Hello, ladies and gentlemen. Thank you for standing by, and welcome to the NIO Inc. Fourth Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. Today's conference call is being recorded. I would now like to hand the conference over to your host, Ms. Eve Tang from Capital Markets. Please, go ahead..

Good morning and good evening, everyone. Welcome to NIO's fourth quarter 2022 earnings conference call. The company's financial and operating results were published in the press release earlier today and are posted at the company's IR website. On today's call, we have Mr. William Li, Founder, Chairman of the Board and Chief Executive Officer; Mr.

Steven Feng, Chief Financial Officer; Mr. Stanley Qu, Senior VP of Finance, and Ms. Jade Wei, VP of Capital Markets. 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, the Stock Exchange of Hong Kong Limited and the Singapore Exchange Securities Trading Limited.

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

Please refer to news 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..

[Foreign Language] Hello, everyone. Thank you for joining NIO's 2022 Q4 earnings conference. In Q4, 2022, NIO delivered a total of 40,052 smart electric vehicles, up 60% year-over-year, achieving a new quarterly record.

According to the retail data released by CATRC, China Automotive Technology and Research Center, NIO was the best-selling brand in China's premium EV market, priced over RMB 300,000 with a market share of 54.8%, while over market share in the premium EV market priced over RMB 400,000 reached 75.8%.

In 2022, despite the impact posed by COVID and supply chain disruptions, NIO delivered a total of 122,486 smart electric vehicles, up 34% year-over-year. In January and February of 2023, we delivered 20,663 vehicles, representing a 30.89% increase year-over-year.

We expect the total deliveries in the first quarter of this year to be between 31,000 and 33,000 units. As the penetration rate of the premium EV growth and more NIO products is expected to be delivered in the second quarter, we have a strong confidence in the market demand in 2023.

Next, I would like to share some recent highlights of our products, R&D and operations. Since we started to deliver ET5 in September 2022, it's the production and delivery has been ramping up steadily.

According to CATARC's retail data, this January, among all the mid-size sedans priced over RMB 300,000, NIO ET5 outperformed popular internal combustion vehicles from well-established brands and became the top-selling model in Beijing, Shanghai, Guangzhou, Shenzhen and other 15 cities in China and the second best-selling model nationwide in China.

On December 24, 2022, we held NIO Day 2022 in Hefei, where we launched the smart electric flagship coupe SUV EC7 and all-round flagship SUV, the All-New ES8. EC7 is a large-sized coupe SUV that encourage NIO's high-performance DNA and delivers ultimate handling and the riding experience. The delivery of EC7 is expected to start in May.

As NIO's flagship SUV based on the technology platform 2.0, the six seater All-new ES8 offers two seat layouts, catering to all scenarios including work, family, social, and exploration. The delivery of the All-new ES8 is expected to start in June, both new products have attracted wide attention and received great feedback.

In the first half of this year, NIO will gradually launch more new products and shortened the waiting time for our launch to user delivery. Other supply chain and manufacturing teams have been preparing for new product launches and production ramp-up, making sure that supply and production go hand-in-hand with the growing demand for the new product.

For intelligent driving, NIO has gradually rolled out NOP+ Beta to all NT2.0 vehicles. Based on our full stack in-house developed intelligent driving technologies and the closed-loop data management. NOP+ Beta has realized significant improvements in areas of a sense of reassurance, comfort, and efficiency.

The utilization rate has doubled with a total engaged mileage of over 1.75 million kilometers in the recent week. We plan to roll out more features and functions to our users and will gradually release power swap pallet for highway in the first half of this year.

With respect to the sales and service network, we now have 375 NIO houses and NIO spaces in 141 cities and 305 NIO service centers and NIO delivery centers in 148 cities. In terms of the charging and swapping network, NIO has installed a total of 1,331 power swap stations and provided over 18 million battery swap for our users.

In the meantime, NIO has accumulatively deployed 60,385 power chargers and 7,558 destination chargers sent over power map has been connected to over 1.04 million third-party charges. In 2022, 50% of the power charged by our users is from battery swapping stations, which has become the most convenient and favorite solution among new users.

[Foreign Language] In 2023, NIO will speed up the development of the battery swapping network and plan to install additional 1,000 power swap stations. By the end of 2023, there will be more than 3,000 -- 2,000 to 3,000 power swap stations in total.

So far, the mass production of power swap station 3.0 is going forward smoothly with large-scale production expected to start in April, the accelerated deployment of power swap stations can not only provide existing users with experiences beyond expectations, but also significantly boost user demand.

[Foreign Language] In Q4 2022, NIO started to offer NT2.0 products and comprehensive services in Germany, the Netherlands, Denmark and Sweden. NIO products have been highly recognized by professional media in Europe, and the user satisfaction rate has also reached off expectations.

After obtaining the prestigious Golden Steering Wheel award, ET7 was honored with multiple awards in Europe, such as the Technological Front-Runner of the Year at the Danish Auto Awards, Car of the Year and The Best in the Luxury segment by Auto Motor Sport, Sweden and the Promise of 2023 by the Association of Business Drivers in Netherlands.

On January 31, 2023, we started to deliver EL7 of mid-large smart electric SUV to the first batch of users in Europe. As we continue to introduce a more diversified product portfolio, expand our sales to service and power network, improve over brand awareness, we are confident in our long-term development in Europe.

[Foreign Language] On the efforts of our strategic NIO business, including batteries, AD chips and mass market brand, are also well on track. The development of NIO wouldn't have been possible without our users and customers. In 2022, 4,447 users volunteered at auto shows, NIO Day and other events.

NIO users have also been actively making contributions to society with the participation of public wealth activities reaching 60,204 people times in 2022. On January 18, 2023.

NIO was recognized in Corporate Knights 2023 Global 100, the world's most sustainable companies to list, among 333 companies in the car and trucks manufacturing, including parts category, NIO ranked in first.

In the meantime, on January 31, 2023, NIO the second advanced manufacturing base with certified 3-star growing building and lead coat marking the first of its kind in China.

We attach particular importance to low carbon development, environmental production and ecosystem co-construction and actively practice sustainable philosophy to continuously improve over years to performance.

In 2022, to build our long-term competitiveness we made decisive investments and achieved a positive strides in the research and development of core technologies and products, the deployment of charging and swapping infrastructure as well as sales and service network and the global market expansion, laying a solid foundation for the company's long-term growth.

As of the product portfolio Transition to NT2.0 with more NIO products to be launched and delivered in 2023. We will do our level best to provide users with experiences beyond expectations.

At the same time, we aim for all-around execution efficiency improvements so as to compete in the global EV market in the long run in an agile and efficient manner. As always, thank you for your support. With that, I will now turn the call over to Steven to provide the financial details for the fourth quarter. Over to you, Steven..

first, the increase in percent costs related to sales and general corporate functions; second, the increase in marketing and promotion activities to promote our vehicles in China and Europe. Third, in credit expenses related to the company's sales and service network expansion.

Last, operations in the fourth quarter was RMB 6.7 billion, representing increase of 175.5% year-over-year and 74% quarter-over-quarter.

Operating costs net in the fourth quarter of 2022 was RMB 315.7 million, representing an increase of RMB 262.2 million from the fourth quarter of 2021, an increase of RMB 811.3 million for other losses of RMB 495.6 million in the third quarter of 2022.

The increase of adding comps year-over-year and quarter-over-quarter, but mainly due to the gains from the revaluation of our overseas RMB-related assets as the result of appreciation of RMB against US dollars in the fourth quarter of 2022.

Net loss in the fourth quarter was RMB 5.8 billion, representing an increase of 169.9% year-over-year and 40.8% quarter-over-quarter. Net loss attributable to NIO's ordinary shareholders in the fourth quarter was RMB 5.8 billion, representing an increase of 168.3% year-over-year and 41.2% quarter-over-quarter.

Our balance of cash and cash equivalents, restricted cash, short-term investment in long-term time deposits was RMB 45.5 billion as of December 31, 2022. Now, this concludes our prepared remarks. I will now turn the call over to the operator to proceed with our Q&A session..

Thank you. [Operator Instructions] Our first question today comes from Tim Hsiao with Morgan Stanley. Please go ahead..

[Foreign Language] So my first question is about the supply chain and also the automotive, because NIO shipment last year were seriously dragged by the supply bottleneck of aluminum parts, CDS and chips.

So, according to the announcement of NIO's first quarter volume guidance of 31,000 to 33,000 or does it suggest more moderated vehicle sales in March.

Is that because component that still suffered from supply constrained? What current vehicle production run rate and how fast you could ramp up on weekly and while we pace into second quarter?.

[Foreign Language] Thank you, Tim, for your question. In the fourth quarter of last year, the supply of the parts have affected over vehicle deliveries to some extent. But starting from the first quarter of this year, we have seen that the control and prevention measures regarding the COVID have been lifted.

So currently, we believe the supply of the parts is not the bottleneck for us. Starting from the second quarter, we believe with over new vehicle deliveries, we will need to have some time to ramp up the production, but we don't believe that the part supply will be a constraint for us..

[Foreign Language] So my second question is about the battery cost and those of the gross margin, because the fourth quarter vehicle gross margin dropped more significantly.

So we think the 6.7 percentage point margin dropped mentioned in the announcement, how much of that would be one-off? And how much of that would be lasting into first quarter? In the meantime, on the bright side, I think battery prices caught below to the vehicle margin, NIO's vehicle margin this year.

So how should we think about the contribution from the new battery country prices? Because I recall that we mentioned we RMB 100,000 decrease in E. cognate well to about 2 percentage point vehicle gross margin expansion.

So could you please share some updates regarding how much more contribution from the lower base cost, should we expect this year or in first half? Thank you..

Thank you, Tim. This is Stanley. First, I want to further clarify the Q4's 2022 gross profit margin. Since our brand new ES8, ES6, EC6 will start user delivery in Q2 23. So we lowered our order forecast for current generation ES8, ES6 and EC6 in Q4 2022.

So inventory provision and losses on purchase commitment relate to those products was booked in Q4 with total amount of RMB 985 million, excluding this impact, the vehicle margin in Q4 was 13.5%. So compared with the last quarter, the decrease results from the change of product mix especially more ET5 sold in Q4 with lower gross profit margin.

And for the forecast of gross profit margin in 2023, I ask William to help Explain..

[Foreign Language] So, for the gross margin for the full year of 2023, we are confident that in the Q4 of 2023, the vehicle gross margin will go back to 18% to 20% due to several factors. The first one is of our product portfolio.

Starting from the second quarter of this year, we are going to start the delivery of vehicle models with higher vehicle gross margins. The second factor is just like you mentioned, recently, we have witnessed the cost reductions of the raw materials, including the lithium carbonate, chips and other commodities.

So, we believe this will also contribute to our vehicle gross margin improvement in this year, especially when it comes to the lithium carbonate cost, we have witnessed significant cost reductions. We have also engaged discussions with the upstream companies in the battery supply chain.

We stand there are some capacities reserved for the lithium carbonate this year. And starting from this year, we are going to see more output from the upstream capacities. At the same time, considering the market demand, we believe the demand probably is not going to be strong compared with the past.

But if we balance the supply and the demand regarding the lithium carbonate we believe probably in the fourth quarter of this year is quite likely the lithium carbonate will go down to probably around RMB200,000 or even lower.

The third factor, we believe, is that starting from the third quarter of this year, we're going to start more product deliveries. This is mainly because more new products will be delivered to our users starting from the second quarter of this year.

So, we believe with the ramp-up of the vehicle deliveries, the amortization rate of the fixed cost will also improve. So, our target still remains that we can achieve the vehicle gross margin of 18% to 20%, and we're very confident that we can achieve that.

[Foreign Language] For the first quarter of this year, we believe that we're going to face more pressure on the vehicle gross margin, considering the overall situation, because this is a transitional period for the company when it comes to the vehicle sales because we are transitioning into a new technology platform for our product portfolio to the NT2.0.

So it means that for the existing generation of the ES8, ES6 and EC6, we won't need to have some measures to accommodate the subsidy reduction as well as some subsidization of the show cards. At the same time, when it comes to the production capacities because we need to prepare for the launch of the new generation ES8, ES6 and EC6 in our Factory I.

So we need to do some modifications on the tooling of the production line, this has affected the output of the Factory I in the first quarter, which result in a higher vehicle cost of our products.

So at the same time, when it comes to the specific quarter, that is the first quarter of this year, we will also see that EC5 contribute as a large portion of the overall vehicle delivery, which will also affect the gross margin in the first quarter..

Thank you, Tim..

Great. Thank you very much..

Your next question comes from Ming-Hsun Lee with Bank of America. Please go ahead..

[Foreign Language] So my first question is related to operating expense. So in the past, you -- William mentioned that R&D per quarter is expected to be around RMB 3 billion. But this year -- this quarter, we saw that the expense is close to RMB 4 billion.

So we want to understand if there is a new guidance for sales and marketing as well as R&D expense?.

Hi, Ming, this is Stanley. The guidance for R&D expense, I think we keep this guidance. And our average base for each quarter of 2023, we will -- the non-GAAP R&D expense will be around RMB 3 billion to RMB 3.5 billion.so that's for R&D expense.

And for SG&A, as mentioned by William along with the start of user delivery of our NIO NT2.0 product in Q2, we think our sales efficiency will be improved gradually, and the ratio effecting versus sales revenue is expected to drop significantly. So that's for the first question. Thank you, Ming..

[Foreign Language] Just to add to Stanley's point, regarding the SG&A, because we also need to consider the investment for the European market. For the European market, right now, we are still at a relatively early stage in terms of the vehicle sales and the deliveries.

We believe this is more like an investment period for our global market expansion..

[Foreign Language] So my second question is related to product pipeline. So this year, you will have a NIO ES8, ES6 and EC6, -- ET7 and EC5 version.

So what will be the time for ES6 and EC6 to be delivered? Besides that, for ES7 and the ET7 where you have a facelift version to further improve your autonomous driving function as well as marketing function? Could you also elaborate your rough product pipeline for 2024, include the second brand?.

[Foreign Language] Thank you for your question. Actually, for the second quarter of this year, we are -- according to our latest plan, we expect to launch four NIO models, including our most important product, probably that is the ES6, and in July, we plan to deliver the ES6 model.

Actually, this is a little bit late compared with our previous plan because of the previous plan is that in the second quarter of this year, we are going to deliver all the five new models. But we will -- that probably it's better for us to have some breathing room between different product launches.

So we can probably ensure much higher quality of the products and also make sure the teams have a much better pace the product deliveries and sales. In terms of the product upgrades, we have been continuously making product improvements and we will keep the market informed if there's any kind of update.

When it comes to the product launch cadence for the next year, I think probably, this is not the right timing for us to share those information, because right now, I believe the teams are facing tremendous pressure, we can deliver the five NIO models this year with very high standards.

But all in all, we have the over on pace and over own schedules when it comes to our new product launch and also of a new brand and in terms of the product launch cadence and of a new brand, everything is on track according to our plan..

The next question comes from Wang Bin with Credit Suisse. Please go ahead..

Thank you. I actually got two questions about guidance. Number one is about the volume for full year still maintain guidance for 250,000? Because given the recently in the price by the competitors and first quarter delivery, you actually earlier [indiscernible] of the product.

So we do actually maintain the full year volume guidance of about 250,000? Number one. Number two, you actually mentioned earlier the number four quarter for NIO brands that are known turn on to profitable, given the change in the internal competition, do you actually maintain the same guidance? Thank you..

[Foreign Language] In -- for the full year of 2023, we are confident that we can achieve our targets. After we complete our product deliveries, we believe that we will see some upside momentum for our vehicle deliveries. For this year, we are going to deliver five new product based on the NT2.0 technology platform.

After all of our product portfolio transition to the NT2.0 platform, it means that we are going to enter a very strong product cycle. We believe that this can actually improve our team efficiency much better, because the teams don't need to sell two generation products at the same time.

After we transition all the product portfolio into the technology platform 2.0, we believe we are going to cover probably 80% of the mainstream vehicle models for the BMW, Audi and Mercedes and when you compare our product with their products, we believe our product competitiveness is much stronger.

The second driver is going to be of charging a swapping network. This year, we plan to deploy additional 1,000 power swap stations to cover more market. Especially, we believe that this is going to help us to boost our demand in the Tier 3 and Tier 4 cities.

Probably some of you know that for over current vehicle deliveries, over 50% of our vehicle deliveries happened in Shanghai, Chuzhou and [Indiscernible]. So at the same time, if you look at the overall vehicle delivery landscape of those products, it means that we have a huge potential to explore in other cities and the regions.

So we believe with the deployment of the additional 1,000 power swap stations, so we can cover more users and also improve the experience of the existing users, which can also support our vehicle demand growth in other different cities and the regions as well.

At the same time, when we look at the software features and functions that are planned to be released on the NIO technology platform 2.0, we believe will also contribute to other vehicle demand. Just like I mentioned in the recent week, the engage -- the mileage of the NIO -- NOP+ Beta is over 1.75 million kilometers.

All of our products come standard with the strong computing power and the center suite. So this actually provides a huge foundation for us to have a closed loop of data management. If you look at all the test by the third parties or by the professional media, NOP+ Beta ranked the first in all those tests.

So we believe, together with other improvements in terms of the digital corporate and as well as the audio systems and other softwares and features in our products, this will significantly boost the product competitiveness of our products.

Because when you look at the competitors or the peers in the market, most competitors, they offer those functions and features as an option, but for us because everything comes as a standard. So it means that we will have a huge room to upgrade the experience of our users.

[Foreign Language] In a nutshell, our target is still to double the volume in this year, and our teams are quite confident to achieve this target. When it comes to the profitability, this is closely bundled together with the gross margin.

So if the raw material cost reduction can be of expectations, like I explained before then for the fourth quarter, we believe this probably can still achieve the target that we said before. But when we made the plan to become positive, we didn't consider the strategic new business investments.

So aiming to that for the fourth quarter of this year of a target is that put aside the investment for the strategic NIO businesses. Of our NIO brand, the main business of the NIO brand can still achieve breakeven..

Thank you..

Thank you so much..

The next question comes from Yuqian Ding with HSBC. Please go ahead..

Thanks, team. Yuqian, here. I got two. First, on ET5. We noticed order book contraction on this flagship volume model ET5.

How would the management look at stabilized the monthly sales volume on ET5 still 10,000 per month? What's the key driver to support? Is it broadly affected demand related or any specific service network expansion supported? The second question is on lithium to margin. The lithium price is correcting.

We talked about before about RMB100,000 per ton price correction roughly released 2% margin.

So, roughly, we might get a 4% to 8% buffer this year? Can we keep them all or we might have to pass some to the consumers given the universal pricing pressure? On that notion, will you take the [indiscernible] to get lower lithium price, but to lock up more softening [ph] share with them? Thank you..

[Foreign Language] Thank you for your question. Starting from the second quarter of this year, we are going to gradually launch and deliver all the products based on the new technology platform 2.0. When it comes to the total product portfolio, we can look at them into three different dimensions.

The first one is the volume driver that is the ET5, ES6, and the ET5 Touring that we haven't released, but I believe everyone knows.

So, if we combine the ET5, ET5 Touring, and the ES6 together, we believe it's possible for us to achieve 20,000 units per month if we consider the addressable market of-- When it comes to the second dimension, that is the volume contributor that includes the ET7, ES7, and the ES8.

We believe for those models; each model can achieve delivery volume around 2,000 to 4,000 per month. And if we combine them together, and for this volume contributor segment, this property can contribute 8,000 to 10,000 units for overall vehicle delivery and sales.

For the third dimension that is the brand shaper that is over Coupe SUV, the EC7 and the EC6 because coupe SUVs is a relatively niche market and we believe that this can probably help us to better showcase of a branded design and for those users who would like it to be different, and they want to show off their taste and their sense of design then probably they can choose this Brand Shaper products.

Of course, we hope to sell more products including the Brand Shaper but this is a relatively niche market segment. So we believe, it's a Brand Shaper that the EC7 and the EC6, are probably the volume is around 1,000 to 2,000 per month for each product.

So, if we look at the complete product portfolio of all those products, we believe those strong product portfolio and diversified product portfolio should be able to support us to achieve a volume of 30,000 units per month..

Okay. Ian, this is Steven. I would like to answer your second question about the lithium price. First, it was a great that our GP margin is very sensitive to the lithium price. As you have mentioned, if they -- lithium increased by RMB 100,000 per ton, our GP margin can be boosted by as high as 200% point -- to point.

So that means, we expect over brief this year there is a good chance that lithium carbonate price will trade to around RMB 200,000 per ton, and that will offset a good GP market elasticity for NIO.

And if you look at the lithium carbonate price, in the past, it was just like around RMB 100,000 and then they picked around RMB 570,000 in November 2022, which increased the whole EV industry. And then from the beginning of this year, the lithium carbonate price, however, treated around RMB 400,000 per ton.

Looking forward on the supply side, as more -- as several battery suppliers invested in the upstream raw material real efforts. And these efforts started to yield meaningful lithium carbonate supply from the second quarter of this year. So from a supply side, we do see a stable increase.

On demand side, yes, that year, the China's EV sales volume almost doubled. But if you look at this year, a good estimation is around 30%. So we expect the gap between the supply and demand will reduce significantly, which will lead to a lower and more recent lithium carbonate price around RMB 2,000 per ton.

Last but not least, when we look at the production cost of lithium carbonate, if you look at the late [indiscernible] plant cost, which is RMB 100,000 to RMB 150,000. So a lithium carbonate price around RMB 200,000 per ton can offer a good profit room for such rapid lines supply to offer stable.

So in short, if the recent come price will trade quite a lot this year, and that's good for the whole industry..

Thank you, Steven..

The next question comes from Paul Gong with UBS. Please go ahead..

Hi. Thanks. Thanks for taking my questions. Two questions. The first one is regarding the latest sales trend of ES7 and ET7. I understand that the 866 these three models are phasing out. That is a temporary weekly before switching to the new platform. And I also see you have put a lot of the expectation on the NT2.0 platform products.

But what has been driving the weakness of the ES7 and the ET7 recently? Is that due to the immediate hangover effect of the subsidy that cards or is that due to the supply chain bottleneck, or is it like capacity allocation to ET5 that has cannibalized the ES7 and ET7 sales.

So what has been the reason for the recent weekly of these two NIO platform kind of flagship models? My second question is regarding the efficiency improvement. I think William had some spoken in Germany the beginning of this year regarding the key effort of efficiency improvement in 2023.

So what has been the key area that you want to improve? We can still see you invest a lot for the future, including the batteries 1,000 working stations to be deployed for this year, including the expansion and NIO house in Europe, but where can we find the efficiency improvements and the expense ratio or reduction for the rest of this year?.

[Foreign Language].

Thank you, Paul, for your question. We can see that for the first two months of this year, the market demand is not that strong, especially when it comes through the demand for the BEV. We see this has suffered some impact. But if you look at all the peers, I believe most peers have published their delivery results for the first two months.

This is actually affecting everyone in the market. I believe a very important factor is the subsidy cuts. Starting from this year, there will be no more subsidies. And this will create some short-term effect on everyone in this market.

But when it comes to NIO specifically, because we have a relatively higher MSRP, so this impact on us is actually relatively lower compared with others. Starting from the February, we can see the demand is recovering week by week, including the ES7 and the ET7 compared with January.

So for the ES7 and ET7, we can see that in their specific segment, they're still very competitive. So we are very confident when it comes to the demand for the ES7 and the ET7 in the long run. But in the short term, yes, we are facing some pressure.

I believe there are multiple factors we have to consider probably like the Spring Festival and the low seasonalities of the auto market as well as the subsidies or other micro environment. But still, we are very confident with our product competitiveness in their specific segment.

Yes, actually, the efficiency improvement is the most important half for NIO this year. Last year because of the project progress and we have multiple projects going in parallel. So the human resources increased is much faster compared with the past. But when it comes to the efficiency improvements, we are not talking about the cutting projects.

We believe that the efficiency is more about improving the efficiency per person. We can improve the overall efficiency of the whole organization when it comes to the R&D, sales and service and also management.

At the same time, we also need to do some prioritization of a different kind of a project, including the R&D projects and also the CapEx investment. So it means that we need to look at the priority in terms of the timeline and also the investment.

So over – all in all the efficiency improvement were more focused on the output and the quality of the output as well as to the prioritization. Thank you, Paul..

Thank you..

The next question comes from Nick Lai with JPMorgan. Please go ahead..

[Foreign Language] My question is very fast. Yeah, the first question is about the cooperation agreement with CATL and the pricing arrangement with CATL and also an – can you pre-update us statement solid actually. And secondly, can we talk about the potential investment size for new initiatives? Thank you..

[Foreign Language] Nick, thank you for your question. For this year, we will introduce a new battery partners. I believe, probably around March, we're going to launch new battery packs in collaboration with ALB.

At the same time, we will also keep our long-term strategic relationship with CATL, but right now, we're in discussion with CATL in terms of the new agreement, but we haven't signed the agreement yet.

I believe that the discussion direction is basically that the battery companies will start to work in parallel with the auto companies, and we are going to share the volatilities of the raw material cost together throughout the supply chain.

And when it comes to the semi solid battery, we have a sense of battery teams to help our partners in the semi-solid battery, make sure they can have a small mass production for the batteries. But we are really sorry for the delay, but probably this will be available. We estimate this will be available probably after several months.

Regarding the investment for the new strategic -- for the strategic new businesses, for the full year, we estimate that this will be around RMB 4 billion to RMB 5 billion. So, if we break it down, then it means that probably around RMB 1 billion every quarter.

The overall target for the company is that for the group, we still aim to achieve a breakeven for the company in 2024..

The next question comes from Edison Yu with Deutsche Bank. Please go ahead..

Hey, thank you for taking the questions. First one, can you maybe go over some feedback you've gotten in Europe? You've been in Norway for over a year. You recently launched in several other countries.

What has been the user feedback? And what is a reasonable amount of volume we could expect there in the next few years? And then second question really quick. On the other margin, it's still quite negative. It's been quite negative. When can we see some recovery in that level? Thank you..

[Foreign Language] Thank you for your question. European markets, we have delivered our products to some users, and those users have been speaking very highly about our products. We have been tracking the user satisfaction rate on a weekly basis. And we believe that this is basically means of expectations.

The one aspect that we think is lagging behind is the infrastructure building in Europe. Right now, we have around 11 power swap stations. This is actually far behind our original planning. That's the same with the deployment of the new houses in Europe.

So we believe because of the infrastructure deployment in Europe is lagging behind, which also affected the delivery and the sales in the European market. When we look at the user demand and the test drive data, we can see there are some improvements on a weekly basis. And the team building is also on track for the European market.

But the only thing that we need to speed up is the infrastructure building in the European market. For this year, we believe the sales is not of top priority. To be honest, our target in terms of the sales volume for the European market this year is probably less than 10,000.

And we believe the most important thing for us is actually the user satisfaction rate. For the long run, we are very confident about our performance in the European market. When we consider the user satisfaction rate that we are seeing right now and the competitiveness of our product portfolio in the market..

Okay. For the second question about the loss. As the sales in the car products growing in China, the losses from vehicle repair and maintenance continuous scenario.

But we kept expanding our power swap station network in 2022, which drove the loss increase of other loss and we will stick to the continuous deployment of power network and plan to newly build 1,000 power swap stations in 2023, as William mentioned. Therefore, we expect the loss of other business will continue to increase in 2023.

But the continuous expansion of our power infrastructure will not only help us improve our user satisfaction but also help us to sell more cars in the market. So that's all. Thank you, Edison.

Thank you, Edison..

The next question comes from Jane Chang with CICC. Please go ahead..

[Foreign Language] So, my first question is about with the further increase in the number of our distribution stocks, how we will cover more loyal tier cities, considering that these customers in those markets are very sticky to traditional luxury brands.

So, will we make some more targeted adjustments in our products and marketing?.

[Foreign Language] Thank you, [indiscernible] for your question. When it comes to the expansion into the sub-tier cities, we're not talking about the deployment of the NIO houses or NIO spaces. We believe that the more efficient way is to deploy the power swap stations in the sub-tier cities.

For example, in Shandong province, [indiscernible], there's some growing user base and the users at the beginning, they actually grow the user base themselves and then they worked together with us to deploy the power swap stations that -- the first of our swap stations. Then later, we deployed the second power swap stations in this town.

And now this town has around 500 users. So, for those sub-tier cities, especially when it comes to the Tier 3 and Tier 4 cities, we think the more efficient way for us to grow our user base deploy the power swap stations.

Previously, our power swap station is mainly deployed in the Tier 1 and Tier 2 cities, but this is our strategy this year to make sure we can deploy more power swap stations in the Tier 3 and the Tier 4 cities..

[Foreign Language] My second question about -- we can see that at the beginning of this year, the press competition in the energy vehicle market has become mild. And also, we are positioning on -- positioning luxury brand market, where we can still see a greater press reduction in both energy new energy and ICE e-vehicle market.

So we will be more aggressive in the price strategy of NIO models.

Have you considered the way of reducing some consideration and reduce -- to introduce more models with lower price?.

[Foreign Language] Our consistent strategy is to keep our product pricing stable. So we do not have any plan to cut the features and functions for our product. So each of our products in our portfolio, we believe when we look at the features and functions, and the performance of those products as well as the user benefits.

We think every aspect of the product is well deserved and well established when it comes to the product pricing and strategy. So for the NIO brand, we do not have any plan to cut the features and functions of product.

And I think that, this is consistent of branding and the pricing strategy because of low pricing is not a part of the strategy or the DNA of the new brand. Thank you, Tim..

As there are no further questions. Now, I'd like to turn the call back over to the company for any closing remarks..

Thank you once again for joining us today. If you have further questions, please feel free to contact the NIO's Investor Relations team through the contact information provided on our website. This concludes the conference call. You may now disconnect your line. Thank you..

Thank you..

This does conclude our conference for today. Thank you for participating. You may now.