Hello ladies and gentlemen. Thank you for standing by for NIO Incorporated's fourth quarter and Full Year 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. Eve Tang, from Capital Markets and Investor Relations.

Please go ahead, Eve..

Good morning and good evening everyone. Welcome to NIO's fourth quarter and full year 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. Steven Feng, Chief Financial Officer and Mr. Stanley Qu, Senior VP of Finance.

Before we continue, please be kindly reminded that today's discussion will contain forward-looking statements made under the safe harbor provisions of the US 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 US Securities and Exchange Commission and the Stock Exchange of Hong Kong Limited.

The Company does not assume any obligation to update any forward-looking statements except as required under applicable law. Please also note that NIO's earnings press release and this conference call include discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial information.

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..

vehicle sales, and other sales, because sales in the fourth quarter were RMB9.2 billion or $1.4 billion, accounting for 93% of total revenues in this quarter. It represented an increase of 49.3% year-over-year, an increase of 6.7% quarter-over-quarter. The increase in vehicle sales year-over-year was mainly attributed to high deliveries.

The increase in vehicle sales quarter-over-quarter was mainly attributed to a higher average selling price, decrease in subsidization, the use of the co-financing arrangements, and higher deliveries.

Other sales in the fourth quarter were RMB0.7 billion or $107.5 million, representing an increase of 46.8% year-over-year and a decrease of 41.3% quarter-over-quarter.

The increase in other sales year-over-year was mainly attributed to the increased revenues derived from sales of service and energy packages and accessories in line with the incremental sales as well as increased revenues from used car sales and auto-financing services in the fourth quarter of 2021, which was partially offset by sales of automotive regulatory credits in the fourth quarter of 2020.

The decrease in other sales quarter-over-quarter was mainly attributed to the sales of automotive regulatory credits in the third quarter. Cost of sales in the fourth quarter was RMB8.2 billion or $842.8 million, representing an increase of 49.1% year-over-year, an increase of 5% quarter-over-quarter.

The increase in cost of sales year-over-year was mainly driven by the increase of delivery volume in the fourth quarter of 2021. Gross profit in the fourth quarter was RMB1.7 billion or $266.7 million, representing an increase of 48.8% year-over-year and a decrease of 14.7% quarter-over-quarter.

The increase in gross profit year-over-year was mainly contributed by increased vehicle sales and increased vehicle margin. The decrease of gross profit quarter-over-quarter mainly resulted from the sales of automotive regulatory credits in the third quarter of 2021 which contributed a higher profit.

Gross margin in the fourth quarter of 2021 was 17.2% compared with 17.2% in the fourth quarter of 2020 and 20.3% in the third quarter of 2021. The decrease of gross margin quarter-over-quarter mainly resulted from sales of automotive luxury credit in the third quarter of 2021 which contributed a higher gross margin.

More specifically, vehicle margin in the fourth quarter was 20.9% compared with 17.2% in the fourth quarter of 2020 and 18% in the third quarter of 2021. Increase of vehicle margin year-over-year was mainly driven by the higher average selling price with higher take rate of 100-kilowatt hour battery.

The increase of vehicle margin quarter-over-quarter was mainly attributed to decrease in subsidization in user vehicle financing arrangements. R&D expenses in the fourth quarter were RMB1.83 billion or $286.9 million, representing an increase of 120.5% year-over-year, an increase of 53.3% quarter-over-quarter.

The increase of R&D expenses quarter-over-quarter and year-over-year was mainly attributed to the increased personnel costs in research and development functions as well as the incremental design and development costs for new products and technologies.

SG&A expenses in the fourth quarter were RMB2.36 billion or $370.1 million, representing an increase of 95.4% year-over-year, an increase of 29.2% quarter-over-quarter.

The increase in SG&A expenses year-over-year and quarter-over-quarter was primarily due to the increase in personnel costs in sales and service functions, and costs related to the sales and service network expansion as well as incremental marketing and promotion expenses including for the host of NIO Day in December of 2021.

Loss from operations in the fourth quarter was RMB2.45 billion or $383.7 million, representing an increase of 162.5% year-over-year, an increase of 146.5% quarter-over-quarter.

Share-based compensation expenses in the fourth quarter were RMB396.7 million or $62.3 million, representing an increase of 559% year-over-year, an increase of 49.4% quarter-over-quarter.

The increase in share-based compensation expenses year-over-year and quarter-over-quarter was primarily attributed to additional options and restricted shares granted. Net loss in the fourth quarter was RMB2.14 billion or $336.4 million, representing an increase of 54.4% year-over-year, an increase of 156.6% quarter-over-quarter.

Net loss attributable to NIO's ordinary shareholders in the fourth quarter was RMB2.179 billion or $342 million, representing an increase of 46.0% from the fourth quarter of 2020 and a decrease of 23.8% from the third quarter of 2021. Basic and diluted net loss per ADS in the fourth quarter were both RMB1.36 or $0.21 per ADS.

Excluding share-based compensation expenses and accretion on redeemable non-controlling interests to redemption value, non-GAAP adjusted basic and diluted net loss per ADS were both RMB1.07 RMB or $0.16 per ads.

Our balance of cash and cash equivalents, restricted cash and short-term investment was RMB55.4 billion or $8.7 billion as of December 31, 2021. Additionally, we achieved positive cash flow for our operating activities for the full year 2021. Now for our business outlook.

As William mentioned, for the first quarter of 2022, the Company expects deliveries to be between 25,000 to 26,000 vehicles, representing an increase of approximately 24.6% to 29.6% from the same quarter of 2021.

The Company also expects the total revenues of the first quarter of 2022 to be between RMB9.63 billion and RMB9.9 billion or between $1.51 billion and $1.57 billion. This would represent an increase of approximately 20.6% to 25.1% from the same quarter of 2021.

This business outlook reflects the Company's current and preliminary view on the business situation 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 facilitate our Q&A session..

The first question comes from the line of Tim Chau of Morgan Stanley. Please go ahead..

Hi, William and Steven and Stanley. Congratulations on this early result and thanks for taking my questions. Basically, I have two questions. The first question is about the cost and margin.

Because we know that NIO is better positioned to cope with the battery cost inflation even without a price hike, but may I know if the rising mix of the high-margin 100-kilowatt hour, 75-kilowatt hour hybrid battery pack, or other initiatives could have sufficiently offset a margin prior to this year? Separately, if any, or only if we need to raise the prices one day, could NIO increase the price to the consumers who bought the batteries and also the battery asset management companies simultaneously, or it would take longer to renegotiate a [indiscernible] contract with the battery asset management company as it's more like a 2B business.

That's the first question. Second question is about the model. Currently, I think ES6 and ES8 have comprehensively covered the SUV market with pricing range from RMB350,000 to RMB600,000.

Since we will soon launch ES7, as William just mentioned, how could we effectively differentiate ES7 from incumbent SUV models without a fall in dilution and are we going to adjust the pricing strategy or reposition current SUV models along with the launch of ES7? Those are the two questions from my side. Thank you..

Thank you, Tim. Regarding the first question, actually starting from the 41 of last year we started to deliver the 75-kilowatt hour LFP and NCM hybrid battery pack to the users, which has contributed to the cost optimization and benefited our vehicle gross margin growth in the fourth quarter.

But I believe everyone knows that starting from the third quarter and the fourth quarter of last year, we have been seeing some raw material cost increase in the industry, and there has been lots of cost increase in upstream of the whole industry chain which means that we won't need to share the pressure across the whole industry, gradually.

At this moment, we do not have any plan to increase our pricing yet, but because during the year we are going to upgrade our product competitiveness and capabilities so at that time probably based on the cost of the raw materials in the industry we will evaluate our pricing strategy as well.

But at this moment we're not going to increase our price for the products.

On another point, because of the sales growth, we believe this has also contributed to the amortization of the cost and benefit of our vehicle gross margin increase, but regarding the raw material cost increase is not just about the battery but also other commodities like copper and aluminum, those raw material cost increases have also affected our vehicle gross margin as well.

In light of the cost increase of those raw materials I have just mentioned and other bond cost, over full year vehicle gross margin for 2022 will still target to reach around 18% to 20%. The second question is about the ES7. This is going to be the first SUV product based on the NT2 and it's positioned as a mid-large five-seater SUV.

In this specific segment we have witnessed some user demand increase recently. For example, the BMW X5 we believe is going to start the local production very soon. For the ES7, it's going to have industry leading battery, electro power train and also the smart technologies as well.

We believe it's going to showcase the high-performance capabilities of the product and also satisfy users demand in terms of the premiumness and luxury feeling. We also believe this is going to attract users who will have a very high requirement regarding the product quality and the premiumness.

So, all in all we believe the ES7 is going to contribute and going to be complementary to other current ES8, ES6 and ET6 instead of affecting the sales of the current products. We are going to launch the ES7 in the second quarter of this year and will share the pricing information as well at that time.

At this moment we can see regarding the market segment of the mid/large SUV priced above RMB400,000 is actually has an addressable market size of over 200,000 units. This market size is also growing. That's why we're very confident with the performance of the ES7 after its launch..

Thank you..

Thank you for the questions. Next question comes from the line of Bin Wang of Credit Suisse. Please go ahead..

I actually have got a question about the ET7 service because recently there was a media call. First one, EV they say that ET7 received very good order flow, about 15,000 order backlog, which indicate monthly volume could be around 5K.

What's your comment about this? Second thing is about the margin, because we've seen in the fourth quarter last year that service actually had very big negative cost margin, more than 30%. What's the reason behind that and what's the outlook of this fixed margin going forward? Meanwhile, you just provided 18% to 20% margin guidance.

Is this just the vehicle gross margin or actually including the service margin already? Thank you..

Regarding the first question of the ET7, of course we cannot discuss the specific order number at this moment. But what I can say is that it is actually much more than the media report. For the ET7 market segment, we can see some other benchmarks. For example, the BMW 5 Series, Audi A6 and the Mercedes C-Class.

ET7 has the similar pricing as the target group which sells the product as well, especially regarding the BMW 5 Series. So, for BMW 5 Series we can see that the monthly delivery number is around 12,000 to 15,000.

Of course, for the ET product it will need some time for the users to adopt and accept but if we look at the examples of the Shanghai market, right now in the premium SUV segment in Shanghai, our market share is around 23%. So, if we also mirror this to the sedan market, we believe there is a lot of room for growth and also potential for our ET7.

So, at this moment we cannot see how much we're going to deliver every month, but according to the user feedback we receive right now, we're very confident with the ET7s performance in the future..

No, Stanley [Foreign Language].

William [Foreign Language].

Regarding the ES7, previously I have also mentioned that the ES7 is positioned in the mid-larger premium SUV segment. If we talk about the specific benchmark, we can refer to BMW X5. After the local production of the BMW X5 we can see that the market actually has very high expectations for BMW X5 performance.

The current market buy of this segment is over 200,000 units so if we look at the comparables, we can use the BMW X5 as a reference and based on this, we're very confident with our ES7 because we believe it can actually out compete the BMW X5..

Okay for the second question, as the service flows, we accelerated the construction of power cell station in 2021 and more power cell station [indiscernible] to provide service to end users, which lead to the cost increase of other revenue other business compared with Q3.

In 2022, we will continue to deploy the batteries charging and swapping facilities. Anticipated depreciation of operating expenses will keep rising but we believe the upfront deployment of battery swap stations can contribute to our branding, user experience and also sales with long term value to the Company.

So, bearing a short-term loss of power cell station constitutes a strategic decision of the Company. In the long run the cumulative vehicle deliveries going up and the improvement for service efficiency. We expect that the next two margins resulting from power, maintenance and repair service and also other services will gradually improve.

Other revenues and margins contributed by innovative business models like BaaS, NIO Life and also [indiscernible] service will keep growing..

Okay..

The gross profit margin target, 18% to 20% for 2022 is for vehicle, not the overall gross margin. Thank you..

Thank you for the questions. Next question comes from the line of Ming Hsun Lee of Bank of America. Please go ahead..

So my question is regarding the capacity in lidar hybrid battery and also the chip especially if [indiscernible] SHS also announced the chip shortage will cause the price hike.

So, I also want to know whether the [indiscernible] chip will constraint your vehicle delivery this year?.

So regarding the production capacity, previously I have also mentioned that by the middle of this year, our first factory that is the JAC-NIO Manufacturing Centre is going to reach a production cadence across the different workshops. That is around 60 jobs per hour.

The designed production capacity of the Factory 2 is also going to be around 60 jobs per hour. Of course, for the Factory 2, because this is a new factory, then we will need some time to ramp up the production gradually.

So, if we think about the 60 jobs per hour it means that if we work with 4,000 hours every year, then the annual production capacity is going to be 240,000 units and for every month is around 20,000 units.

If we work overtime [indiscernible] to 5,000 hours per year, then it means that the annual production capacity is going to reach around 300,000 units. So, this is about the vehicle production capacity.

We believe that in the fourth quarter of this year we will see some fundamental improvements regarding the vehicle production capacity, which is going to support our next step of production.

For the battery production capacity bottleneck, yes previously we have also mentioned about this and starting from last year, we have been working together with our partner, CATL, to add additional production lines for the battery cells.

We believe, according to the current plan in 2022, the battery production capacity should be able to meet our demand. Of course, the cost increase of the battery is another matter.

Actually, I believe the chip shortage is a bigger challenge for us, because in our vehicle we have over 1,000 chips and among those 1,000 chips, we have probably around 10% of the chips may face the supply shortages or challenges from time to time.

For us, starting from 2021, we started to see some chip cost increase, and this has affected our vehicle gross margin in 2021. Based on this experience in 2021, we have already taken into consideration of the chip cost increase in terms of setting our target for the vehicle gross margin.

We believe the main challenge regarding the chip is more about the supply. Regarding those high-end chips like the Nvidia or ring chips and the Qualcomm 8155 we have a long-term and direct strategic cooperation with Nvidia and Qualcomm. So, we believe we should be able to have sufficient supplies for our production.

For those common chips or the cheaper chips, like from TI and Infinium, we may face some challenges from time to time and this is going to affect our production. Of course we have some other ways to mitigate those challenges.

For example we can find some other chips to replace those chips or we can probably scan the market to build up our strategic inventory to avoid those risks.

We believe, overall speaking, in the second half of this year or around the fourth quarter of this year we should be able to see some fundamental improvement in terms of our vehicle production capacity and the battery production capacity. But we may still face some challenges in terms of the supply chain volatility especially the semiconductors..

Thank you..

Thank you for the questions. Our next question comes from the line of Jeff Chung of Citi. Please go ahead..

I've got three questions. So number one is should we consider any MSRP hike in the near term to offset potential battery and aluminum cost hike? If yes, how and if no, why not? The second question is about the existing EC6 product sales volume visibility over the next few months.

Any confidence we can maintain 10,000 units a month as well as the -- could you give us more color on the ET7 ramp-up pace in the second quarter? Last but not least is the lithium spot price in China. Do you think it has already peaked due to the recent government intervention? Thank you..

For the current ES8, ES6 and EC6 of course if we look at the digital [indiscernible] this is actually based on the NIO Technology Platform 1.0 which was developed in 2018. So for this chip the efficiency may be impaired if we run some complicated software.

So that's why starting from this year we think this year we are going to upgrade to the smart hardware of our existing products. We are also going to provide after-sales upgrade services for users regarding the smart hardware upgrades. We are going to launch this program at an appropriate time.

For the existing ES8, ES6 and EC6 we believe we do not need to adjust the pricing at this moment.

But of course based on the smart hardware upgrade of the existing products and also we are going to launch some model year product, then at that time we believe probably we can re-evaluate our pricing strategy based on the cost increase in the supply chain.

You have also asked about the performance of our current product, whether it should be able to still maintain the 10,000 units per month.

According to our order momentum in March we believe that this can meet our expectations and we believe that user demand is not a problem for us because if we compare over current years ADS6 and EC6 with other ED products and ICE products in the market, we believe we still have a lot of competitive advantages so the overall demand momentum stays quite strong..

For the ET7 product ramp-up, because the ET7 is going to be manufactured in the first factory we called F1 and they're going to share the production line with the current product ES8, ES6 and EC6, at the same time we will also introduce some new manufacturing technologies and techniques in the production of ET7.

So that's why, starting from last year, we started to adjust the production lines in the F1 to support the new product production. In the meantime, I have also mentioned about the ES7 which is going to start delivery in the third quarter of this year. This product is also going to be manufactured in the F1.

So, the situation in F1 is quite complicated as you can see because we need to make sure we have sufficient production capacities to support the current ES8, ES6 and EC6 but at the same time, we also need to produce the ET7 and also prepare for the production of the ES7.

So that's why we believe the ramp-up progress of the ET7 is probably going to be a little bit slower compared with that of the ET5. So, it seems ET5 is going to be manufactured in a separate new plant called F2. So, we believe that probably around the third quarter of this year, we should be able to reach a normal production cadence for the ET7.

Regarding the lithium carbonate cost increase, we have done very in-depth research regarding the overall industry chain especially the upstream. We believe the cost increase or the price hikes is mainly due to the opportunistic price hikes and there is no specific big gaps in terms of the demand and the supply of the lithium carbonate materials.

Of course, right now, we can see some Chinese authorities like MIIT have already started to set up some mechanisms to manage the situation.

At the same time, we also like to urge the companies in the upstream of the industry chain that they should think more from the long-term benefit of the overall development of the whole industry instead of manipulate or take the opportunity of the cost increases to increase their price..

Thank you for the questions. Next question comes from the line of Nick Lai of J.P. Morgan. Please go ahead..

Yes, thank you for taking my question. Two simple questions. First on margin and the second on export business. I mean, William and [indiscernible] talk about the GP margin already. Let me switch focus to the OP margin. Yes.

Last year, we understand the R&D spend and assume an increase, a lot, in part, largely part due -- largely due to the top line increase.

So, looking to 2022, how should we think about SG&A and R&D expense in terms of either dollar terms or percentage to revenue? Is it fair to state RMB percentage to revenue should increase - should drop meaningfully while SG&A should move more or less in tandem with the top-line sales? The second question is regarding ASPOR.

I understand it's probably not a big portion of auto total sales but considering the latest dynamic in Europe and advising stronger revenue against either dollar or Euro, any update on ASPOR front? Thanks..

Regarding the OP margin, last year in terms of the Company's strategy, we would like to make sure that the gross profit can cover the SG&A cost, and we believe through the efficiency improvement and execution we have followed through this strategy in 2021.

In the coming years, we will continue to make decisive investments in terms of the R&D and the infrastructure. Of course, our strategy will stay the same; that is, we would like to make sure we can use the gross profit to cover the SG&A costs.

If we look at the EU market, of course last year, because that was the first year for us to enter the global market, then it means that last year we need to make some advance investment and we believe this year the efficiency is much higher than last year. In terms of the R&D front, we are going to step up our R&D investments.

This year we believe the R&D investment is going to be more than doubling than that of 2021 because we are going to invest in some long-term core technologies and some fundamental technologies as well as the new products for 2023 as well as some product adaptation for the global market.

By the yearend of 2022 our R&D headcount is going to reach around 9000 and we believe this is going to be a big increase compared with our current R&D team size. This is the overall plan for the 2022.

In terms of the overall strategic direction for the Company, our target is that we can achieve breakeven for a single quarter in the fourth quarter of 2023, and we can achieve breakeven or reach profitability in 2024 for the full year..

The second question is about our global business, right? No, actually right now every month we deliver about 108 in Norway, so that boosts our confidence a lot, it proves our product's competitive and also our business model.

However, since we will kick off our SUV in Europe in the second half of this year, so the contribution of the European market to sales volume won't be very significant in this year. But now on, NIO continues to develop and improve its product portfolio and service network, establish local user communities, and pursue a high user satisfaction.

With that we believe that market share and sales volume in Europe will come along naturally..

Allow me to take the next questions from Fei Fang of Goldman Sachs. Please go ahead..

Let me just quickly translate for myself. Can management talk a little bit about the utilization metrics of your infrastructure, battery swap stations, and Supercharger stations, how often people use it, what's the unit economics, or what's the difference between top cities versus lower-tier cities? Thank you..

Previously, we have also mentioned that cumulatively we have completed over 7.6 million swaps, and it means that the current status for the swap station is that every day we can complete around 30,000 swaps.

For some areas with more users of course we will be able to accommodate over 1000 swaps for one power swap station in one day, but highways probably in one day the power swap station is going to accommodate around 10 to 20 swaps per power swap station.

Because we have deployed the power swap station network in advance, probably one or two years in advance, because of the design target of the power swap station network is that the ratio between the power swapper to the user should be around 1 to 1000.

But if we look at our parent power network, especially for the power swap network, we have over-deployed some power swap stations at this moment to make sure we have a much better experience for the users..

Certainly. Next question comes from the line of Edison Yu of Deutsche Bank. Please go ahead..

Thank you for taking our questions. First one, can you give us some sense of the feature rollout cadence in the autonomous driving? What kind of features do you think the LiDAR will enable and when can we expect those to arrive on the car? And then the second question is about the NIO ecosystem more broadly speaking.

There are reports that you're working on a smartphone. How do we think about what's going on beyond the car? I know there's - VR could be a big part. Any [indiscernible] would be appreciated. Thank you..

Thank you for your question. Of course, and the timing of the delivery of the ET7 we are going to start to provide the enhanced ADMS features first to the users. But on top of that, we have already queued up the full stack of autonomous driving capabilities from the perception to the controlling strategy.

We target to start providing the AD as a service probably in the fourth quarter of this year with our NAD technology.

Of course we have always been actively -- explore the possible connections and the synergies between the vehicle and smart phones and other mobile terminals because we believe there are lots of synergies between these two products in terms of the fundamental technologies, the supply chain and the software.

At the launch of the ET5 at the NIO Day, we have also introduced some AR and VR technologies as well and we believe there should be lots of room for innovation and we can also think about some innovative applications in the vehicles..

Thank you for the questions. Next question will come from the line of Xue Deng from CICC. Please go ahead..

So my next question is, what's the CapEx budget in 2022 and will you please introduce the detail about the main directions and the exact amount of money? Thank you..

Thank you Deng Xue. Yes, as mentioned by William, our gross profit margin already can cover our SG&A expense and this is also our target for 2022.

So, our cash on hand will mainly be used for our R&D activities and also capital expenditures for our new product developments and production facilities, service network and expansion and also the charging and working infrastructures.

Overall, also as mentioned in our previous explanations, we will increase our swap stations to 1300 stations by the end of 2022. We will further open 100 new house and new space and 60 new service centers -- 50 new service centers in 2022. So, and we will further to -- construct our NeoPark, located in Hefei, in 2022.

So, the total expenditure I think is over -- could be a big increase compared with 2021. Yes, thank you..

Thank you for the questions. The next question comes from the line of Paul Gong from UBS. Please go ahead..

Yes, hi, thanks for taking my question. Glad I still have a chance to ask how you went at this late moment. Let me just limit my question to one. I want to know more about your thoughts about the mass market brands. Obviously, you have to compromise some of the features that NIO has for more attractive pricing points or some cost comparatives.

So, the amount of the features for the new offering including say the exterior, the interior, the advanced driving features, the acceleration, the driving range, the battery swap stations, as well as let's say the digital experience and also the service.

So, what do you think is the things that you are waiting to compromise on your mass market brands that would be reserved exclusively for the NIO brands and you're not expecting from the mass market brands? Just this question. Thank you..

Thank you for your question. Of course, if we want to increase our volume and expand our user base, different companies will have very different strategies. For example, some peers like Tesla, they have adopted very different strategies compared with ours.

For Tesla, they basically differentiated the Model 3 and Model Y from the Model X and Model S with a very big price gap. So, by doing this they entered the mass market with the Model 3 and Model Y. So far this has been quite successful, but at the same time we have also seen some downside.

For example, the sales of the Model X and Model Y have decreased significantly despite the product cycle. So, we believe there are some underlying fundamental rules of the auto industry. That is, there is a limited bandwidth of a specific brand.

It's very difficult to imagine a single brand can actually support the pricing range from RMB100,000 to RMB1 million. It's not feasible and I believe this is against the common sense.

So, for NIO right now, we target the market segment that is around $50,000 to $100,000 and if we want to reach down to the mainstream market, that is priced around $30,000 to $50,000. We believe this is a much bigger market and there is reasonable market size for us to grow and we can also achieve reasonable growth margin.

We also need to take some lessons learnt from the Model 3 and Model Y. We understand of course, for this mass market, we will also need to rethink the fundamental architecture of our product and also need to think about using different kind of materials and also different manufacturing technologies for our products.

In terms of the mass market of course there also needs to be efficiency driven. For this specific market segment, priced from $30,000 to $50,000 we believe a more sensible approach versus to use a new brand to enter this new market segment. We believe this is a better strategy for us.

We can also see some successful examples in the market with this strategy. For example, Audi and Volkswagen and the Lexus and Toyota. We believe this can also be a strategy for us to disrupt the market as well.

Of course, for the mass market brands, the prerequisite for this is to make sure we can achieve high efficiency and also achieve reasonable vehicle gross margin..

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..