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Weilai Li Bin: The impact of the epidemic on the supply chain is controllable

Weilai Automobile released its financial report for the second quarter of 2022 as of June 30th today. According to the financial report, NIO’s total revenue in the second quarter was 10.2924 billion yuan (about 1.5366 billion U.S. dollars), an increase of 21.8% compared with the second quarter of 2021 and a 3.9% increase compared to the first quarter of 2022. The net loss attributable to NIO ordinary shareholders was 2.745 billion yuan (about 409.8 million US dollars), an increase of 316.4% compared with the same period of the previous year and a loss of 50.4% compared with the previous quarter. Not in accordance with GAAP, the adjusted net loss attributable to NIO common stockholders was 2,185.6 million yuan (about 326.3 million U.S. dollars).

After the financial report was released, Li Bin, founder, chairman, and CEO of Weilai, Feng Wei, CFO, Qu Yu, vice president of finance, and Jade Wei, vice president of capital markets, attended the subsequent conference call, interpreting the financial report and answering analysts’ questions. Ask questions.

The following is a transcript of the analyst Q&A session:

Morgan Stanley analyst Tim Hsiao: I would like to ask two questions. The first question, according to the company's guidance for the production in the third quarter, the impact of the shortage of parts and components will be longer than before, and the impact will be greater. Will we need other supply bottlenecks that will affect the next ES7 and ET5 shipments in the fourth quarter? In view of the development of the new round of the epidemic, how do we see its impact on the fourth quarter? Did NIO take any further precautions? For deliveries in the second half of the year, or even a facelift for next year's 866? Second question, what does the management think about the recent US ban on high-end chip exports to China? I understand that the short-term impact may not have much impact on OEMs, but thinking from a medium-to-long-term perspective, will NIO accelerate its cooperation with domestic chip manufacturers in the next models? Or speed up NIO's self-research progress in the field of autonomous driving chips?

Li Bin: Regarding your first question, July and August of the third quarter were indeed affected by repeated epidemics. After entering September, the epidemic in many places in China will definitely have an impact on the supply chain, but at present, after three From the experience and lessons of the Shanghai epidemic from May to May, I think the impact of the epidemic on the automotive supply chain is relatively controllable compared to the second quarter. In July and August, including September, we were indeed affected by the yield rate of integrated die casting. The output of our supply chain partners did not meet expectations, which had a certain impact on our delivery volume in the third quarter. Of course, we have also taken a lot of measures to help our partners improve the yield rate. We have sent dozens of engineers, plus many colleagues in technical work, to help them improve the yield rate. Now there have been some significant improvements. At the same time, we have Some new supply chain partners have also been introduced. We believe that in general, this issue has been initially resolved, and we believe that this issue can be fundamentally resolved in October. On the whole, we are very confident in the delivery in the fourth quarter, and for the whole year, we are also very confident in completing the delivery target for the whole year. Of course, this also means that the production pressure on our supply chain will be greater in the fourth quarter.

Regarding your second question, regarding the recent U.S. policy on the export of computing power training chips to BGI, we do not think it will have a substantial impact on our operations in the short term, because it does not involve chips for vehicles, but artificial intelligence In terms of training chips, the computing power we have formed can support the algorithm training needs of the next stage of autonomous driving. We are still cooperating with NVIDIA, and we also hope to pay close attention to this development, including cooperation with cloud service providers, and actively evaluate the long-term plans. We have also noticed that there are many training chip companies in China, and their products have been mass-produced. We will also actively evaluate possible technical solutions in various aspects, including cooperation with more chip companies. Overall, we do not believe that the recent changes will have a material impact on the company's long-term strategy.

In addition, we need to add that we are also in core technology areas, including chips, and the goal is to build self-research capabilities. We believe that R&D investment in core technologies can not only help us deal with these industrial policy risks, but also improve our gross profit margin in the long term, including the competitiveness of the technology.

BofA Merrill Lynch analyst Ming Hsun Lee: I have two questions. The first question is that the competition in the entire industry including the company has been fierce recently. Does the company have any guidance on marketing and R&D for this year and next year? In addition, have you set new goals in terms of sales outlets? Second question, both ET5 and ET7 have received good feedback at the Chengdu Auto Show. The product iteration speed of the entire industry is getting faster and faster, including new players. How does the company view the competition in the entire industry? Accelerate the launch of new products, including product launch next year, can the company give some guidance? In addition, there have been media reports before that the company may launch a third brand. Can you confirm whether the company has such an idea?

Li Bin: We do see that our peers have launched very good products, but in general, our investment in expenses is still advancing at our own pace, including investment in research and development. This year is a year for us to increase investment. To enhance competitiveness, we have made a very large investment in research and development. The proportion of marketing and general expenses in our sales must continue to decline, and it must be a basic law, so we are unlikely to change our own strategy and rhythm because of external competition. Generally speaking, we will definitely continue to invest in research and development, which is our established strategy, and the proportion of marketing and general expenses in our sales will continue to decline, in line with our rhythm.

Regarding the second question, the ET5 has been fully displayed at some exhibitions including the Chengdu Auto Show, and the media has fully reported on the exterior and interior. We see that the popularity of the ET5 continues to increase, and users' expectations are very high. high, so we believe the ET5 will become a very popular product. Next year we will have more new models and replacement models to be released, the existing 866 products will switch to our new NT2 platform next year, these are things we plan to switch to the NT2 platform for all our products next year In the future, as well as the performance of the entire market, we are still very confident. Whether on ET7, ES7, or ET5, we have seen the competitiveness of the NT2 platform technology, and users are very welcome to our technological innovation. We will find time to communicate with you about the specific details, but in general, we will meet next year. Accelerate the pace of new product launches.

The third question, we have always hoped that our products and technologies can be used by more people, but on the other hand, we do have to pay attention to different price ranges and user needs, including brand awareness and product technology. The needs of different industries are different. We are actively thinking about how to allow more market segment users to enjoy the technology of smart electric vehicles, and we will actively plan these aspects.

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