Hello, ladies and gentlemen. Thank you for standing by for Neo Incorporated's First Quarter 2021 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.
Yves Tang from Capital Markets and Investor Relations. Please go ahead, Yves.
Good morning and good evening, everyone. Welcome to Niu's Q1 2021 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, VP of Finance and Ms. Jade Wei, AVP of 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. And Exchange Commission. The company does not assume any obligation to update any forward looking statements, except as required under the 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 2021 Q1 Earnings Call. In the Q1 of 2021, NIO delivered 20,060 ES8, ES6 and ES6, representing a strong year over year growth of 422.7 percent and a solid quarter over quarter growth of 15.6%. All three models have achieved outstanding results in their respective segments, especially EC6. With its comprehensive performance, streamlined silhouette and the superior digital experience, AC6 has On April 7, 2021, over 100,000 production vehicles was rolled off the line. It took NIO 26 months to roll off the first 50,000 vehicles, but only 9 months for the second 50,000.
Together with our users, NIO has set a new speed record from delivering the first Driven by the growing brand awareness, Competitive product portfolio, industry leading technologies, outstanding services and innovative business models, NIO has gained increasing recognition and support from our users. Our order momentum remains solid, while the risk Of the global chip shortage still looms large in the second quarter. Despite the challenges, we expect to deliver 20000 to 22000 vehicles in the 2nd quarter. In terms of gross margin, benefited from higher deliveries and solid average selling price. Other vehicle gross margin reached 21.2%, while the overall gross margin increased to 19.5% in the 1st quarter.
On top of the positive operating cash flow for the full year of 2020, We have continued to realize positive cash flow from operating activities in the Q1 of 2021, While steadily improving operating efficiency and overall system efficiency, we remain committed to doubling down on our investments in research and development and stay determined to accelerate the Next, I would like to share with you some recent key operational highlights of the company. After the launch of ET7, our first flagship smart electric sedan at the new day, it has great attention from the market and the industry. Our teams are fully focused on and devoted to the production and testing of ET7. On April 2, the first body in white of ET7 rolled off The production line in Hefei manufacturing center. On April 19, the interior of ET7 was unveiled at the Shanghai On April 15, we kicked off the deployment of the Power Swap Station 2.0, the 2nd generation power swap station can significantly boost its service Capacity to up to 312 swaps per day by shortening the battery swapping time and carrying up to 13 battery packs.
To further improve the swapping experience, we upgraded and optimized our NIO pallet Based on the Power Swap Station 2.0 in NIO OS 2.10, which was released to users in April To achieve an automatic one click park and swap experience without getting off the car throughout the whole swapping process, All NIO users can enjoy this feature once they have updated their vehicle operating system. As an organic part of NIO's NIO has created innovative battery subscription model based on vehicle battery And chargeable, swappable and upgradeable batteries. As more users get to know better about the benefits of Battery as a Service or BaaS and more battery pack options become available, BaaS has gained increasing popularity. We believe FaaS and NIO's growing charging and swapping network will further elevate the user experience of owning an electric vehicle and attract more users to choose electric vehicles. In addition, since its launch, the 100 kilowatt hour battery pack has been widely welcomed by our users with A much higher take rate than we expected.
As of April 16, more than 10,000 users I've been using the 100 kilowatt hour battery pack. On April 18, we have also officially made the flexible upgrade to 100 kilowatt hour battery pack available for reservation and will offer this upgrade service to users In terms of production capacity, late March early April, Due to the semiconductor supply shortfall, JAC NIO factory halted the production for 5 14 days, which has posed a certain negative impact of our production and delivery in April. In the Q2, we expect the challenges to the overall supply chain production capacity will continue to linger. In spite of the volatile micro environment, we are working closely and diligently with our Partners to secure supply chain resources. During the production suspension period and holidays, Our partners and us have modified our production lines to prepare for the mass production of ET7.
Agreement with the Hefei government and announced that we jointly viewed the new part, a smart electric vehicle Industrial Park in Qingtao. On April 29, 2021, NIO participated in the kickoff ceremony For the NIO part and organized the NIO Partner Conference 2021 in Hefei, NIO strives to collaborate with partners in talent attraction and cultivation, research and development, supply chain and To further support the production of Niu's We are in discussion with our partners about the detailed execution plan and the cooperation model, And we'll share more information at a appropriate time. With regards to the sales and service network, we now have 23 new houses and 211 new spaces, Covering 123 cities in China, we'll continue to strengthen the building of new houses and new spaces to further expand the sales network coverage, improve operational efficiency and enhance brand influence. NIO has built 206 swap stations in 77 cities. We have gradually started the deployment of Power Swap Station 2.0.
We aim to have at least 500 battery swap in operation by the end of this year. At the same time, we will ramp up the availability of power Our supercharging piles and the destination chargers. Up until now, we have We deployed over 146 power charger stations and 18 26 destination chargers and plan to increase to 615,000 respectively by the end
of 2021.
On April 15, NIO signed a strategic cooperation agreement with the final pack to work together on building battery charging and swapping infrastructure. This strategic collaboration will enhance efficiency of site selection for NIO's charging and swapping facilities, Better users' experience of owning an EV and help convert more gasoline car users to EV. In the meantime, to provide users In the Northern China regions, better and more convenient charging and swapping services. We announced that the Power North At this year's Shanghai Auto Show, in the next 3 years, in the 8 northern provinces and Autonomous Regions. We plan to deploy 100 powerswap stations, 120 power mobile, 500 power charger stations with over 2,000 power chargers and 10,000 destination chargers.
We believe that the Power North plan will significantly improve the electric vehicle usage experiences for users in the North and further catalyzes the adoption of smart electric vehicles in those areas. Up to now, we have 33 new service centers and 100 and 62 authorized service partners in operation coupled with continuously improving operational efficiency, We will keep expanding our after sales service network and to further improve the service operation system. And the driving force of our growth. At the just concluded Shanghai Auto Show, 180 user volunteers 15 NIO users collaborated with experts from various industries to jointly host Fourteen sessions of this talk to discuss how to shape a joyful lifestyle with smart technologies. Many users displayed their original artworks at the NIO User Museum at our auto show booth, through which They shared the joyful lifestyle new advocates and shapes.
With the support from our users and the efforts of our teams in 2020, Niu has stepped onto the right track for the overall operations and has embarked onto the stage of accelerated development. The year of 2021 is of a Key importance for NIO's development. We will further improve the establishment of power, sales and service networks to enhance NIO's brand reputation and provide the best holistic experience to NIO users. More importantly, we'll continue our decisive and efficient investments in new products and technology research and development to solidify the foundation for NIO's long term growth. As always, thank you for your support.
With that, I will now turn the call over to Stephen to provide the financial details for the quarter. Stephen, please go ahead.
Thank you, Vivian. I will now go over our key financial results for the Q1 of 2021. And to be mindful of the length of this call, our entire business to refer to our earnings press release, which is posted online for additional details. Our total revenues in the Q1 were RMB7.98 billion or US1.22 billion dollars representing an increase of 481.8 percent year over year, an increase of 20.2% quarter over quarter. Our total revenues are made of 2 parts, vehicle sales and other sales.
Vehicle sales in the first Quarter was RMB7.41 billion or RMB1.13 billion, accounting for 93% of total revenues in this It represented an increase of 489.8 percent year over year, an increase of 20% quarter over quarter. The increase in vehicle sales year over year was mainly attributed to high deliveries achieved from more product mix offered to our users, The expansion of our sales at work since 2020 and the slowdown of vehicle sales in the Q1 of 2020 due to COVID-nineteen pandemic in China. The increase in vehicle sales quarter over quarter was mainly due to high deliveries and higher average daily price. Order sales in the Q1 were RMB576.5 million of $88,000,000 representing an increase of 395.3 percent year over year, an increase of 23.4 percent quarter over quarter. The increase in other sales year over year was in line with the incremental vehicle sales in the Q1 of 2021.
The increase in other sales quarter over quarter was mainly due to the increased revenues derived from 100 kilowatt hour battery permanent upgrade service provided since December 2020, partially offset by sales of automotive registry credits in the Q4 of 2020. Cost of sales in the Q1 was RMB6.3 billion or $0.98,000,000 representing an increase of 370.5 percent year over year, an increase of 16.9 percent quarter over quarter. The increase in cost of sales was in line with revenue growth, which was mainly driven by the increase of vehicle delivery volume in the Q1 of 20 20 1. Gross profit in the first quarter was RMB 1,550,000,000 or US0.24 billion dollars representing an increase of RMB1.72 billion for a gross loss of RMB0.17 billion in the same quarter of 2020, an increase of 36.2% from Q4 of 2020. The increase in gross profit was mainly contributed by increased vehicle sales and increased vehicle margin.
Gross margin in the first quarter was 19.5 Compared with negative 12.2% in the same quarter of 2020 17 point 2% in the Q4 of 2020. The increase of gross margin was mainly driven by the increase of vehicle margin in the Q1 More specifically, vehicle margin in the Q1 was 21.2% compared with active 7.4% in the same quarter of 2020 and 17.2% in the Q4 of 2020. The increase of vehicle margin year over year was mainly driven by the increase of vehicle digital volume at average selling price as we add lower material cost. The increase of vehicle margin quarter over quarter was mainly attributed to higher take rate of new pilot and 100 to 1 hour battery package. All expenses in the Q1 were RMB686.5 million or US104.8 million dollars Represent an increase of 31.4 percent year over year and a decrease of 17.2% quarter over quarter.
The Phase of R and D expenses year over year was mainly attributed to that R and D research and development activities In the Q1 of 2020, due to COVID-nineteen pandemic in China, the decrease in R and D expenses Quarter over quarter reflected fluctuations due to different design and development stages of new products and Core Technologies. SG and A expenses in the Q1 were RMB1.2 billion or RMB0.18 billion, representing increase of 41.1 percent year over year and a decrease of 0.8%
quarter over quarter.
The increase in SG and A expenses year over year was primarily due to the increased marketing As we have increased number of employees in sales and service functions in the Q1 of 2021. SG and A expenses remained relatively stable compared to the Q4 of 2020. Loss The operation in the Q1 was RMB295.9 million or forty dollars 5,200,000 representing a decrease of 81.2% year over year and a decrease of 68.2 percent quarter over quarter. Share based compensation expenses in the Q1 were RMB 96 RMB 14,700,000 representing increase of 198.1 percent year over year, an increase of 60.3 percent quarter over quarter. The increase in share based compensation expenses was primarily attributed to incremental options granted to relatively higher ground late fee sales values during the period.
Last loss in the Q1 was RMB451 1,000,000 or 68,800,000, representing a decrease of 73.3 percent year over year and a decrease of 67.5 percent quarter over quarter. Net loss attributable to NIO's Ordinance shareholders in the Q1 was RMB 4.88 billion or dollars 0.474 billion representing an increase of 183% year over year, an increase of 226.7 percent quarter over quarter. In the Q1 of 2021, NIO purchased 3.305 percent equity interest in New China from a minority strategic investors has recorded amount of RMB4.4 billion or 0.6 US7 $1,000,000,000 in accretion of redeemable non controlling interest Including share based compensation expenses and accretion of redeemable non controlling interest to redemption value, non GAAP Just last, attributable to new Ordinal shareholders was RMB354.5 million or US54.1 million dollars in the Q1 of 2021. Basic and diluted net loss per ADS in the 1st quarter were both RMB3.14 or RMB0.48 per ADS. Excluding share based compensation expenses and accretion of redeemable non controlling interest to redemption value, Non GAAP adjusted basic and diluted net loss per ADS were both RMB0.23 or 0 point 0 $4 per Our balance of cash and cash equivalents, restricted cash and short term investment was RMB47.5 billion or US7.3 billion dollars as of March 31, 2021.
Additionally, we achieved positive cash flow from operating activities for the Q1 of 2021. And now for our business outlook. As William mentioned, for the Q2 of 2021, the comp expects deliveries to be between 21,022,000 vehicles, representing increase of approximately 103% to 130% 13% from the same quarter of 2020, an increase of approximately 5% to 10% from Q1 of 2021. The Complaint also expects the total revenues of the Q2 of 2021 to be between RMB8.15 and RMB8.50 billion or between US1.24 billion dollars and US1.30 billion dollars This represents an increase of approximately 119% to 128 point 7% from the same quarter of 2020, an increase of approximately 2.1% to 6.5 from the Q1 of 2021. This business outlook reflects the company's current and the preliminary view on the dissipation and market condition, which is subject to change.
Now this concludes our prepared remarks. I will now turn the call over to the operator to
Please press the pound or hash key. Please standby while we compile the Q and A roster. For the benefit of all participants on today's Call. Our first question comes from the line of Nikolay. Please ask your question.
Yes. Good morning, William, Stephen and management team. Congratulations, Yi Xun, for a great result. My simple two questions. First one is on gross margin and second one is really on ship shortages, competition raised by many investors.
On gross margin, indeed, a very good improvement from 4Q last year to 1Q this year. The vehicle margin increased from roughly 17 Percent to 21%. And of that 4 percentage point improvement, I wonder if you could help us quantify a little bit The underlying driver, how much percentage is driven by ASP volume and on the flip side, room to price battery and so on? That's my first question. And second question on the chip shortage, it's a common issue.
And I know this book is very low, 2 to 3 months. And at the same time, we did revise down slightly our 2Q sales volume guidance from previously. William mentioned 7,500 per month in 2Q, and right now, it's roughly about 21,000 to 22,000 in 2Q. And on the trip shortage, Do we have any visibility on the potential easing of supply? Would that happen hopefully in 3Q?
Hi, Nick. This is Danny. Overall, our vehicle cost, including BOEM and also manufacturing cost, remained stable in Q1 2021. And the increase of vehicle margin are mainly driven by the increase of take rate of 100 kilowatts battery pack And also the new pilots. Of which 5,000 is for the 100 kilowatt battery pack And 8,000 is for the new pilot take rates.
So the overall 100 Battery pack take rate in Q1 is 25%. And we think this trend will keep In the following quarters, so that's the general reason of why we achieved a higher gross profit margin in Q1.
Papa speaking, the gross margin in the Q1 of 2021 is higher than our Just like Danny mentioned, this is mainly driven by the higher take rates of some options like the 100 Our battery pack and the new pallet, at the same time, the cost has also reduced to some extent. We believe that the current gross margins around 20% is a very healthy situation for the company's operations Because we don't actually cut the price and we believe this is quite comfortable for us, but at the same time, I would like I'd like to urge everyone to manage your expectations because this kind of rapid improvement of the gross margin It will be quite challenging for us, but I believe there will still be room for improvement for the gross margin, but not at this Big margin. So we should not be too optimistic about the gross margin improvement.
Yes, right.
I believe Right now, it's quite good for us to reach 20% of the gross margin and is earlier than we expected. Still, our focus For the company is the product and the service. The second question is about the chip shortage. The current situation in the market is quite volatile, And we have been tracking the chip supply every day. This has been A very severe issue for the whole industry supply chain.
For example, the fire incident of 1 factory has caused several days delays for the chip shortage. And we believe this negative impact is Going to kick in around the middle of May, and this is going to affect the whole industry supply chain. We believe this kind of incident will happen from time to time. That is why we Believe the challenge for the whole industry will still be quite big for the following quarters or months. At the beginning of April and the end of March, we suspended the production of our factory 3 for 5 working days, which is going to impact our delivery and production in April.
For the full quarter, we believe it will be possible, but still quite challenging for us to achieve 7,000 to 7,500 production units. We are trying our best to secure the supply And to maintain the production speed, of course, we are quite confident, but the challenge is still quite daunting. This is a common situation for the whole industry. The common understanding in the industry is The turning point will happen around the Q3 and the overall situation is going to improve around the Q4, but some Prismatic, some also believes that probably this situation is going to continue to next year. Our supply chain partners have shown very strong support to the production of NIO.
Yesterday, we had offered partner conference in Kissei, which was attended by hundreds of partners to show their support of Niu's production. And we believe the situation is quite challenging, but overall speaking, overall operation is relatively okay.
Thank you. Our next question comes from the line of Bin Wang from Credit Suisse. Please ask your question.
Thank you so much. Actually got 2 questions. Number 1 is that I found that you have another announcement about ESG. Can you elaborate what is the detail and why you hosted ESG maybe for the first time? That's number one question.
It's GA, sorry. And the second question about the margin outlook, actually I found that a few factors maybe In fact, the Q2, one is the new pilot attached to it. 2nd is there was the penetration about 100 kilowatt hour Number 3, I found you that you opened a free interest rate auto finance. Number 4, maybe in the semiconductor pricing hike Because not just the supply, but also on the pricing also increased. Notably, lastly, it's about battery price.
Can you provide guidance about
Thanks for your questions. This morning, we announced that we are going to organize an EGM. There Some important points in this AGM that we're going to discuss. The first one is we're going to increase the number of the directors in the Board. Right now, our Board member is 5 people, and we would At the same time, another important matter is we would like to give the user The right to nominate directors to the Board, but this is a nomination right, it's not an Appointment, right.
So the Board will still have the power to appoint the directors. The IPO of the company, I have transferred 1 third of my shares to establish this user trust. And the user Our focus is on environmental production, the industry subcommittees, the social welfare and the user care. We believe it's quite important for us to allow the user trust to participate in making process of For the company, which is a very important strategy for the company, that is why we would like to Proposed this in the EGM, from this proposal, we believe it's going to be quite beneficial for the long term development of the company it's going to serve the best interest of our shareholders. This also showcased our mission of building and the vision of building a user enterprise, which will also help us to deepen our relationship with the users for the long run.
Okay.
Hi, Wang, as explained by William in the prior questions, 20% Gross profit margin is quite healthy at the current stage for us. So we don't expect the margin will dramatically improve In this year, like quarter on quarter in 2020, but the 100 Cola battery pack And also the new Pi features are both well accepted by our users and we expect These two like options will further bring The high profit margin for us, yes, that's the general trends we want to explain to you.
Thank you. Next question?
Our next Question comes from the line of Tim Sow from Morgan Stanley. Please ask your question.
Congratulations on the results. So two questions from my side. The first question is about competition because as you may notice there are a lot of Traditional players launched their models during Otoshi this year. So if you look at the product pricing channel strategy, I think they are quick learners and catching up rapidly. Meanwhile, so by Technium's smartphone makers also announced their EV plan.
So I think we have shared a lot of initiatives during the call just now. But what will really make Aneel to be stay differentiated in the following years? Are we going to Change our pricing or product strategy in the mid to long term. So that's my first question. And second question is about the launch of ET7, because Wieland just mentioned, I think the supply dynamics stay tight and it might stay challenged throughout the whole year.
Considering like the more back loaded second half, Do you see any risk that the launch of ET7 might be delayed or face any production bottleneck, especially I think ET7 carry quite a lot of new Hardware and software features, where could be the potential bottleneck in your view? So thank you.
In this year's Shanghai Auto Show, we have witnessed the vitality of the China Smart EV Industry. If you have ever visited the Shanghai Auto Show If you have ever visited the Shanghai Auto Show this year, you should have seen this by yourself. So that is we have a lot of innovations in the smart electric vehicle industry in China. Okay. In terms of the overall competitiveness, NIO is still quite confident in our specific market segment.
In the premium market, we haven't seen Any brand with this kind of competitiveness yet in terms of the product, service, Technology, user experience and user community. For the traditional brands, Yes. There have been some highlights for their premium brands and premium products. But still I believe they're still lagging behind in terms of the digital experience and autonomous driving capabilities. So It will be quite important for them to be more decisive and determined to transform themselves into this new era of smart electric Of course, there have been many domestic players Following NIO in terms of the technology adoption, user community concept and direct As always to users, they have been moving very fast as followers, but I believe it will be quite Challenging and difficult for them to build a premium brand and they will face a significant pressure in terms of their pricing.
Of course, the auto market is not a winner takes all market, but our focus at this moment is still in the premium market. In this market, we can see that the EV still accounts a small share compared with that of the gasoline cars. Although in March, the EV penetration has reached 10%, but the majority The vehicles in the market are still gasoline cars. So it means that we still have a lot of room and opportunities for growth. When it comes to the long term differentiation, we believe in the auto industry, it's quite important that you should not have And in very significant and obvious weaknesses, with over comprehensive competitiveness in products, technology, Service, user operations and the user community, we believe that we can solidify our position in the market With all those strengths and stood out in the competition, this differentiator and the competitiveness is going to continue This is a marathon.
This is not a sprint. So we're quite confident in our long term The second question is about the mass production of ET7 will be the 1st product on offer 2nd generation platform, new technology platform 2.0. So it means that this is not just about the production of GT7, it's actually about the mass production of the 2nd generation platform. We are the 1st in many aspects, for example, the advanced sensors, computing power, SoC, chipset and other advanced technology applications. Some companies have launched their Product with some kind of like 1.5 generation technology or transitional technology, which It's not going to be our strategy because we would like to just leap forward to the next generation technology and achieve a Of course, this kind of determination is going to raise a lot of challenges for us.
For example, we have put ahead to the production schedule of Many advanced technologies like the Lida and the NVIDIA O ring SoC, this has posed a lot of pressure Our teams and the partners, but we are still quite confident that we believe it's possible for us to launch ET7 according to schedule in the Q1 of next year. Our teams and our partners are fully focused on achieving this goal and pushing ahead All those challenges, our objective is to make sure we can deliver the product According to our quality requirement and solve the production bottlenecks, so we can gradually ramp up the Production and the delivery of our vehicles to the users. So as the history tells us That NIO has a very strong capabilities to deliver 1 new product every year and our quality has already been Proven that we are at the top. So that's why we are quite confident that we should be able to deliver ET7 according to the
Next question.
Our next Sean comes from the line of Ming Sun Lee from Bofa Securities. Please ask your question.
Thank you. Thank you, William and management team and congrats Good results. So my first question is regarding the details of NeoPark. So from the announcement that we saw that NeoPark, Ultimately, you will reach 1,000,000 units capacity. So I want to understand that probably your near term Our plan for this NIO Park, is 1,000,000 capacity all for NIO or probably will have other EV companies?
And also For this NeoPark cooperation, where the current cooperation method continue, JAC build a plant and the higher labors, but NIO will purchase the equipment and the mold, etcetera. So that's my question. And the second question is regarding the battery form factor. So we are seeing More and more auto companies start to apply LSP battery to further control the cost, lower the selling price and to increase the From the recent media, we also saw that NIO will probably consider to use LFP battery By the end of the year, so could you give us more update regarding the potential plan? Thank you, William and the management.
Thank you for your question Ming. Yesterday is quite important because Hefei government has kicked off the building of the new park, but over here, I would like To emphasize, the spelling of this park is n e o, it's not n I o. The Chinese name of this industrial park is Xincao or the literal translation is New Bridge. This bears the same name with Hefei Airport. This is a very big park,
It
is around 11.3 kilometers, square meter. This industrial park It will be a massive project, including manufacturing facilities, R and D and Residential areas as well as culture areas, NIO is going to be a very important Company in this park, but according to the planning of the Hefei government, they will also have Probably hundreds of other companies are joining this new park. For the planning of the Hefei government regarding the NeoPark, NIO is not going to invest on the infrastructure building of the park. I hope the government is going Make this investment, but NIO is going to be a very important company using this part. Just now you asked about the capacity of 1,000,000 units and the 100 gigawatt hour, whether this is only for NIO or Whether this is going to be available for other companies, of course, if NIO is going to develop in a very faster speed, Then I believe that the Hebei government is not going to make this matter very complicated for NIO and themselves.
Then it means that NIO should be able to use all the resources and the capacities and all the infrastructure viewed by the public government in the new part. So but this is the planning of the new part, which may be different from the actual execution in the future. We need to look at this step by step. NIO is going to be a very important player in this NIO Park. And this NIO Park is also Going to contribute to the long term development of O'neal because we believe if we can attract all the talent And consolidate all the resources in this NIO Park, it will be beneficial for NIO's development, just like what happened in Anting in our Shanghai headquarter, NIO was the 1st company or innovative company to build offices in the Shanghai headquarter in Anting and then many other companies followed suit to join in this offices area in Anting.
So we believe if we can consolidate all the resources Together with our partners in this new part, this is also going to help us to improve the operational efficiency, Including our internal efficiency because if you imagine that we have all the people working in the same place, including our manufacturing Teams, R and D teams and they are also living in the same place. So this is going to help us to significantly improve the Operational Efficiency of the Company. Then the next important factor which you consider is the external operational efficiency. According to the current planning of the new park, we will have the battery factory together with the Vehicle factory, then you mean that after we finish the production of the battery packs, we can ship it directly to the vehicle factory in a very short distance. That's the same with the seat factory in the future.
So it means that we can save significant logistic costs. For example, The battery logistic cost is around US100 dollars per battery pack. So imagine in the future, the volume is going to be 100 is it going to be 1,000,000 units, Then this is going to be a huge saving in terms of the logistic cost, and this is also going to help us to improve the overall operational efficiency. When it comes to the operation model of the cooperation model of the second factory, We will continue to focus on the manufacturing corporation. It means that we will still focus on the manufacturing processes, technologies, the quality and the operations of all plants.
And we will invest in some dedicated equipment for NIO, but we're not going to invest On building the actual factories, in terms of the operators in the second factory, this will be managed By the joint venture between JAC and NIO, the name is Danglai and this joint venture is going to be responsible for the overall Operation and management also the operators in the plant. The next question is about the Yes, many companies, including Tesla, are using the LFP battery pack. Of course, there are some inherent advantages of the LFP battery pack. A very important one is the cost, But there are also some weaknesses and shortcomings with this technology or form factor. For example, the performance of the battery pack in low temperature, this is going to significantly Richard, I believe it should be the right timing and the right choice for us to use LFP battery pack and the form factor.
Thank you, Bin. Next question.
Our next question comes from the line of Lei Wang from CICC. CCC, please ask your question.
Good morning. This is Wale speaking. I would say it is beyond our Expectation to see the vehicle margin above 20%. So definitely congratulations to the team. I think most of my question has been probably answered.
I only have one follow-up question regarding the collaborations with SinoPac Group on swap stations. So will SinoPac Burden some of the CapEx investments in the 2nd generation substations or will Cenopec share some of the drivers as well?
Thank you for your Question, of course in the future we're going to deepen our cooperation with China Pack, but For now, our cooperation is quite simple. Basically, we utilize their sites and the location In the gas stations, of course, they will need to have service personnel. So we believe this is also for us to work together to share the service resources. But at this moment, we do not have any revenue sharing mechanisms between Next question.
Our next question comes from the line of Edison from Deutsche Bank. Please ask your question.
Thank you and congratulations On the quarter. Two questions from the competitive angle sort of. Coming out of the Shanghai Auto Show, obviously saw a lot of product, a lot of developments. Has this influenced or sped up your target about bringing in a mass market brand into the market, so a non Neo brand? Is that effort kind of been accelerated or any sort of change to those kind of Plans for going forward?
And then second question, it seems like a lot of automakers now also Potentially considering doing chips themselves, I think it's reported that Neil has considered doing that as well. What's your latest thinking on I'm kind of moving away from NVIDIA and doing the chips yourself as well or designing the chips yourself. Thank you.
So thank you for your question, Alison. From the competition perspective, I checked out all the possible competitors and their new models. So To be honest, the most impressive one is from Wuling Hongguang. Their sub brand, They have a model called TVEV. For the mass market, We believe there are many new companies launching their new products.
Just like I mentioned, in the China smart EV industry, The innovation capability has been quite strong, so we are quite confident about the popular And the adoption of the smart EVs in the future, but in the premium sector right now, we don't The second question is about the research and development of the chipset. In the smart electric vehicle industry, we believe that the industry chain is going to move towards Chipset, Software and Other Smart Technologies. For the long term, the top leaders is going to Given the investments in research and development of the smart hardware, I believe this is the common outstanding of the At this moment, we do not have any specific plans that we can disclose to the public or share with the public. But I believe it is quite obvious to everyone that NIO has always been very decisive in investing in the research and development which is including autonomous driving, and we believe that this is going to build the long term competitiveness of the company.
Thank you.
Thank you. Next question.
Our next question comes from the line of Paul Gung from UBS. Please ask your question.
Yes. Thanks, Wade, and thanks, everyone. Two questions. The first one is on the R and D and 2nd one, a little bit follow-up on the gross margin. On the R and D, I see in this quarter, it's actually The moderates even sequentially declined from the 4Q at less than 700,000,000.
I recall last time you said you're going to Double down on the R and D activity in 2021 and significantly increased R and D budget. So can you give us a little bit like update on this Strategy? And more importantly, which key areas is going to be the focus for the R and D? And a rough breakdown, How much percentage goes to the vehicle development? What percentage goes to the maybe autonomous driving, etcetera?
This is my first question. My second question is a little bit follow-up on the gross margin. Obviously, this is a pretty decent gross margin for Relatively young company like NIO, but in between of this margin versus market share, is it A little bit like overly focused on the margin and a little bit like under focus on the market share. Do you think We will strategically choose to either adding higher specs or kind of making the vehicle more competitive in the markets To balance in between of this margin versus market share? And also how do you think about the rising material cost impact In the next few quarters because some battery makers have indeed mentioned that it's possible for the battery price to go up.
I think I caught your comments just now that the 100 kilowatt hours of the battery take About 25% in Q1, what was the new final take rate in Q1, please? Thank you.
Thank you for your question, Paul. Regarding the R and D expenses, yes, the R and D expenses in the Q1 is not that high, but this follows the normal Stages of a vehicle, for example, now our ET7 go under research and development, Then it means that starting from the Q2, we're going to see increase in R and D expenses related with the testing cost and the ETD cost together with our suppliers. The ET7 R and D expenses will increase gradually as they get closer to the mass production. At the same time, we're also developing multiple products in our pipeline because we would like to make sure we can apply the NT This will be mainly driven by the research and development of other products in the lab line. Just like I mentioned, we are determined to develop the autonomous driving full stack capabilities, the software capabilities and the smart electric vehicle technologies.
We will accelerate the development The new technology platform 2.0 and new technology platform 3.0. At the same time, we're also ramping up of R and D personnel, in the past Q1, the R and D personnel in the company has significantly increased and we believe it will continue to increase in the following quarters. We have also increased our investment in terms of the R and D In the platform technologies, including EDS or the electric powertrain, in this year, it will be quite Challenging for us to efficiently and effectively spend the RMB5 1,000,000,000 for the R and D expenses, but we're quite The second question is about the balance Operations and Development, we need to maintain a reasonable gross margin. For the The gross margin, yes, is better than our expectation, but we have emphasized again and again that we're not going to tap the price And we would like to leverage of margin to invest more on user service, including the power Structures and also the user community. For the market share, I believe that we need to look at the market share in different market segments.
For example, it's not possible for us to compare the market share of Ferrari and Porsche in their market segment with the market share of In the mass market segment. So for NIO, our focus is The market share of the premium market, we don't want to have the same strategy like other brands that just cut their From time to time because we believe this is going to hurt the image under the users. For example, Porsche probably Owning sales around 300,000 units, but they contribute 40% of the Gross margin of the Volkswagen? Net margin.
Net profit.
Net profit of the Volt Wagon Group. So we believe if we want to build our market share in the premium Segment, we need to devote more resources and energy to manage the brands and the user community. Our focus It's not going to increase to cut the price of our product and then to increase the market share because Even if you cut the price of the product, probably in the end, you still cannot improve the market share. So we believe After we reach a reasonable margin, then we can use this margin to improve our product, our services and the Infrastructure for our users, this will be of a long term strategy. In the global Premium market, right now, the market volume is around 10,000,000 and we only accounted for a very small Sure.
So it means that there is still a huge room for us to grow in the future. For the mass market, This will be a different story and the entry of the mass market will require will require
Our next question comes from the line of Evelyn Zhang from Daiwa. Please ask your question.
Hello. Actually, it's Calvin from Daiwa. So I have a few questions about So first of all, I want to know, I noticed that you have kind of a Norway Launching in Norway Conference next week. So I want to know, would there be any other overseas expansion plan that you can share with us? This is the first question.
The second question is that, can I know how because what we know is that the raw material costs and also auto chip costs are all increasing? Do we expect like a month on month or even week on week increase affecting your component price? What's the trend or how fast is this accelerating? Thank you.
Kevin, this is Stephen. Sure. First, Loewe is a first stop for our long term globalization But for the May 6 conference call, we will still focus on the low wage market. Just for information, actually in March, we already set up our national sales company in Longuei And we also have already built up a local team who will take charge of our local operation and service. And in the end, actually we already selected location for our new house in Oslo.
And for more details about the Norwegian market, Please do join our May 6 media conference to get more details. Thank you.
Yes, the raw materials we expect there will be some increase in Coming quarters and but compared with the overall selling price, I think The cost can be well controlled and almost have big impact to our gross profit margin.
On one hand, we have some routine cost reductions. On the other And there are some cost increases, especially in terms of the chipsets recently. But Overall speaking, the saving is bigger than the cost increases. So we believe the bill of material cost will continue to go down. Thank you.
Thank you.
Next question?
Our next question comes from the line of Vijay Rakesh from Mizuho. Please ask your question.
Hi, William and Stephen. Good quarter and guide here. I just had a question on the longer term. When you look on your partnership with Sinopec, what's how do you expect them to roll out their stations? I know you have a 500 Battery substation target, but any thoughts on how Sinopec would be rolling out their 5,000 battery substations?
Thanks.
Thank you, Vijay for your question. Yes, Sinopec announced That they will build 5,000 swap and charging facilities in their gas stations. But NIO is not the only partner working together with Final Pack and they are not just only going to build the swap Stations in the gas stations, so they will also be the charging facilities. Of course, we hope to deploy more charging and Facilities from NIO in the gas stations, but at the same time, we also have many other partners, both locally and nationally. So we believe the site resources will not be a big issue for us.
Thank you, Olivier.
And Also on the solid state battery roadmap, on your own solid state battery roadmap, can you give us an update when do you See that in production or test, and that's it. Thank you.
About speaking, the current process and the testing and the production of the solid state battery is on track.
Thank you.
Thank you. Thanks.
Okay. Moderator, we need to conclude our conference call today. It has been candid and thanks for all the great questions asked by the analysts. Operator? Hi, operator.
We would like to conclude today's conference call.
Certainly. As there are no further questions now, I'd like to turn the call back over to the company for closing remarks. Thank you.
Thank you once again for joining us today. If you have further questions, please Feel free to contact 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.
Ladies and gentlemen, this concludes today's conference Thank you for participating. You may now disconnect.