来了一些试点，这当然是比较积极的一个信号。我们认为这个从现在的一个判断的角度来讲，我们觉得可能还需要一两年的时间，这方面的一些法规，还有相关的一些技术进一步的成熟，那短期内还不太可能贡献太多的这个毛利。
For the autonomous driving, I believe we still not need some time to see the contributions of autonomous driving to the vehicle gross margin and the overall gross margin. There are several factors. The parts is because of the feature and function development and part is because of the legislations. Recently, we do see some positive progress on the legislation front. For example, MIIT has launched some pilot programs for the autonomous driving. For us, we believe it will still need to probably 1-2 years to get mature when it comes to autonomous driving technologies and also the legislations. In the short term, we expect probably there will not be any significant contributions from the autonomous driving to the vehicle gross margin and the overall gross margin.
好，谢谢 Yu Qian。
好的。好，谢谢您。
Our next question comes from Xinchi Yin with CITIC Securities. Please go ahead.
各位管理层你们好，感谢您接到我的提问，我这边有两个小问题。第一个问题我想请教一下，关于三季度的库存，我们看到三季度的库存在资产负债表上有六十七个亿，这个数字是过去几个季度最高的，然后相较于二季度呢也基本上三倍了。所以想请教一下，这是不是意味着目前在我们的这个资产端相较于二季度多了大概一万台左右的这样的一个整车的库存，这是第一个问题。我的第二个问题呢，是想请教一下关于ET5，这个车确实最近是非常的火爆，但是我们也最近看到了一些在这个网络端、社交媒体上的一些关于这个车的一些评价。很多人提到说它的这个能耗问题是比较严重的，就是耗能比较高。那想问一下，就是关于目前消费者的这样一个反馈，我们有什么样的一个后续的行动。 My first question is about inventory. The inventory is around RMB 6.7 billion on Q3, it is nearly double compared with Q2. This number implies around 10,000 more inventory cars on your balance sheet. My second question is about ET5. It was really hot in September but recently we see some negative comments and news on the social media because of its poor performance on energy efficiency. I was wondering what's your next move to deal with the consumers' concerns?
Thank you for taking my questions.
Hi, Xinchi, this is Stanley. For the inventory increase in Q3, I think mainly two reasons. One is about our increase of inventory cars in Q3. You know our production was negatively impacted by our rear subframe in Q3, so we increased the production of ES8, ES6 and EC6 in Q3. Secondly, it's because the increase of the component inventory to secure the production in the coming months, we stored more key materials like chips and also other raw materials in Q3. All those factors lead to the increase of our inventory stock.
那第二个问题，我们当这个，因为ET5的话呢，事实上来讲它不同的轮胎对这个能耗是影响比较大的。如果你去订我们ET5的时候，你选不同的轮胎，你能看到这个差距差了很多，那有的用户可能对这个没有特别的去在意，如果你去选那种性能胎，那确实它和那个低滚阻的胎，它的差距挺大的，因为我们提供很多种轮胎的选择。总体来说，ET5的这个能耗表现是挺不错的，这个如果你去选这个低滚阻的轮胎，长续航的这种轮胎的话，那确实我们也提醒我们的用户，这个如果你是比较性能导向，你需要去享受ET5的这个四秒以内的加速等等之类的，你非常享受这个驾驶的操控，还有这些的话呢，你确实可以选择这样的一些轮胎。但如果你是要续航这方面去追求更多的续航的话，或者低一些的这个能耗的话，确实要去选择这个长续航的这个轮胎，这个可能更多的是一种误解和驾驶习惯的问题。
Yes, for the ET5, different tires may have a different impact and a different performance when it come to the power consumption. If the users choose a performance tire, then the power consumption will be higher. If the user choose the long range tire or the low resistance tire, then the power consumption performance is going to be much better. We would also like to remind of users, if you really enjoy driving and handling, and you would like it to experience the acceleration of ET5 within four seconds, then of course you can go with the performance tire. If you care more about the drive range, then it's better for you to go with the long range tire, which will have a much better performance when it comes to the range.
谢谢辛奇。好的，谢谢。我没有问题了。
As there are no further questions, now I'd like to turn the call back over to the company for closing remarks.
Thank you once again for joining us today. If you have further questions, please feel free to contact the NIO's investor relations team through the contact information provided on our website. This concludes the conference call. You may now disconnect your line. Thank you.
The conference is now concluded. Thank you for attending today's presentation. You may all now disconnect.