,Good day, ladies and gentlemen. Thank you for standing by, and welcome to the NIU Technologies' second quarter 2020 earnings conference call. At this time, all participants are listen mode. Later, we will conduct a question-and-answer session, and instructions will follow at the time . As a reminder, we are recording today's call. If you have any objections, you may disconnect at this time. Now I will turn the call over to Mr. Jason Yang, investor relations manager of Niu Technologies. Mr. Yang, please go ahead.
Thank you, operator. Hello, everyone. Welcome to today's conference call to discuss Niu Technologies' results for the second quarter of 2020. The earnings press release, corporate presentation, and financial spreadsheets have been posted on Niu's investor relations website. This call is being webcast from the company's IR website, and the replay of the call will be available soon. Please note today's discussion will contain forward-looking statements made under the Safe Harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks, uncertainties, assumptions, and other factors. The company's actual results may be materially different from those expressed today. Further information regarding the risk factors is included in the company's public filings with the Securities and Exchange Commission. The company does not assume any obligation to update any forward-looking statements except as required by law.
Our earnings press release on this call includes discussions of certain non-GAAP financial measures. The press release contains a definition of non-GAAP financial measures and the reconciliation of GAAP to non-GAAP financial results. On the call with me today are our CEO, Dr. Yan Li, and CFO, Mr. Hardy Zhang. Now let me turn the call over to Yan.
All right. Thanks, Jason, and thanks, everyone, for joining us on the call today. We have observed the recovery in the China market in Q2, while in the overseas market, our sales performance was still affected by COVID-19. Now, on performance in Q2, our total sales volume reached 160,000 units, an increase of 61% year-over-year. The sales volume in the China market reached 255,000 units, an increase of 81% year-over-year, while the international market reached 5,000 units, decreased by 62% due to the impact of COVID-19. Despite a decline in sales in the overseas market in Q2, we remain very positive about our performance in the second half as the market gradually recovers from the COVID-19 outbreak. Now in Q2, we continue to build our leadership in urban mobility via new product rollout, branding and marketing activities, and the retail expansions.
First of all, Q2 has been a very busy quarter for us in launching new products. As I mentioned in the previous earning call, we launched our MQi2 on May 7th, our flagship electric bicycle product for the China market in 2020. As an upgrade of our 2016 signature M1 model with the up-to-date technology and complying with China's new regulation. The product launch was held on Zhibo or online live streaming sales at Taobao platform and achieved a huge success with 3 million-plus views and likes. Since then, M2 has been a key selling product in our electric bicycle category, representing 50.5% of our sales in Q2, and is positioned as our high-end electric bicycle product. We also introduced the MQiS or MS model on July 16th.
MS is slightly smaller compared with M2, but also inherited the family design style of N-Series using the same technology platform as in M2. We also apply our innovation in lightweight materials in NS, reducing the weight of MS chassis, which allowed us to expand the battery capacity to 48 volt 26 amp hours while still complying with the new regulation. With this new battery capacity, the MS has a longer drive range, up to 100 km, and leads the drive range for the entire electric bicycle industry. The compact form factor of MS is also very friendly for people with all heights. MS comes with four models with pricing ranging from CNY 3,899-CNY 5,599, representing an entry-level product for the N-Series, while M2 is with price range from CNY 4,599-CNY 6,199.
Now besides expanding our N- series with two new models, M2 and NS, we also expanded our GOVA series with three new models: G0, G2, and upgraded G3. G0 is an electric bicycle designed as an entry-level product of the GOVA series, targeting the mid-end market with two drive range options at 40 and 60 kilometers, priced at 2,299 and 2,799 CNY. G0 inherited the design style of the GOVA series, but is more compact and more practical with built-in back seats and add-on baby seats. G0 was launched at the JD June 18th campaign with a pre-sale warm-up and online live stream event. During the livestream event, we received close to 4 million views and 2 million likes on JD platform, and the entire product launch campaign generated a total sales volume of close to 17,000 units, demonstrating our capability to penetrate the mid-end electric bicycle market.
We also launched G2 and upgraded G3 under the Gova series on June 12th and July 18th, respectively. G2 is an electric bicycle product larger than G0, with two drive range options at 60 and 80 kilometers, priced at CNY 3,599 and CNY 3,999. G3 is the upgraded electric motorcycle product from our last year's G3 announcement, targeting cities with no restriction on motorcycles. It is bigger in size and with faster speed, up to 60 kilometers per hour. It is equipped with three battery options and with price range from CNY 4,299 to CNY 6,499. With G0, G1, G2, and G3, our Gova series achieved a full spectrum coverage from an entry-level electric bicycle to electric motorcycle, with price range from CNY 2,299 to CNY 6,499, meeting a wide range of consumers' demand. The entire Gova series will help us to expand our market reach to lower-tier cities.
Besides new products, we continue to enhance our brand awareness via user activity-based viral marketing and targeted marketing. On user activity-based marketing, we had two very interesting events in Q2. First, a new fan from Shanghai spent 261 days riding along the entire border of China with total distance of 30,000 kilometers on our original N-Series scooter. During his trip, the fan drove through the snow mountains, drove across the Gobi Desert, and challenged the extreme cold temperature of -41 degrees Celsius in Northeast China. This story was published on Weibo and Douyin and then was picked up by all major medias across China. It has achieved 35 million views on social media and 10 top-tier media coverage with hundreds of article mentions.
Second, to celebrate NIU's fifth anniversary, a new fan from Beijing actually sent a new miniature model up to 20,000 meters above the sea level in Inner Mongolia with a hot air balloon and made a vlog capturing the entire event. The vlog has also achieved 41 million views and received nine million likes on Douyin. Both of those activities demonstrate a strong loyalty of our users to our brand and helped us to further build our brand awareness and brand reputation across a mass consumer base. Third, to promote safe riding, we also launched a No Helmet, No Ride campaign together with traffic administrative departments across 10 provinces and cities, with Weibo articles and Douyin and Kuaishou videos. This campaign generated 24 million views across those platforms.
With those efforts, we continue to build out our own site on short video platforms like Douyin and Kuaishou, with Douyin quarterly views increased to 47 million in Q2, a 23% growth over Q1. Kuaishou to 4.5 million views in Q2 versus only 190,000 in Q1. Internationally, despite the impact of COVID-19 virus, we continue to add key opinion leaders to the Niu Crew team of creators. One worth to mention is a Spanish key opinion leader post on YouTube. His post achieved 1.7 million views, making Niu a hot topic in Spain. To further enhance the user experience and engage our new users, we launched a new social feature on our app called My Riding Journey, allowing users to quickly create long-format pictures with the riding geo-path to be easily shared in WeChat and within the app.
More than 15,000 journeys have been created and published in our Niu app community. We'll continue to add more functions to our app as a means to increase user engagement and build brand loyalty. Lastly, a very popular hip hop live competition show called Street Dance of China was launched on July 18th on Youku. It was expected to be one of the hottest shows for this summer in China. We will have two feature advertising in the semifinal and the final during the show, as well as an offline advertising campaign in September when the show is at its final stage. We estimate an overall exposure over 200 million online and 400 million views offline. Not only this will provide brand awareness exposures, it will also help us to further enhance our brand image as a trending brand leading the urban lifestyle.
Supported by the new products that enhance customer engagement and brand awareness, we continue to expand our footprint through store expansions and new market entries. In China, Niu added 51 stores to 1,084 stores in Q2, which further accelerated store opening pace in Q3 as the COVID-19 situation recovered in China. For the international market, we have increased our market coverage to 45 countries, with three more adds in South America, namely the Dominican Republic, Peru, and Brazil. We added additional 48 flagship and premium stores, with total counts reaching 91 flagship and premium stores versus 43 in Q1, despite the COVID-19 situation. I will turn the call over to Hardy to discuss our financial results. Hardy?
Thank you, Yan. Hello, everyone. Our press release contains all the figures and the comparisons you need. We have also uploaded Excel format figures to our IR website for your easy reference. As I review our financial performance, keep in mind that we are referring to the second quarter figures, unless I say otherwise, and that all monetary figures are RMB unless otherwise noted. Our Q2 sales volume reached 160,000 units, increased by 61% year-over-year. China sales volume increased by 81% as a result of demand recovery, retail sales network expansion, and new product launch. Our China online sales are particularly worth highlighting. Online sales continues to grow and accounted for 14% of total Q2 sales volume, compared with the 2% at the same period last year. The key reason is that this year we launched new products such as M-Series and G0 through online platforms.
This helped to mitigate the restrictions from COVID-19 for any big offline event, and also offered a good alternative for customers who are reluctant to go to offline stores. International sales volume decreased by 82% due to the adverse impact from COVID-19. The lower international sales volume had a significant impact on our Q2 financials. For example, in Q2, we have a lower ASP, lower gross margin, and also lower revenues from accessory spare parts. Many of these lines are caused by the lower international sales. We will discuss the impact in detail later. We also encourage you to keep this in mind when analyzing our financials. Regarding product mix, as we launched the new products, M-Series, G0, and the G2 models in the second quarter, the product mix changed accordingly. N-Series accounted for around 20% of total volume. M-Series accounted for around 20%.
U series accounted for 40%, and the Gova series accounted for remaining 20%. The changes in the product mix affected our Q2 revenues and ASP. Total revenues increased by 21.6% to CNY 645 million, in line with the guidance we provided earlier. Revenues from scooters increased by 28% in total, out of which China market increased by 59% and the international market decreased by 53%. Our Q2 scooter revenue was, however, negatively affected by the price discount we offered during the new product launch through e-commerce platforms. For example, we offered CNY 500 discount on new model G0. Such price discounts affected our revenue by approximately CNY 10 million in aggregate. Since we offered a price discount, we are able to save on sales and marketing expense, which I will discuss later.
Revenues from accessories, spare parts, and services decreased by 17% in total, out of which China market increased by 70%. International market decreased by 70%. The decline of international sales is mainly due to lower spare parts sales to the sharing operators. Here, again, we encourage you to look at China and the international market separately to get a better picture of our business for this quarter. Revenues per scooter or ASP decreased by 25%. There are a few key drivers for the decline. First, the lower proportion of scooter sales from international market. The impact on ASP is estimated to be 8.5%. Second, the lower spare parts sales from the international market. The impact on ASP is around 6.5%. Thirdly, the launch of low-price model G0 affected ASP by around 6%. The remaining 4% is mainly due to change in product mix in other models.
In summary, out of the 25% ASP decline, 8.5% is due to the lower scooter sales from international markets. With the recovery of international market in the coming quarters, we expect this negative impact will be much less going forward. Gross margin was 23%, 0.7 percentage points lower than this time last year. The lower margin was mainly due to lower sales of scooter and spare parts from international market, which negatively affected our margin by around 5.5% in total. However, we are able to offset majority of such negative impact by cost savings on battery packs, various components, and warranties. Our total operating expense, excluding share-based compensation, were CNY 82 million, increased by CNY 4 million or 4.6% year-over-year. The increase was mainly caused by higher G&A expense of $2 million for tax and a surcharge, and a higher R&D expense of CNY 5 million, mainly for higher staff costs.
Sales and marketing expenses, however, decreased by CNY 3 million. As a percentage of revenue, the sales and marketing expense, excluding share-based compensation, was 6.6%, compared with 8.7% in Q2 last year. The decrease of 2.1% was mainly because we moved our product launch from offline to online, as I discussed earlier. We offered direct product discounts to customers, which affected our revenues, but we saved on sales and marketing expenses. Going forward, we may have similar approach for sales and marketing activities, especially with more direct sales through online e-commerce platforms. Our share-based compensation expense were CNY 11 million, an increase of CNY 8 million compared with the same period last year, due to the new grants to employees during Q3 last year and Q2 this year. Our GAAP net income was CNY 57 million, and adjusted net income was CNY 68 million. Both are higher than Q2 last year.
The adjusted net income margin was 10.5%, higher than the 10.2% in Q2 last year, mainly due to the lower sales and marketing expenses. We are pleased to return to profitability in this quarter, despite continued impact from COVID-19. Turning to our balance sheet and cash flow. We ended the quarter with CNY 1 billion in cash term deposits and short-term investment. Our operating cash flow was positive CNY338 million because of improved profitability, reduced account receivable, reduced inventory, and increased accounts payable. Our capital expenditure was CNY 59 million, out of which CNY 39 million for land use right acquisition, CNY 20 million for new store openings in China and the international market, as well as for additional machinery and R&D spending. We had a very healthy balance sheet and a strong cash flow in the second quarter. Now, let's turn to guidance.
We expect third quarter revenue to be in the range of CNY 850 million to CNY 950 million, an increase of 30%-45% year-over-year. In earnings release, we also provided you with the update on our July sales volume. China sales volume grew by 64%, even though there were very bad weather conditions in China. The massive flooding affected our logistics and retail sales in July. International sales volume grew by 56% year-over-year. With that, let's now open the call for any questions that you may have for us. Operator, please go ahead.
Ladies and gentlemen, we will now begin the question-and-answer session. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press pound or hash key. Once again, it is star, followed by one to ask your question. Thank you. Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press pound or hash key. We have the first question from the line of Vincent Yu. Please go ahead.
Yan, Hardy, and Jason, congrats on the robust performance, and thanks for taking my question. I have three questions. First question is about the expansion of product category and the related orders. In July, you sold close to 68,000 units in China. Can you share with us which models in particular have driven the strong growth, which is about 64%? Second question is, can you share some comments on the cadence of the reopening of the international stores, and how should we think about the international unit sales for second half 2020? The third question is about how should we think about the China e-scooter ASP for second half 2020? Will we see a meaningful recovery? Thanks.
Thanks, Vincent. Let me answer you to the first question. For the key drivers for the July sales volume growth, there's a few new products we launched in July. First is MS. MS is a electric bicycle category new product. It's very much welcomed by our customer. In July, MS contributes to around 10% of our sales volume in the China market. Another key driver is the Gova series. We launched both G0 in the second quarter, also we launched the G2. Both of them are electric bicycle. They are also the key drivers for the July sales volume growth. It's mainly these three key new product driving the growth. Second question, I would like Yan to comment on.
I think for the international market, basically, I think we do have a pretty good expectation in terms of Q3 and Q4, partially because one, all our stores are opened so far in all the countries. It looks like it's back to business. The second, we do observe that because of COVID-19 situation, that actually, across the globe, people start to prefer what you call individual urban mobility commuting device, which is basically our product, the electric moped and electric scooters fell under. That was actually a good sign to actually drive sales. Lastly, I think we are also planning to roll out in the second half of this year, roll out our EUB-01, our first electric, well, let's call it power-assisted electric bicycles or the e-bike, under sort of the European categories as an e-bike.
That product will be rolled out most likely in Q4 this year, and that will also help to drive a little bit sales in Q4 and actually also roll over to the 2021. Net to net, I think right now it's very positive, and we're also start to seeing orders from sharing operators as well. As we just recently actually got opportunity of a few orders from sharing operators, really to expand their sharing operations in Europe. I think due to a similar basic phenomenon that we observe, they observe very similar phenomenon as due to the COVID-19 situation, people start using this individual commuting device, whether it's owned or shared. One more thing we realized, we mentioned in the previous call, actually, we rolled out a new rental program in July in Europe. This program is actually through an app.
The user can actually rent NIU scooter from participated dealers on weekly basis, daily basis. So far, we've had more than hundreds of dealers participate in this NIU rental program. We think this actually will also help to sort out, to lower the, what they call the entry barriers and give people even a cheaper way to try out a NIU scooter first before making a purchase decision. Those are all the few things that we're really working hard to get the international market back on track. Yeah, that's for my question. For question three on the ASP, I'll let Hardy to answer that.
Sure. For the scooter ASP, let's first talk about the second quarter ASP. Overall, ASP declined by 25%, and as I mentioned, the 8.5% is because lower international sales. Since July, you see we have already seen a recovery of international market sales. In July, our international market sales grew by 56%. China market goes around 64%, so they are growing at a similar speed. In Q3, also in the remaining of the year, we believe this 8.5% will not be there anymore. If you take this 8.5% out of this 25%, that give you remaining 17%, that may last for the remaining of the year. When we look at the ASP, we need to separate them into three category. One is the China scooter ASP, second is overseas scooter ASP, and thirdly is accessories spare parts ASP.
The overseas ASP, we believe it will continue to be strong. In the second quarter, our overseas scooter ASP increased by more than 20%, is a very strong growth. For the remaining of the year, because of the order book, we believe our ASP will be at least the same as last year or even have a slightly growth. The China ASP, however, will decline because of the launch of Gova series, the G0 and the G2, their price is lower than the MU series. Also, the MS, newly launched product in July, also has a lower ASP compared with M2 launched in the second quarter. For China scooter, we are thinking anywhere between 15%-18% ASP decrease in the third quarter.
For the accessories spare parts, this part we have some uncertainties, mainly because of the overseas sharing operator, how much spare parts they order from us. Currently, for our Q3 forecast, we have been quite conservative in this part. In short, I think the ASP for the overall products will decline for the second half this year, mainly because of the change in product mix. This my answer to your third question.
Can we move to the next question?
Thank you.
Hello. Yeah. The next question comes from the line of Bing Wang. Please go ahead.
Question. Number one is about gross margin. I actually found that gross margin quite stable. If possible, can you provide a detail about the vehicle or scooter gross margin, and if that increased or declined? Second is about a service. Second, is any one-off issue in the gross margin we can explain in the second quarter? That is the second one, is that you mentioned that the raw material and the parts decline or batteries declines, the key driver for margin stabilization. Can you quantify how much from the normal parts, how much from the battery, et cetera? That's Number one question. Number two is about share-based compensation. I actually found out that this one is pretty big in the first half. You just mentioned that you actually offer more or grant more in the second quarter this year.
Can I assume this number will be similar in the future compared to 2019? How should we think about the share-based compensation? That's the second question. Third one is about the volume. You actually provide a very good July number. Can you provide guidance in the first two weeks of August? What's the driver for this high growth? Somebody said that in China, because COVID-19 concern, a lot of people actually try to buy scooters to avoid public transportation, and do you still see the key driver? This driver will continue to be strong because the China's COVID, I think, seems at good control. Which means the growth may be lower. Oh, sorry. Is it because of only 30%-45% growth, which is below the 64% in July?
Should you expect the growth to accelerate because the status is lower than June number? Thank you.
Sure. Let me first answer your question on the gross margin. Definitely, our gross margin is relatively stable compared with Q1 also last year. The key driver is the cost savings. I can definitely provide you further breakdown for the margin on different components. For our scooters, if you take out the logistic cost warranty, in the second quarter, the gross margin is around 20.7%. Compared with last quarter, it increased by 2%. If you compare with last year, this has increased by around 3%. This is the scooter's gross margin. For the accessories and spare parts gross margin is around 48%, still very similar to what we have in Q1, also in Q2 last year, so relatively stable. For the service gross margin, this quarter is low, relatively low, only around 30% compared with the 70%, 80% in the previous quarters.
In this quarter, we have a service revenue coming from Volkswagen projects. You may recall, we provide R&D service to Volkswagen for a new product that they plan to launch next year. Because of the COVID-19, the project has to be suspended. Even though we have the same revenue, we have to incur additional costs, mainly for staff costs, we need to save the team for their project. That one drags down our service revenue gross margin. This is the margin by product line. Specifically, on the raw material, how much we save on that. If we compare with our Q2 raw material procurement cost with Q2 last year, our battery cell cost actually declined by around 10%. The battery pack and BMS also have a few percentage decline.
Overall, the battery pack, including both battery cell, BMS, and the pack, has a decline of 8% compared with same time last year. The other components on the scooter also have around 4% cost down. Overall, if you calculate by the weighted average, it contributes to around 5.6% cost down. This is really the key driver to help us to make sure our gross margin is relatively stable. This is to answer your first question. Your second question is the share-based compensation. The share-based compensation is mainly because last year in the third quarter, in August, the board approved additional share-based compensation for the management team, also for some of the key employees. That dragged up our SBC cost by around CNY 4 million. Q2 last year, the SBC is around CNY 4 million per quarter.
Because of the SBC we gave in August last year, that dragged up the SBC spend by around $4 million. In April this year, because some of the employees, their share-based compensation, pre-IPO share-based compensation, already fully vested, so the company decides to grant them additional share-based compensation, continue to vest for additional four years. That also drove up the cost by around $3 million. This is the majority of the SBC we granted, and for the remaining of the year, we do not expect any significant further share-based compensation to increase. That's the answer for your second question. The third question is, I leave to Yan to comment on the sales volume.
Yeah. I think for all the sales volume growth, we're looking at multiple factors here. The first factor, which actually the plus side, is actually the back-to-school , right? With kids back to school, I think that will actually provide a positive, basically a catalyst to the market, where we think we can actually will drive the volume growth. I think the second is actually, I think Yan Li just mentioned, you look at basically our guidance, which is actually the year-over-year growth in terms of the. I think you mentioned it wasn't really slower than the second quarter, no? The guidance on the third quarter.
It's higher, 30%-45%
Yeah, it's actually higher than the second quarter. I think that's where we think the back-to-school will help us. Second is actually, a lot of our new products, when we look at the, as I mentioned, the G2, the G0, the G2, the G3, the MS. All those products, basically with first the G0 and the G2 announced in mid-June. The rest is actually in July. If you think about those products will kick in, the effect of those new product will kick in practically in Q3 this year. Typical when we first announce a new product, they usually, we have our own ramp-up period, and also it takes roughly about a month or so for the market to fully start to accept the product and really ramp up the sales.
I think those new products will help us in terms of drive up August sales. Lastly, I think with a phenomenon we observe, as I mentioned in the call, where with the G0, now we start seeing early sign of G2, where with G0 and G2, it actually also helps us to penetrate what we call the lower tier cities. In the market where it used to be, we don't have a perfect product for those markets. That actually helped us, I think with our store expansions in Q3, those also will contribute in term of the Q3 growth.
Just to add to Yan's comment on August sales trends. In the first half of August, our sales volume growth maintained at least the same speed as what we delivered in July. In the second half of August, we expect volume growth will accelerate mainly because we started the new school opening promotion activities from Monday, from today. Normally, that will drive the volume.
For the app.
Yeah. That's the answer to your question on August sales volume growth.
All that to the side, the quarter guidance only 30-45, which is well below the 54 in July and August.
It's mainly because of the ASP. As I said, because we launched the G0, G2, also MS, their ASP is lower than the average ASP, so this will drive down the ASP, but the volume will still be quite strong.
Okay. Lastly, what about the COVID-19 impact? Because I know the second quarter whole China actually volume was by 45% because of COVID-19. Do you see the COVID-19 impact or help will be less going forward because COVID-19 seems to be better controlled in Mainland China? Thank you.
Yeah. I didn't capture the full question, but hopefully I can answer it. I think basically now with the COVID-19 impact, we saw a full impact in Q1, a little bit in Q2, but as of now, I think for China, effectively, I think we're safe to say we're back to what you call the pre-COVID-19 market condition or even better because the COVID-19 actually drive quite a lot of people to choose not to take public transportations and really start to move to electric bicycle product in China. I think in China market, we're actually in a better position, even in a better position than the pre-COVID-19 situation. I think that was one of the reasons we keep rolling out multiple new products in the last quarter and also in July, and really try to take advantage of this and capture this market growth.
I think similarly, I think in Q3 we expect to add more stores where because of COVID-19, our Q1 store adds, our store expansion, it was subpar, because the many construction sites were shut down, so we were not able to open a lot of stores. Now we have quite a bit stores ready to be opened in the backlog, which will happen in Q3. That will help on the China situation. Now, on the international situation, I think it's actually back to normal. The only thing with the international situation is Q3 has traditionally been a slow quarter for international, especially in Europe, where people take vacations. Still, we expect to actually getting a faster growth in Europe, in Q3 to really make up the gap for Q2.
Having said that, keep in mind, Q3 typically, there are people taking vacations in Europe, so they're a little bit sluggish in terms of retail.
Okay. Thank you so much.
Thank you. We have our next question from the line of Lei Wang. Please go ahead.
My name is Dr. Yan Li. This is Wang Lei speaking from CICC. First of all, congratulations on the strong sales despite of the impact from COVID-19. That's very inspiring for sure. Basically, I have three questions, some on financials and some other factors. The first question is about the ASP of the spare parts. This was around CNY 800 in the second quarter of 2019, dropped to CNY 500 in the third quarter, increased to CNY 1,200 in the first quarter of 2020, even with the COVID-19 impact in China. What could be the driver that makes the key differences that spare parts ASP? That's the first question. The second question is about the new regulations that we believe will redefine the two-wheeler industry in China. It seems individual cities are having different law enforcement strengths.
For instance, in Beijing, it seems we have a more restricted environment, while Shanghai is not taking that regulation seriously for now. How do you view the enforcement in the following quarters? That's the second question. Then, the last question and the third question is about the impacts on the sharing economy. Looking forward, do we think the rising of the sharing economy will lead to a negative impact to our sales in the future? Will Niu become a key vehicle supplier for this industry? That's all my questions. Thanks.
Sure. Thanks, Lei. Let me answer your first question about the spare parts ASP. I think we need to first talk about the total revenue for accessory spare parts and services. I think the revenue come from two sources. One is the sales from the China market.
Mm-hmm.
Secondly, it's the revenue coming from overseas markets.
Mm-hmm.
Even though in the second quarter, our total revenue from this category reduced by 17%, but if you see that into international market and also China market, China market actually grew by 70%. Ov erseas market declined by 70, also 70, %. In China, if you calculate the average ASP per scooter, the price is actually quite stable. Declines or the fluctuations mainly coming from overseas market.
Okay.
For the overseas market, the key driver for our revenue in this category is the actual battery and some spare parts we sold to sharing operators in overseas markets, in both Europe. Also, in the U.S. because of COVID-19, continue to affect U.S. continue to affect Europe, therefore, we have much less spare parts sold to the overseas market really the driver who contributes to the fluctuation of ASP. We think this will continue for probably in the next one or two quarters it become more or less stable.
I see.
Answer to your first question. I will let Yan-
I see.
Comment on the remaining two questions.
Yeah. I think, Lei Wang, on the regulations enforcement, I actually agree with you. We do observe different cities actually apply a different, what do you call it, enforce it differently. Top cities, what we observe basically, top 20, top 10-20 cities, actually top 20 cities, we're talking about Beijing, Shanghai, Hangzhou, Nanjing, even Wenzhou, those cities, and Hangzhou, those ones, and Fuzhou and Guangzhou, Shenzhen. Those ones actually, they enforce very strictly. In those cities, actually, only the electric bicycle products are being sold.
Those cities roughly represent about Traditionally, in terms of market size, they're roughly about 16 million units a year in terms of market size, Out of that 30 million units total market size annually. Then after that 20 cities, I think we're still seeing a handful of cities still enforce the electric bicycle rules. Obviously, there are also cities actually that allow electric motorcycles, that actually allow motorcycles. The products that didn't fall under the, what do you call, the electric bicycles are being sold as electric motorcycles. Little bit caveat on this is actually in terms of enforcement. First of all, regardless which cities, this enforcement is actually very strictly on manufacturers. For the product that manufacturer provide, the product has to be either compliant with the electric bicycle or electric motorcycle. There couldn't be a different, a third category product, which is not compliant with either regulations.
From manufacturing perspective, as Niu, as any other manufacturer, the product we ship are in either electric bicycle or electric motorcycle. They are being sold as electric bicycles or electric motorcycles. I think only the cities a little bit loose on this are cities doesn't require people to get license plate on their, electric bicycles or electric motorcycles. That's where the enforcement a little bit loose. I gave a really long answer for a short question here, but I think as time passes, you're going to see more and more cities going to enforce the rules.
For example, last year, we didn't see Xuzhou, basically a Tier 3 city in Jiangsu really enforce this. This year, Xuzhou actually start requiring people to get license plates on electric bicycles. Practically, basically April, May this year. You're going to see more and more cities actually will apply the policy. I think the reason it's slower because it requires quite a bit of administrative effort to establish what we call the license plate protocol. Getting the local traffic management to set up posts, to get bicycles, to get license plate registration. It takes time, but I think within a couple of years or so, you're going to see all that together being enforced strictly.
Okay. It seems not only to lobby the central government, but also we need to take some time to lobby the local governments, asking them to implement the implementations. Right.
Actually, it doesn't require lobbying. It's really that the local administrative government, actually, what do you call it? Have the task force.
Yeah. Okay. All right.
Yeah. It's basically where they turn around and say, "Well, we need to do this. Now, do we have the task force ready?" Suzhou didn't do it last year because they didn't feel like they had the task force ready, to come with, what do you call it, the implementation of it. This year, Suzhou is ready, join the club. You're going to see more cities.
I see. Mm-hmm.
Lastly, on the share operation, yes, we also observe some sharing operation, mostly still on Tier 3 or Tier 4, tier 5 cities. For example, I visit a city called Quanzhou, so I see a lot of share with electric bicycle sharing. There are ones deployed by HelloBike, there's one deployed by Meituan.
Mm-hmm.
As electric bicycle sharing operators. We think that's actually complement as part of solution for urban mobility.
Yes.
It has little impact to our business because all our products are on the mid-end to high-end products.
Mm-hmm.
If you actually look at the bikes that sharing operator deploys, it's very simple. It doesn't even have a, what do you call it, display. Minimum plastics.
Mm-hmm.
Let you get by. We think, if there's massive of those being deployed in those cities, actually the market segment got hurt the most, probably on the low-end side.
I see. Basically they won't have impact to our future sales in those Tier 2 cities.
Right.
We are having the more advanced products. All right. Yeah.
Right.
Thanks.
We got those questions in 2016 and 2017 when the sharing bicycles hit its prime.
Currently, the sharing electric bicycles, the operation to me, basically allows you to ride a little bit longer distance.
Yeah.
Other than that, it serves the same market, right?
All right. Okay. All right. That answers all my questions. Thanks, Dr. Li, and thanks, Hardy.
All right. Thank you.
Thank you.
Thank you. We have the next question from the line of Alex Potter. Please go ahead.
I guess a question, two questions maybe on margins. The first one, going back to gross margin. Obviously, the cost control that you mentioned was really strong. I was wondering if you could elaborate specifically on why battery costs and why these component costs are coming down. Is this a function of just cost cuts from your suppliers? Is it because you now have more scale, and you're able to negotiate better pricing? What specifically is driving the cost declines, and is it sustainable? That's question number one. Question number two is on the mix of e-commerce. I know that theoretically at least, your e-commerce sales should be higher margin than your traditional in-store retail sales. Was this a driver of the gross margin outperformance in the quarter as well? How would you quantify the impact there on margins? Thanks.
Sure. Thanks, Alex. For your first question on the gross margin, the way how we negotiate with our suppliers is that in the beginning of the year, we agree on volume and we also agree on the price. Also we agree on a volume-based discount, so the more we purchase from them, the lower discount we can get from them. Of course, this is one of the key drivers why you see the large volume give us a lot of benefit for cost savings. Go back to the negotiation early, at the beginning of the year. In the beginning of the year, definitely we need to have an expectation about the raw material for manufacture battery cells, et cetera. Based on that expectation, we negotiated with our suppliers.
In China, because of the mass capacity build-up for the EV segment, also because declining of some of the raw material costs. Therefore, when we negotiated with our supplier in the very beginning of the year, we also negotiated quite aggressive target price for the various part of the components. In short, there's two key drivers. One key driver is the overall market, how we see the capacity in different components, or how we see the cost of raw material develop for the year. Secondly, it really depends on the volume. Normally, the more volume we have, the more discount we can receive from our suppliers. This is answer for you first question. For your second question, you are definitely right. The e-commerce gross margin normally should be higher than the sales through offline if we are talking about the same product, same model.
In the second quarter, unfortunately, the e-commerce channel is not the key driver for the stable gross margin. Mainly because when we launch new products online, we also give discounts on the new products. Therefore, in the second quarter, actually, our e-commerce gross margin was lower than last year, mainly because of the discounts we provided to end consumers. On the other side, we are able to save on the sales and the marketing expenses. Going forward, if we can continue the faster growth on the e-commerce platform with a stable price, no more discounts, then definitely e-commerce platform will be one of the key contributors for the margin growth going forward. This is my answer to your second question.
Yeah, just a little bit add on the margin part on the cost cut. Besides the scale, the annual negotiations, I think there's one more thing within the electric bicycle category that we actually observed. Very interesting, because there was a, what do you call it, a 55 kilograms of weight limitation. There's quite a bit innovation in terms of lightweight materials. For example, you will reduce the chassis weight by half a kilo, but at the same time, we're able to add that half kilo weight to the battery pack. It will allow us to use a lower density batteries but achieve the same battery capacity. By doing so, we have observed in cases that we're actually able to save CNY 100-CNY 200 on per scooter basis. If you look at this on a scooter of CNY 4,000 or CNY 5,000, this is basically 5% savings.
This is actually due to figure out where. It's a math question, where the total weight is restricted at 55 kg. Where should I reduce the weight and where should I increase the weight, and such that give me a lower cost product at the same performance? There are a few tricks or innovations we're also doing on that domain, which actually helps quite a bit as well.
Great. Very good. Thanks. That's very helpful.
Thank you. We have our next question from the line of Xinqian. Please go ahead.
Thanks for taking my question. This is Xinqian from CITIC Securities. I have a couple of questions about the new products. We just noticed that NIU is also releasing new products, the pedal-assist electric bikes. I was wondering, what's your point of view about this niche market, and when exactly will your new product launch? In your opinion, what size of this market will be in the future? I have another question about the new brand, Gova. Can you tell us what the approximate gross profit margins of Gova? Thanks.
All right. Xinqian, let me actually quickly talk about the first. I assume you mentioned this is power-assisted bicycle, or what do you call it, pedelec or e-bike, basically, this product category. Our product, we actually announced at CES this year in January. It is EUB-01, this product is targeted European, the U.S. market. The reason we targeted Europe and the U.S. market is because market size is huge. Basically, it is a 5 million units a year market with average retail ASP of $2,500. That market has been doubled in the last three years and expected to be double again in the next three or four years. For us to get into that market is actually also very simple. It uses motor. The only thing it required is the power-assist sensors. In terms of design frame, we have all that capability internally.
The only caveat with that product for Europe is the power-assisted bicycle in Europe, there's anti-dumping policy from Europe against China, so that our product has to be locally manufactured in Europe. We actually able to secure a local manufacturer partner in Europe and will help us to produce that product in Europe. This product got a little bit delayed this year because of COVID-19 situation. Our team couldn't get to Europe. There has been a lot of on-site negotiation, checking the site, all that stuff. It got a little bit delayed. Hopefully, we should be able to get this product out the door in second half, and it will drive a huge future growth for the Europe and U.S. market.
This particular product, we don't think this product actually have a market in China, particular because China, people actually, the power-assisted bicycle is not as friendly as our electric bicycle product. Consumers will actually prefer electric bicycle first over the power-assisted ones, where you actually require to pedal a bit before you actually have the power output. Hopefully, that will answer the e-bike market, the power-assisted bike market. On the Gova brand, before I hand to Hardy on the gross margin, so we don't view Gova as a second brand. We still view Gova as the Gova series under our NIU brand that will help to leverage our existing sales channel and also leverage our brand awareness. On the gross margin, I will let Hardy to answer your question there.
Yeah. For Gova, we have a quite wide range of models from G0 to G2 with different specs. If just give you a range, the gross margin for different products and the Gova series, anywhere between 13%-22%, depending on which model, which specs we are talking about. This is the answer to your second question.
Okay. Thanks, Hardy. Thanks, Yan. Thank you for your time.
Thank you.
Thank you. Seeing no more questions in the queue, let me turn the call back to Mr. Li for closing remarks.
All right. Thank you, operator, and thank you all for participating on today's call and for your support. We really appreciate your interest, and we look forward to reporting to you again next quarter on our progress. Thank you. Operator?
Thank you. Thank you all again. That concludes the call. You may disconnect now. Thank you. Good day.