Hello, ladies and gentlemen. Thank you for standing by for Neo Incorporated's Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen only mode. Today's conference is being recorded. I will turn the call over to your host, Ms.
Eve Tang, Investor Relations of the company. Please go ahead, Eve.
Good morning and good evening, everyone. Welcome to Niu's 2nd quarter 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 Chief Executive Officer Mr.
Stephen Feng, Chief Financial Officer Mr. Mr. Xu, VP of Finance and Ms. Jade Wei, AVP of Capital Markets and Investor Relations. Before we continue, please be kindly reminded that today's discussion will contain forward looking statements made under the Safe Harbor provisions of the U.
S. Private Securities Litigation Reform Act of 1995. Forward looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the views expressed today. Further information regarding risks and uncertainties is included In certain filings of the company with the U.
S. Securities and Exchange Commission, the company does not assume any obligation to update and in 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 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 Q2 2021 earnings call. In the Q2 of 2021, NIO delivered US21896 Yes. 8, Yes. 6 and Isee 6, a new quarterly record representing a strong increase of 111.9 percent year over year.
In July, NIO delivered 7,931 vehicles, representing a strong 124.5 percent growth from last year. All three models have achieved a solid performance in the premium SUV market. The penetration rate of battery electric vehicles has reached 8.4% in China. NIO's penetration in the Tier 1 and Tier 2 Cities in China has been growing at a much faster pace. In Shanghai, The first half of this year has witnessed over penetration in the premium SUV segment, reaching 13.7% Among all ICE and electric vehicles, our monthly order intake keeps growing, but the delivery volume will be determined By the overall capacity of the supply chain, we expect the total delivery in the 3rd quarter to be between In terms of our gross margins, We have achieved a steady performance with vehicle gross margin and overall gross margin standing at 20.3% and 18.6%, respectively.
Next, I would like to share with you some recent operational highlights of the company. Since the first validation viewed of ET7 rolled off the production line in May, A series of rigorous tests of vehicle functionality, performance and homologation have been kicked off. We are very confident with the on time delivery of ET7 next year. Meanwhile, the development of NAD, New generation autonomous driving system is also advancing smoothly. We believe that NAD will deliver the best experience of autonomous driving and lead the charge of autonomous driving technology development in the industry.
In 2022, we plan to deliver 3 new products based on new technology platform 2.0, including ET7. Our teams are devoting every effort to press forward to the development of the new product. In the meantime, we are also constantly optimizing and upgrading the new technology platform 1.0 to strengthen the competitiveness of our current three models. In late August, we will release the new OS 3.0, which will roll out with a fresh new look of UI UX design, New features and further optimization of the existing functions through continuous over the air updates, The functionality and experience of a new pallet have also been improved. As a result, more and more users have chosen and enjoyed New Pallet, in the Q2, the take rate of New Pallet exceeded 80%.
As of July, New Pallet has been engaged for a total of over 200,000,000 kilometers. In terms of production capacity, Despite the semiconductor supply volatilities in the 2nd quarter with joint efforts of the teams and other partners, The production and the delivery have met our expectations in the quarter. Since July, the COVID-nineteen pandemic and extreme weather events have posed a series of challenges to the global supply chain. The most recent COVID situation in certain regions in China have already affected our production. We will continue to work closely with our supply chain partners to minimize the impact and the production and the delivery in the 3rd quarter.
With regards to the sales and the service network, We now have 25 new houses and 243 new spaces in 128 cities in China. We will continue to deploy our new houses and the new spaces, improve operational efficiency and quality and expand sales network coverage to quickly build our presence in the Tier 2 and Tier 3 cities. As of now, We have set up 36 new service centers and 171 authorized service centers in 100 and 33 Cities. We will further increase the number of services centers to meet the rapidly growing user service demand. Up until now, we have deployed 361 swap stations in 100 and 3 cities and completed over 3,000,000 battery swaps for our users.
In July, we announced Niu Power's battery swap station deployment plan by 2025. We plan to increase the total number of Battery swap stations to over 700 by the end of 2021 and to over 4,000 globally by the end of 2025. On the other hand, we are also expanding our power charging and the destination charging network. As of now, we have established over 238 power charging stations and installed 2,416 Destination Charges in China. With the accelerated deployment of the charging and swapping network and deepening understanding of FAS.
More and more people can truly experience and recognize the benefits of battery swapping and bus, which has attracted more users to choose battery as a service. On the front of the global market, the Norway market entry has been progressing as planned. The first batch of the year's 8 has been shipped and expected to arrive in Norway in mid or late August to be ready for the pre order and delivery in September. Starting from September, NIO App, NIO Life, NIO House, NIO Power, the chargeable swappable and upgradeable service system, New service center and the delivery center will gradually become available to users in Norway. As a user enterprise, Our users are playing an increasingly important role in the NIO community.
The preparation for NIO Day 2021 has been kicked So with the active participation of our users, Sudou out of 10 candidate cities has been voted to be the host city of this year's annual day. Our user community has also joined us in making a positive difference in the world. In July, the city of Zhengzhou And a few places in Henan province were hit by heavy rainfalls and floods. New dispatched service resources nationwide to support users in Henan, provided real time usable charging power information to both new users and users of other EV brands and supported the disaster response and relief work with donation and the special purpose fund of a new user trust. 2021 is a critical year We will accelerate the pace of new products and full stack technology development, enhance our charging and swapping network as well as the sales and service network to be fully prepared for the delivery of the 3 new models in 2022.
The quoting of the new brand has been assembled, marking the first step of the strategic initiative of NIO. 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, William. I will now go over our key financial results for the Q2 of 2021. And to be mindful of the length of this call, I encourage listeners to refer to our earnings press release, which is posted online for additional details. Our total revenues in the 2nd quarter were RMB8.45 billion or US1.31 billion dollars representing an increase of 127.2 percent year over year, an increase of 5.8% quarter over quarter. Our total revenues are made of 2 parts, Recall sales and other sales.
Recall sales in the 2nd quarter were RMB7.91 billion or 1 point to US3 $1,000,000,000 accounting for 94% of total revenues in this quarter. It represented an increase of 127% year over year, an increase of 6.8% quarter over quarter. The increase in vehicle sales year over year was mainly attributed to higher deliveries achieved from more product mix offer to our users. The increase in vehicle sales quarter over quarter was mainly due to higher deliveries. Other sales in the 2nd quarter were RMB536.2 million or US83.1 million dollars This is an increase of 130.3% year over year and a decrease of 7% quarter over quarter.
The increase in other sales year over year was in line with the incremental vehicle sales In the Q2 of 2021, the decrease in other sales quarter over quarter was mainly due to the less revenues derived from 100 gigawatt hour battery upgraded service. Cost of sales in the second quarter was RMB6.87 billion or US1.06 billion dollars representing an increase of 100 and 1.8% year over year, an increase of 6.9% quarter over quarter. The increase in cost of sales was in line with revenue growth, which was mainly driven by the increase of vehicle delivered volume in the second quarter of 2021. Gross profit in the 2nd quarter was RMB1.57 billion or US0.24 billion dollars representing an increase of 402.7 percent For the same quarter of 2020, an increase of 1.2% from Q1 of 2021. The increase in gross profit was mainly contributed by increased vehicle sales.
Gross margin in the 2nd quarter was 18.6% compared with 8.4% in the same quarter of 2020 and 19.5% in the Q1 of 2021. The increase of gross margin Compared to the Q2 of 2020, was mainly driven by the increase of vehicle margin in the Q2 of 2021. Gross margin remained relatively stable compared to the Q1 of 2021. More specifically, vehicle margin in the 2nd quarter was 20.3% compared with 9 point 7% in the same quarter of 2020 and 21.2% in the Q1 of 2021. The increase of vehicle market year over year was mainly driven by the increase of vehicle volume, Higher average selling price as well as lower material cost.
Vehicle margin remained relatively stable quarter over quarter. R and D expenses in the 2nd quarter were RMB883.7 million or of US136.9 million dollars representing an increase of 62.1 percent year over year, an increase of 28.7 percent quarter over quarter. The increase of our expenses year over year and quarter over quarter was mainly attributed to incremental design and development costs for new products and technologies SG and A expenses in the 2nd quarter were RMB1.5 billion or US0.23 billion dollars represents an increase of 59.9 percent year over year, an increase of 25.1% quarter over quarter. The increase in SG and A expenses year over year was primarily due to the increased marketing activities as well as the increased number of employees in sales and service functions. The increase in SG and A expenses quarter over quarter was primarily due to the increased marketing and promotional activities and professional services.
Loss for operations. The 2nd quarter was RMB763.3
million
for US118.2 million dollars represented a decrease of 34.2 percent year over year, an increase of 158% quarter over quarter. Share based compensation expenses in the 2nd quarter were RMB251.4 million for US38.9 million dollars representing increase of 4.55% year over year, an increase of 160.5 percent quarter over quarter. The increase in share based compensation expenses was primarily attributed to additional options and restricted shares granted. Net loss The 2nd quarter was RMB587.2 million or RMB90.9 million, representing a decrease of 50.1% year over year, an increase of 30.2% quarter over quarter. Net loss attributable to NIO's ordinary shareholders in the 2nd quarter was RMB59.3 million or US102.1 million dollars representing a decrease of 45.4% year over year, a decrease of 86.5% Quarter of quarter.
In the Q2 of 2021, basic and diluted net loss per ADS in the 2nd quarter were both RMB0.42 or RMB0.07 per ADS. Excluding share based compensation expenses and accretion on redeemable non controlling interest Through redemption value, non GAAP adjusted basic and diluted loss per ADS were both RMB0.21 or to RMB 1 or $0.03 per ADS. Our balance of cash and cash equivalents, restricted cash and short term investment was RMB48.3 billion or US7.5 billion dollars as of June 30, 2021. And now for this outlook. As William mentioned, for the Q3 of 2021, we currently expect deliveries to be between 23,025,000 vehicles, representing an increase of approximately 88.4% to 104.8 percent from the same quarter of 2020, an increase of The company also expects The total revenues of the Q3 2021 to be between RMB8.91 billion and RMB9.63 billion, representing an increase of approximately 96.9 percent to 112.8 percent from the same quarter of 2020 has increased approximately 5.5 percent to 14% from the Q2 of 2021.
This outlook reflects the company's current and preliminary view on the situation and market condition, which is expected to change. Now this concludes our prepared remarks. I will now turn the call over to the operator to proceed our Q and A session.
Thank you so much. Please limit yourself to 2 questions. And if you have additional questions, you can reenter the And our first question comes from the line of Tim Zhao from MS. Tim, your line is now open.
Hi, William, Steven and Tim. Congratulations on the result and thanks for taking my questions. Just two quick questions from me. First question is about the new models. Could you please elaborate a little more about The 2 new modules scheduled for 2022, either the ET7 regarding the timing, spec, rough price range, etcetera.
As Mark previously anticipated to have just one new model next year, so I think this serves as upside surprise. So any colors would be highly appreciated. So that's the first question. And my second question is, with news to the battery consumptions Likely reaching 16 gigawatt hour or 18 gigawatt hour next year. Will there be any major changes to NIO's battery sourcing strategy?
Will CATL stays as a sole supplier or NIO might consider looking for a second source? And in light of such a close tied up with CATO between CATO and NIO for both EV and battery asset management Company, can you diversify to other partners to hedge the risk if needed? Those are my two questions. Thank you.
I believe everybody knows that the new technology 2.0 is going to be first applied to ET7. The current development The progress of ET7 and NAD is on track and we are quite confident about the on time delivery of ET7 next year, although the challenges is quite significant. For the other two products, I believe probably it's better for me share more information at a more appropriate time. Regarding the pricing, of course, in recent years, the battery cost has declined a little bit and as our volume goes up, our bond cost will also have some opportunity to go down. So for the next year's product, we probably will have one of the lowest pricing product Under the NIO brand, but as I explained before, we are going to have a new brand for the mass market.
So under the NIO brand, we're not going to have many no pricing products. Next year, we believe the demand The battery capacity is going to go up significantly, especially considering the new product lineup. We believe the battery production capacity demand is going to jump significantly compared with this year. We are having intense discussions with Zetiao regarding the battery capacity supply. Currently, we believe CTL is a very good and important partner for us and we also have a very good relationship with CTL.
We have very in-depth discussions regarding the battery technology as well as the battery production assurance. So we believe that this current strategy can serve the best interest of the company at the current stage of development.
Thank you so much. And your next question comes from the line of Ming Seung Lee from Bofa Securities. Ming, your line is now open.
Thank you. Good morning, William, Stephen and the team. Congrats for the good results. So I have two questions. The first question is regarding the component supply.
We know you already have more Larger size battery supply starting in June, but right now consider the pandemic in China and also Overseeing countries such as Malaysia, so what kind of impact do you expect on the production side, especially for your component Supply capacity. So that's my question first question. And the second question is regarding your business in overseas market. So In your Q3 voting guidance, how many units do you expect to ship in Norway. And will you start to provide better service in overseas market?
Yes, that's
my two questions. Thank you.
Yes. The pandemic situation is affecting the global supply chain. Last year, I believe our supply chain partners and NIO have been trained significantly to cope with this kind of In my prepared remarks, I have also mentioned over the recent COVID Situations in certain regions in China have affected over production, specifically is a Just in time component partner located in Nanjing's high risk area, this partner has already suspended their Production and we have seen some good news is coming out of Nanjing. It seems that the COVID cases in Nanjing has already dropped So we hope this partner can resume the production as soon as possible. The Q3 delivery volume will Many be determined by the overall capacity of the supply chain.
So there will be a lot of challenges that we need to deal with. For example, you also mentioned about the dynamic situation in Malaysia. This has also affected the semiconductor to the global market, not just for NIO, but also many other companies. But the pandemic situation In Malaysia, basically, we believe that the impact for us is not that big and it should be under control. Another situation is the flood in Germany.
Our partner is also affected in the flooding Because one factory is flooded during the extreme weather event in Germany and our partners Working with us to identify the solution, right now we believe that the situation is under control. So Overall speaking, the delivery volume in the Q3 will many be restrained by the overall capacity of the supply chain. Regarding the delivery in Norway, we believe For this year, the contribution is not going to be that significant because our priority is to make sure we can ensure high user section in the Norway market by building of our brand, expanding our sales and the service and network. For the global market, we believe The more important thing is to focus on the long term thinking and we would like to ask everyone's patience in this regard. Recently, we have been working together with our prospective users in Norway to set up a user advisory.
They have helped us significantly and provided many constructive and good feedback to us. So we believe This is a very good beginning for us and this is part of our long term strategy for the global market.
Anthony, of course, in global market, We also offer our BaaS business model, because we believe BaaS together with BaaS Works Can offer user a very holistic experience and combined together in a very efficient way for our users
According to the preliminary feedback we got from the Norway user advisory book,
And your next question comes from the line of Nikolay from JPMorgan. Thank you. Nick, your line is now open.
Yes. Thank you, William and Stephen. Great result indeed. I have two number related questions. The first one is related to Of course, profit margin.
Yes, I mean, 2Q against 1Q, roughly margin was flat, but still at the vehicle level, overall GP margin We're still down roughly about 1 percentage point. Yes, can you help us understand or explain a little bit more On the margin, let's say margin, on slide show for in 2Q, is that related to bond or improvement in mature price I noted the 2nd quarter ASP is slightly down from 1Q. Yes, and how should we think about 3Q? So that's one is a margin related question. Can you help us understand a bit more or expand a bit more on 2Q margin dynamic against 1Q?
And how should we think about that as we enter Q3? And the second question related also related to number is, look at the cash on balance sheet, Altogether, cash equivalent and short investment, by the end of first half, we have RMB48 1,000,000,000 cash. That's roughly about RMB7.5 billion and that's a lot Cash on balance sheet. If you can help us understand what's our cash how what was our strategy using the cash on balance sheet In terms of CapEx investment, I noticed JC has new capacity expansion. And presumably, as We are launching more model in 2022.
We'll need to invest in R and D, new model tooling altogether. So if you can help us And a bit more on our capital investment in the next 1 year also that will
be very useful. Thank you.
Hi, Nick. This is Stanley. Regarding your first question about the gross profit margin, There are two reasons, we break down into details. The first is average selling price decreased about 8 1,000 per vehicle in Q2. The main reason is more ES6 was sold in Q2 compared with Q1.
Since ES6 is with a little bit lower gross profit margin and selling price, but Due to our cost saving efforts in Q2, the average vehicle cost also decreased about So combine the two factors together, our like net gross profit margin per vehicle Decrease about 5,000. Okay, that's the reason for the vehicle margin. And we Today we announced like 3 new brand new products we will deliver in 2022. And we also refreshed our product plan. And For the conservative perspective, we like to shorten Our like the depreciation and amortizing periods for our existing products, so that will lead to The D and A increase, so for the second half year of twenty twenty one, This impact to gross profit margin will be like 2% per vehicle.
So, yes, that's the first question. And the second one is regarding the cash balance. As you mentioned, we the cash balance at the end of Q2 is RMB48 1,000,000,000. As we mentioned, we will still focus on the Research and development of our new product technology. So and about the other usage, We will like also increase our CapEx investments, including our new plant and new Sales and marketing network infrastructure in the coming years.
So It will be in line with our business plan in the next years, yes.
Okay. Yes. Can you remind
us what our CapEx target for the year? Do we have any number or guidance, please?
Yes, we expect the total CapEx in this year will be RMB5 1,000,000,000, including like the new plant and also the Service and Sales Network and also Power Swap Station.
Yes. Thank you very much.
Thank you so much.
Thank you, Nick.
Thank you, Nick.
Thank you so much. And your next question comes from the line of Bin Wang from Credit Suisse. Bin, your line is now open.
Okay. Thank you so much. My first one is more follow-up about our gross margin because you actually guide that Neopet has been increased quite Substantially in the attach rate to 80%. What's the number in the Q1? And what's the margin increase bonus Increasing new pilot, take a look.
That is the number one question. Number 2 is about your long term market share because peers actually 1 PSH announced 10% market share and the other one 20%. And what's the newest plan for 2025 for the market share because we have Masamaki brand, can I assume that Masamaki brand will start to sell in 2023 because this year's 3 products seems to be all came from NIO brand? And because you already accelerated R and D, so it's not going to be 2023. That is the second one.
And the second one is about your data or offline store expansion plan. If you see your peers who actually gain more strategic cooperation with the Big data groups such as Dongsheng, Baihelet some of your existing partner for new spaces to be Buyback by NIO's, so which means in the long term, maybe NIO don't have any third party partners for NIO space. It's not true. What's your long term strategy about the offline store suspension plan? Thank you.
So regarding the margin contribution of the new pallet, As we mentioned, the take rate of NIO Pallet has reached 80%. For this 80%, it includes Both the selected pack and the full pack of the new pallet. So we believe the overall contribution from the new pallet is Around 3% to 4%.
Yes. Since NIO Pilots the price of NIO Pilots included in the selling price of Vehicles, so we have like no like the separate gross profit margin calculation for
For the NAD, because we're going to use the AD as a service So, a model to provide the NAD services to our users. Long term speaking, we I believe the ADS service contribution is going to be included in the other margin and the Long term plan for the margin of the NT2.0 is going to be much better Then the margin of the NT1.0. For the vehicle gross margin, we believe the Target for us in the long run is 25%, excluding the carbon credit, because the carbon Credit should be included in other margins and we believe the logic of other margin is about the in store base or the installed base of our users. For the long run, it will get better considering the future possibilities and Including AD as a service, battery as a service upgrade and new life, carbon credit. So we believe overall Speaking the overall gross margin and the vehicle gross margin will improve.
Regarding the long term target For the market share, for us, of course, we pay meaning we pay attention to offer specific market share order penetration in the corresponding segment of our products. For example, the ES8 In the large and midsize SUV market segment and the year 6 in the midsize SUV segment, internally, of course, we have a very aggressive market share target by 2025, but we don't actually I want to disclose this target. For us, we believe our target as a company should be to build a company with the highest user satisfaction rate. So that is why In the China market, so I would like to talk a little bit about the battery electric SUV Premium Market segment. For this segment, I would like to emphasize a little bit about the pricing because When we compare the specific sales volume of 1 brand or 1 product, I think it does not make sense To compare those kind of metrics without thinking about the specific pricing segment, For example, it does not make sense of us to compare the sales volume of Uling Mini EV with the sales volume of NIO Because we don't have the same pricing and we don't actually compete in the same segment.
In our specific pricing segment, we have Companies like Audi, BMW, Mercedes and for Tesla, they also have Model S and Model X and Model Y, so in this specific pricing segment, overall market share has already exceeded 50%. So we are quite confident to further improve our market share in this specific segment. In Shanghai, As I mentioned before, in the premium SUV segment, including the ICEs and the electric vehicles, we have already reached close to 14% market penetration in the first half of this year. This is already quite Hi. And we have already achieved this in the Tier 1 cities.
So we believe this is a very good indicator for our next step to penetrating to more markets in different cities. Because as I mentioned, our focus is to make sure we have the best product and the services and achieve the highest user So we believe as long as we stick to this vision and to this objective, it should Yes. From the second half of twenty nineteen to the first half of 2020, we have tried the Neospace partner approach. We believe that the Neospace partners have contributed to offer expansion of the sales network and the sales volume growth. But Right now, when we look at the overall brand and the management complexity, we believe it makes more sense for us to I managed the new spaces by ourselves.
So starting from the Q3 of 2020, we have changed this strategy and we would like To make sure for the new spaces, we can manage and build by NIO. So we discussed with our new space partners and reached The agreements with the majority of the new space partners to transform their NIO Space is to the NIO Space is operated by NIO. So the majority of the NIO Space partners have already signed the agreement with us And for the rest of the new space partners, we will continue the cooperation with them until the termination of the contract. For all the NIO spaces, these are all viewed and operated by NIO.
Thank you.
By the way, can you answer the question about whether it will be 2023 for the new mass market brand business? Thank you. Thank you.
Regarding the launch of the mass market products, Of course, our R and D efficiency is quite high, and I believe this is the common standing of everyone. NIO has been able to launch products one after another in a very faster manner. So for the mass market brand, This is part of our long term thinking and we believe the efficiency and the speed of the product launch is going to be probably even faster build on top of the capabilities that we have already accumulated under the new brand. But regarding the Market conditions and the R and D progress of those products. So we believe it's still too early for us to share those information for now.
Thank you.
Thank you.
Thank you so much. And your next question comes from the line of Cheng Liu from CICC. C. C. Chang, your line is now open.
Yes. Thank you for taking my questions. My first question is about R and D. We know that there is fierce competition in acquiring talent people in autonomous driving development. So could you share with us NIO's advantages in acquiring them?
And more in details, could you share with us our Current team size of AD Development and our targeted team size. And is there and updates on our R and D expenditure for this year. And my second question is that could you update the take rate of
Thank you for your questions. AG is a very important R and D initiative for us and We are quite decisive to make investment in the autonomous driving technology and organization. Other autonomous driving organization is quite different from other companies probably because we have 4 VP reported directly to me personally. So as you can see that the autonomous driving is not just One department is actually an initiative for the of our company. We have teams focusing on hardware, Autonomous driving system, autonomous driving algorithm and autonomous driving operation.
So we believe that this is not just the Efforts of 1 AD department, we will need to leverage all the capabilities that we have across the company. Right now for our AD department, we have around 500 people. By the end of this year, we expected You have additional 300 to 800 people for the AD team. We will continue to make a The decisive investment in dotcom's driving technology and the talent acquisition. Starting from 2016, we have already built over ADAS team and autonomous driving team and NIO is the 1st company to Have a mass production of the IQ4 chipset and we have built over domain controller, the Starting from last year, the main focus of us is to build up the capabilities in terms of the Thomas, driving, upgrading and the computer vision, we believe right now we have already built a very strong team.
Regarding the R and D expenses, starting from the Q2, we have accelerated our research and development in the company. As I mentioned, in 2022, we're going to deliver 3 new products and in 2023 and beyond, Probably we're going to deliver even more products. I believe NIO is the fastest Company in the industry to deliver products to the market, averagely speaking, the R and D timeline for us is Starting from the Q3 of this year, we believe we're going to step up our R and D expenses Due to the team size and the programs that we have in the R and D pipeline, so previously we also mentioned that the R and D expenses in 2021 should be around RMB5 1,000,000,000 and we would like So the current focus of us is to build up our R and D team and make sure all the development projects is on track According to the plan and we believe probably by the end of this year, the size of our R and D team is going to be doubled compared with the size last year. The take rate of batteries as a service in July has reached 60% and is growing month over month.
Previously, I have also mentioned the take rate of NIO Pallet has Reached 80%, including the selected package and the full package. So overall speaking, the take rate of bus
Thank you so much. And your next question comes from the line of Edison Yu from Deutsche Bank. Edison, your line is now
Thank you for taking our questions. I have 2 follow ups on Europe. First, it seems there is quite a bit of hiring going on in the Netherlands and a little bit in Germany. Could you maybe discuss The next phase of Europe after Norway? And then second question on Europe.
It's very encouraging to See this user advisory board. Can you maybe discuss some of the things that you're doing differently in Europe relative to what's been going on in Thanks.
I think for Pari, I wanted to share some numbers with Our investors, first in Norway, our team size has already increased to 40 employees in Norway. And of course, Norway is only our first stop to go overseas, to go global. So in the following years, We will also enter other European countries and also other regions. So that's why we continue
Another point is starting actually In the Q2 of this year, we have appointed the CEO of New York. He is already on board and he has been building up the team for Europe. Of course, we're going to enter more markets In Europe, including Germany, for most of the products we are going to deliver to Europe is going to be based The new technology platform 2.0 accepted the ES8. So this is our current strategy for the European market. So for NIO as a user enterprise, When we enter the markets or different regions, we have always believed that the user participation and the support It's a very important principle that we should uphold.
Of course, for different markets, they have different cultures, different environment, different use And the user enterprise concept should apply to overall markets in the world Because our vision is to make sure that we can put the user experience and the user First, this is a general principle for us. A very interesting fact that I would like to Share with you is that in Norway when we initiated the user advisory board, we I thought that probably we should have around 200 people, but in the end 700 to 800 people signed up for the user So from this example, we can see that actually the Norwegian people are quite Are willing to participate in those community events because previously through the media report And other literature, it seems that the Norwegian people are more cautious towards socializing with other peoples, but This example has proven this is the wrong interpretation or the wrong stereotype of Norwegian people and we believe that the user community concept should apply to all the people in the world.
Thank you, Anderson. Thank you.
Thank you so much. And your next question comes from the line of Paul Gung from UBS. Paul, your line is now open.
Yes, thanks, everyone. I have two questions. The first question is regarding your plan to add the 3 new models based on the NT2 MP2 in 2022, given most of the NIO space probably cannot Put 6 models together, will you try to expand the average size of your New space or are you going to gradually phase out the existing first generation of the products? As just now you mentioned that You have shortened the depreciation and amortization of the 1st generation of your products. Does that mean it Would be gradually phased out and migrated to the 2nd generation of the platform?
This is my first question. My second question is regarding the mass market brands. I understand at this moment, you are still Pending decision in terms of the timing and how to position itself. But can we have a little bit color when you think about the relationship of NIO Brand versus your NIO mass market brands, would it be more similar to, let's say, Mercedes Benz and the smarts BMW and BDD or Audi versus, I'll say, Volkswagen brands, How do you think about the relationship of the 2 brands? I recall in last quarter's results, you mentioned that there is only one model in the Sunghao Tochell that Is that An indication that somehow the recent online discussion say NIO's mass market brand would So also on some tight in small vehicles, is it something you are bearing in mind at this moment?
Thank you.
Regarding their product offering, we would like to offer more diversified choices to our users, but We also need to strike a balance because we're not going to like the traditional OEMs to launch a sea of products for the users to choose from and we are also not going to like other companies to just offer 2 to 3 products for the users We believe different users will have a different preference and taste regarding the Body size, the body type, the design, so that is why we would like to offer limited but diversified product offering to our users. We understand the era of Model T happened 100 years ago and right now the Haiyan and Agee is quite different for us. So that is why this is offered strategy. Regarding the product And the new houses and the new spaces, of course, we are going to adopt the digital technologies We'll probably use the rotation mechanism to make sure users can still experience our products in the new houses and the new spaces. But according to the current data we have right now, it seems that the majority of our users actually placed their orders online.
So we believe this is not going to pose a significant issue for us. Regarding the new technology platform 1.0, We understand our current product based on the NT1.0 is actually quite competitive if we compare with Audi BMW, for example, their EV products, I believe all of our products are still quite competitive. And when it comes to their ICA product, I think our product actually does not belong to the same generation with their ICA product. So for the new technology platform 1.0 product, we believe that they are still quite competitive and we'll continue to sell those Regarding the 3 new products that we're going to deliver in the 2022, we believe that this is Not going to affect the upgrade pace or the normal upgrade pace of the products on the new technology platform 1.0. But just now, Stanley have also mentioned that we have taken a more prudent approach to shorten I believe You have a very good question and you made a very good comparison.
Yes, if we just take the Positioning of the NIO brand and the new mass market brand, a simple comparison is going to be more like the relationship between Audi and It's Alexis with Toyota. But this is more about the positioning of these To new brands, of course, we're not going to enter the segment of Uning Hongguang. We believe that they have already done a very good job in their specific We would like to do something different and offer different products for the mass markets. Basically, our thinking is that we would like To launch a product that can have competitive pricing compared with the test that's product, but have much Better products and
services. Better
Product and a much better services compared with the Tesla.
Thank you very much. Very helpful. Thank you.
Thank you so much. And your next question comes from the line of Jeff Chang from Citi. Jeff, your line is now open.
Hi. Hello, Willie and Stephen. Great results. And I have three questions. One is the about the ET7.
If this price being set above for RMB400000, Can we say that the GP margin should be much higher than the current level, say, let's say around 30% to 35% Level GP margin, which is a potential. And secondly, it's about the export margin. So Let's say if the scale reach like 2,000 to 3,000 units a month, can we say that, that is GP margin accretive Because we heard that exports to overseas ASP could be much higher. So could you give us a little bit color? Or do you think the export Margin will be similar than the China domestic.
Yes, that is the first area. And the second Question is about the D and A. And as you just mentioned that it's going to accelerate into the second half of the year. And I just heard you said that that equivalent to the cost per car to increase by about 3%, right? So can I clarify this a little bit, whether this would mainly reflect in the GP margin Or the EBIT margin?
And finally, it's about the R and D and SG and A. So previously, we expect this year's R and D to be around RMB5.2 billion, SG and A around about RMB6 1,000,000,000. So going forward into 2022, do you see that there could be still a potential that This course should be increasing faster than our revenue growth. And when do you think This course growth will be slower than our revenue growth. Will it start from 2 to 3 or 2 to 4?
Yes, that's my 3 questions. Thank you.
Thank you for your question, Jeff. Although speaking For the gross margin targets, previously I have also mentioned that on the new technology platform 2.0, The vehicle gross margin target should be at the level of 25%. From the current data we gathered, it I think that the 87 should be able to reach this target, but the actual vehicle gross margin of 87 will need to be validated until the mass production and the delivery of 87 to our users. So for the other products or for the products on the new technology platform 2.0 including 7, it will probably meet the 25% vehicle gross margin level and this is the Of our target for us and for the other margins, just like I explained that we have AD as a service, new life, battery as a Service upgrade and the swapping services, all this is included in the other margins. So this will also contributed to the improvement of other margins.
For the export business, our current strategy is that we I'd like to have a global pricing, but for the specific pricing in different markets, it will vary a little bit considering the tax and The tariffs in different countries.
We accelerated our depreciation and For the fixed assets for NTWAN product that will be booked in the cost per vehicle. So gross profit margin Starting from Q3, we will decrease by 2% as I mentioned in prior questions.
Okay. And also, Jeff, with regard to the expense ratio, we believe from now on the next 12 months However, in from the second half of twenty twenty two, our
Okay. Thank you. Thank you, Stephen. Thank you, William.
Thank you so much. Thank you. As there are no further questions, Now I'd like to turn the call back over to the company for closing remarks.
Thank you 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 Web That does conclude our conference for today. Thank you for participating.
You may all now disconnect.