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, VP of Finance; and Jade Wei, AVP of Capital Markets and Investor Relations. Before we continue, please be kindly reminded that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the views expressed today. Further information regarding risks and uncertainties is included in certain filings of the company with the U.S. Securities and Exchange Commission. The company does not assume any obligation to update 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 the 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.

Hello, everyone. Thank you for joining NIO's second quarter 2021 earnings call. In the second quarter of 2021, NIO delivered 21,896 ES8s, ES6s, and EC6s, setting a new quarterly record with a strong increase of 111.9% year-over-year. In July, NIO delivered 7,931 vehicles, reflecting a robust growth of 124.5% compared to last year. All three models have shown solid performance in the premium SUV market. According to the China Passenger Car Association, the penetration rate of battery electric vehicles in China reached 8.4% in the first half of 2021, with NIO's growth in Tier 1 and Tier 2 cities accelerating. In Shanghai, our penetration in the premium SUV segment reached 13.7% among all internal combustion engine and electric vehicles during the first half of the year. Our monthly order intake continues to rise, but the delivery volume will depend on the overall capacity of the supply chain. We anticipate total deliveries in the third quarter to be between 23,000 and 25,000 vehicles. Regarding our gross margins, we have maintained steady performances, with vehicle gross margin at 20.3% and overall gross margin at 18.6%. Now, I would like to provide some recent operational highlights. Since May, we have conducted rigorous tests of the ET7, which rolled off the production line, and we are confident about its on-time delivery next year. The development of our next-generation autonomous driving system, NAD, is progressing well, and we believe it will deliver an exceptional autonomous driving experience and lead technological advancements in the industry. In 2022, we plan to launch three new products based on NIO Technology Platform 2.0, including the ET7. Our teams are committed to advancing this development while also optimizing and upgrading our NIO Technology Platform 1.0 to enhance the competitiveness of our current models. In late August, we will unveil NIO OS 3.0, featuring a new UI design, enhanced functionalities, and ongoing over-the-air updates to improve NIO Pilot. Consequently, an increasing number of users are utilizing and enjoying NIO Pilot, with a take rate exceeding 80% in the second quarter. By July, NIO Pilot had been engaged for over 200 million kilometers. Despite semiconductor supply challenges in the second quarter, our production and delivery met expectations thanks to the concerted efforts from our teams and partners. However, the recent COVID-19 situation and adverse weather have posed challenges to our production in certain regions in China. We will continue to collaborate closely with our supply chain partners to mitigate impacts during the third quarter. Concerning our sales and service network, we currently have 25 new houses and 243 spaces across 128 cities in China. We will continue expanding these, improving operational efficiency and service quality, and enhancing our presence in Tier 2 and Tier 3 cities. To date, we have set up 36 new service centers and 171 authorized service centers in 133 cities, with plans for further expansion to meet growing user service demands. We have deployed 361 swap stations in 103 cities, completing over 3 million battery swaps. In July, we announced a plan to expand NIO Power's battery-swap stations to over 700 by the end of 2021 and over 4,000 globally by 2025. We are also growing our charging infrastructure, having established over 238 power charging stations and installed 2,416 destination chargers in China. With the rapid deployment of our charging and swapping network, more people are beginning to appreciate the benefits of battery swapping and fast charging, attracting more users to choose Battery as a Service. On the international front, our entry into the Norway market is progressing as expected, with the first batch of ES8 vehicles set to arrive in mid to late August for preorders and deliveries in September. Starting from then, our apps and services will gradually become available to users in Norway. As a user-centric company, we prioritize our users' role within the NIO community. Preparations for NIO Day 2021 are underway, with our users actively participating in selecting the host city. In response to recent disasters caused by heavy rainfall and floods in places like Zhengzhou and Hunan Province, NIO has mobilized resources to assist our users and support relief efforts through donations and funds from the NIO Users Trust. 2021 is pivotal for NIO's long-term growth trajectory. In the second half of the year, we will accelerate our product launches and technology development while enhancing our charging and service networks to prepare for the delivery of three new models in 2022. We are also intensifying our preparations for entering the mass market with a new brand. We have assembled our new brand’s quoting, marking a significant step in NIO's strategic initiative. Thank you for your continued support. Now, I will turn the call over to Steven for the financial details for the quarter.

Thank you, William. I will now go over our key financial results for the second quarter of 2020. And to be mindful of the lens of school or encourage business to refer to our earnings press release, which is posted online for additional details. Our total revenues in the second quarter were RMB 8.45 billion or $1.31 billion, representing an increase of 127.2% year-over-year, an increase of 5.8% quarter-over-quarter. Our total revenues are made of two parts: vehicle sales and other sales. Vehicle sales in the second quarter were RMB 7.91 billion or $1.23 billion, accounting for 94% of total revenues in this quarter. It represented an increase of 110% year-over-year, an increase of 6.8% quarter-over-quarter. The increase in vehicle sales year-over-year was mainly attributed to higher delivery achieved from more product mix offered to our users. The increase in vehicle sales quarter-over-quarter was mainly due to higher deliveries. Other sales in the second quarter were RMB 536.2 million or $83.1 million, representing an increase of 103.3% year-over-year and a decrease of 7% quarter-over-quarter. The increase in other sales year-over-year was in line with the incremental vehicle sales in the second quarter of 2021. The decrease in other sales quarter-over-quarter was mainly due to the net revenues derived from 1-hour battery upgrade service. Cost of sales in the second quarter was RMB 6.87 billion or $1.6 billion, representing an increase of 11.8% year-over-year, an increase of 6.9% quarter-over-quarter. The increase in cost of sales was in line with revenue growth, which was mainly driven by the increase of vehicle delivered volume in the second quarter of 2021. Gross profit in the second quarter was RMB 1.57 billion or $0.24 billion, representing an increase of 42.7% from the same quarter of 2020, an increase of 1.2% from the first quarter of 2020. The increase in the gross profit was mainly contributed by increased vehicle sales. Gross margin in the second quarter was 18.6% compared with 8.4% in the same quarter of 2020 and 19.5% in the first quarter of 2020. The increase of gross margin compared to the second quarter of 2020 was driven by the increase of vehicle margin in the second quarter. More specifically, vehicle margin in the second quarter was 20.3% compared with 9.7% in the same quarter of 2020 and 21.2% in the first quarter of 2020. The increase of vehicle margin year-over-year was mainly driven by the increase of vehicle volume, higher selling price, as well as lower material costs. Vehicle margin remained relatively stable quarter-over-quarter. R&D expenses in the second quarter were RMB 823.7 million or $136.9 million, representing an increase of 62.1% year-over-year, an increase of 28.7% quarter-over-quarter. The increase in R&D year-over-year and quarter-over-quarter was mainly attributed to incremental design and development costs for new products and technologies, as well as to an increase in the number of employees in research and development functions. SG&A expenses in the second quarter were RMB 1.5 billion or $0.23 billion, representing an increase of 59.9% year-over-year, an increase of 25.1% quarter-over-quarter. The increase in SG&A expenses year-over-year was primarily due to the increased marketing efforts as well as the increased number of employees in sales and service functions. The increase in SG&A expenses quarter-over-quarter was primarily due to the increased marketing and promotional activities and professional services. Last, for operations. The second quarter was a net loss of RMB 763.3 million or $118.2 million, representing a decrease of 34.2% year-over-year, an increase of 158% quarter-over-quarter. Share-based compensation expenses in the second quarter were RMB 2514 million or $38.9 million, representing an increase of 455% year-over-year, an increase of 16.5% quarter-over-quarter. The increase in share-based compensation expenses was primarily attributed to additional options and restricted shares granted. Net loss in the second quarter was RMB 587.2 million or $90.9 million, representing a decrease of 50.1% year-over-year and an increase of 30.2% quarter-over-quarter. Net loss attributable to NIO's ordinary shareholders in the second quarter was RMB 659.3 million or $102.1 million, representing a decrease of 45.4% year-over-year and a decrease of 86.5% quarter-over-quarter in the second quarter of 2021. Basic and diluted net loss per ADS in the second quarter were both RMB 0.42 or $0.07 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 RMB 0.21 or $0.03 per ADS. Our balance of cash and cash equivalents, restricted cash and short-term investment was RMB 48.3 billion or $7.5 billion as of June 30, 2021. And now for our business outlook. As William mentioned, for the third quarter of 2021, the company expects deliveries to be between 23,000 and 25,000 vehicles, representing an increase of approximately 88.4% to 104.8% from the same quarter of 2020, and an increase of approximately 5% to 14.2% from the second quarter of 2021. The company also expects the total revenues of the third quarter of 2021 to be between RMB 8.91 billion and RMB 9.63 billion, representing an increase of approximately 96.9% to 112.8% from the same quarter of 2020, and an increase of approximately 5.5% to 14% from the second quarter of 2021. This business outlook reflects the company's current and preliminary view on the business under the disdain and market condition, which is starting to change. 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 very much. Our first question comes from Tim Hsiao at Morgan Stanley. Tim, your line is now open.

Hi William, Steven, and team. Congratulations on the results and thank you for answering my questions. I have two quick questions. First, could you elaborate on the two new models scheduled for 2022, particularly the ET7? I am interested in the timing, specifications, and a rough price range. It was previously expected that only one new model would be introduced next year, so this is a nice surprise. Any additional details would be appreciated. My second question is about NIO's battery consumption, which is projected to reach 16 to 18 gigawatt hours next year. Will there be any significant changes to NIO's battery sourcing strategy? Will CATL remain the sole supplier, or is NIO considering other options? Given the strong partnership with CATL for both electric vehicles and battery asset management, is there a possibility for NIO to diversify with other partners to mitigate risks if necessary? Those are my two questions. Thank you.

I believe everybody knows that the NIO Technology 2.0 is going to be first applied to ET7. The current development progress of ET7 is on track and we are quite confident about the on-time delivery of ET7 next year, although the challenges are quite significant. For the other two products, I believe probably it's better for me to share more information at a more appropriate time. Regarding the pricing, of course, in recent years, the battery cars have declined a little bit. As our volume goes up, our BOM cost will also have some opportunity to go down. So, for next year's product, we probably will have one of the lowest pricing products under the NIO brand, but as I explained before we are going to have a NIO brand for the mass market, so under the NIO brand we're not going to have many low-priced products. Next year we believe the demand for battery capacity is going to go up significantly especially considering the new product lineup. We believe the battery production capacity demand is going to jump significantly compared with this year. We are having intense discussions with CATL regarding the battery capacity supply. Currently, we believe CATL is a very good and important partner for us, and we also have a very good relationship with CATL. We have very in-depth discussions regarding the battery technology as well as the battery production assurance. We believe that this current strategy can serve the best interest of the company at the current stage of development.

Thank you, William. That’s very clear.

Thank you so much. And your next question comes from the line of Ming Hsun Lee from BofA Securities. Ming, your line is now open.

Thank you. Good morning, William, Steven, and the team, congrats on the good results. So I have two questions. The first question is regarding the component supply. We know you already have more large-size battery supply starting in June. But right now, consider the pandemic in China and also overseas countries such as Malaysia, so what kind of impact do you expect on the productions that especially for your component supply capacity? So that’s my first question. And the second question is regarding your business in overseas markets. So in your third quarter of guiding, how many units do you expect to ship in Norway? And will you start to provide better service in overseas markets? Yeah, that's my two questions. Thank you.

Yes. The pandemic is impacting the global supply chain. Last year, our supply chain partners and NIO have been significantly trained to handle these challenges. In my prepared remarks, I indicated that recent COVID outbreaks in certain regions of China have impacted our production, particularly due to a just-in-time component partner in Nanjing's high-risk area, which has suspended its operations. However, there is some positive news, as COVID cases in Nanjing have dropped to zero, and we hope this partner can resume production soon. The delivery volume for the third quarter will largely depend on the overall capacity of the supply chain, which presents numerous challenges. For instance, the pandemic situation in Malaysia has impacted semiconductor supply globally, not just for NIO but for many companies. We believe the impact on us will be manageable. Additionally, we are dealing with the flooding in Germany, where one of our partner's factories was affected during severe weather. They are working with us to find solutions, and we believe the situation is now under control. Thus, our third-quarter delivery volume will still be constrained by the supply chain's overall capacity. Regarding deliveries in Norway, we expect the contribution this year will not be substantial, as our priority is to ensure high user satisfaction in that market by building our brand and expanding our sales and service network. We believe it is crucial to focus on long-term strategies in the global market and appreciate everyone's patience. Recently, we've collaborated with potential users in Norway to form a user advisory board, which has provided us with valuable feedback. We view this as a strong start and part of our long-term strategy. We also offer our Battery as a Service (BaaS) model globally, which we believe provides users with a comprehensive and efficient way to charge their cars both at home and on the go. Initial feedback from the Norway User Advisory Board indicates excitement about the battery swapping stations and the BaaS model.

Thank you.

This is an exciting beginning for us as part of our long-term strategy for the global market. In the global market, we also provide our Battery as a Service model because we believe it offers users a very comprehensive and efficient way to charge their cars both at home and while traveling. Based on the initial feedback from the Norway User Advisory Board, it appears that everyone is quite enthusiastic about the battery swapping stations and the Battery as a Service business model. Thank you.

Thank you so much. And your next question comes from Nick Lai from JPMorgan. Nick, your line is now open.

Yes. Thank you, William and Steven. Indeed I have two number-related questions, the first one is related to gross profit margin. Yeah, I mean 2Q against 1Q roughly margin was flat, but still at the vehicle level, it was still down roughly above 1 percentage point. Yeah, can you help us understand or explain a little bit more on the margin dynamics in 2Q, it's not related to bond or implement in material price or other factors? I mean I noted in the second quarter ASP is slightly down from 1Q, I mean, yeah, and how should we think about 3Q? So that one is of margin-related question. Can you help us understand a bit more - or explain a bit more on 2Q margin dynamics against 1Q and how should we think about that as we enter the third quarter? And the second question related - also related to number is look at the cash on balance sheet altogether cash equivalent and short investment by the end of the first half, we have RMB 48 billion cash that's profit about $7.5 billion and that's a lot of cash on balance sheet. If you can help us understand what our cash strategy using the cash on balance sheet in terms of CapEx investment. I notice there has new capacity expansion and presumably we are launching more models in 2022. We'll need to invest in R&D, new model tooling, altogether. So if you can help us understand a bit more on our capital investment in the next one year or so, that'd be very useful. Thank you.

Hi, Nick.

Hi, Nick. This is Stanley. Regarding your first question about the gross profit margin, there are two reasons that we put together. The first is average selling price decreased about RMB 8,000 per vehicle in Q2. The main reason is more ES6 were sold in Q2 compared with Q1. Since it has a little bit lower gross profit margin and selling price. But due to our continued efforts in Q2, the average vehicle cost also decreased about RMB 3,000 per vehicle. So combine the two factors together, our like net gross profit margin per vehicle decreased about RMB 5,000. That's the reason for the weaker margin. And you know we announced today we announced like three new brand-new products we will deliver in 2022. And we also refreshed our product plan, because relative perspective, we like to shorten our depreciation and amortization period for our existing products. So that will lead to the increase. For the second half of 2021, this impact to gross profit margin will be like 2% per vehicle. So yeah, that's the first question. And the second one is regarding the cash balance. As you mentioned, the cash balance at the end of Q2 is RMB 48 billion. As we mentioned, we will still focus on the research and development of our new product technology. And about the other usage, we will also increase our CapEx investments including our new plant and new sales and marketing network infrastructure in the coming years. So it will be in line with our business plan in the next years. Yeah. Okay.

Yeah. Can you remind us what our CapEx target for the year? Do you have any number or guidance, please?

Yeah. We expect the total CapEx in this year will be RMB 5 billion, including like the new plants and also the service and sales network and also a power substation. Yeah.

Yes. Thank you very much.

Thank you so much.

Thank you, Nick.

Thank you, Nick. Yeah.

Thank you so much. And your next question comes from the line of Bin Wang from Credit Suisse. Bin, your line is now open.

Okay. Thank you so much. My first one is more a follow-up about our gross margin because you actually guided NIO pilot has been increased quite substantially in the attach rate to 80%. What's the number in the first quarter and what's the margin increase from increasing NIO pilot take rate? That is the number one question. Number two is about your long-term market share because your peers actually want - peers actually have now 10% market share and the other one 20%. And what's the NIO's plan for 2025 for the market share? Because we have a mass market brand. Can we assume that the mass market brand will start to sell in 2023? Because with your three products since that the oath came from NIO brand and is because you are looking at the timeline of the R&D, this is not going to be 2023. That is the second one. And the third one is about your data of lifestyle expansion brand. If you see your peers, who actually get involved in strategic operation with the big data groups such as existing part on the phone dealer space, this will be buyback by NIOs. So using this in the long term, may be NIO will explore third-party patterns for NIO space. What's your long-term strategy about offline store expansion plan? Thank you.

Yes. Regarding the margin contribution for the NIO Pilot, the take rate has reached 80%, which includes both the selected pack and the full pack. We estimate that contributions from the NIO Pilot are around 3% to 4%. The prices for NIO Pilot are factored into the selling price of vehicles, so we do not have a separate gross profit margin calculation for them. For the NAD, we will implement the AD as a service model to offer NAD services to our users. In the long term, we expect the AD as a Service contribution to be included in the other margin, and it is anticipated that the long-term margin for NT 2.0 will be significantly better than that of NT 1.0. For vehicle gross margin, our long-term target is 25% excluding carbon credits, as those should be recorded in other margins. We believe that the logic behind other margin relates to the install base of users, and we expect improvements in the long run due to future opportunities, including AD as a Service, Battery as a Service upgrades, and carbon credits. Therefore, we anticipate enhancements in both gross margin and vehicle gross margin.

Regarding the long-term target of the market share for us, of course, we pay attention to our specific market share order penetration in the corresponding segment of our products. For example, the ES8 in the large and midsize SUV market segment and the ES6 in the midsize SUV segment. Internally, of course, we have a very aggressive market share target by 2025, but we don't actually want to disclose this target. For us, we believe our target as a company should be to build a company with the highest user satisfaction rate. So that is why our focus is on the product and service. We believe if we can achieve the highest user satisfaction rate with our product and services, then it should be a natural thing for us to achieve a satisfactory market share. In the China market, I would like to talk a little bit about the battery electric SUV premium market segment. For this segment, I would like to emphasize a little bit about the pricing because when we compare the specific sales volume of one brand or one product, it does not make sense to compare those metrics without considering the specific pricing segment. For example, it does not make sense for us to compare the sales volume of any brand with the sales volume of NIO because we don't have the same pricing and we don't compete in the same segment. In our specific pricing segment, we have companies like Audi, BMW, and Mercedes, and for Tesla, they also have a Model S, Model X, and Model Y. In this specific pricing segment, our market share has already exceeded 50%. So we are quite confident to further improve our market share in this specific segment. In Shanghai, as I mentioned before, in the premium SUV segment including the ICEs and the electric vehicles, we have already reached close to 14% market penetration in the first half of this year. This is already quite high, and we have already achieved this in Tier 1 cities. So we believe this is a good indicator for our next step to penetrating into more markets in different cities. As I mentioned, our focus is to ensure we have the best product and services to achieve the highest user satisfaction. We believe as long as we seek to this vision and this objective, the financial side will follow to achieve other market share targets in the long run.

Thank you.

Thank you. A better way can you answer the question about what would be 2023 for the NIO mass market brand business? Thank you.

We are expanding into more markets in various cities. Our priority is to provide the best products and services to ensure the highest user satisfaction. We believe that if we continue to pursue this vision and objective, financial success will follow, allowing us to meet our long-term market share targets. Thank you. Could you please address what 2023 looks like for the NIO mass market brand business? Thank you.

Thank you.

Thank you so much. And your next question comes from the line of Chang Liu from CICC. Chang, your line is now open.

Yeah. Thank you for taking my questions. My first question is about R&D. We know that there is fierce competition in acquiring talent for autonomous driving development. So could you share with us NIO's advantages in acquiring them? And, more in detail, could you share with us our current team size of AD development and our targeted team size? And is there an update on our R&D expenditure for this year? And my second question is that, could you update the tech aspects of BaaS and the NIO Pilots for us? Thank you.

Thank you for your questions. Autonomous driving is a critical area for our research and development efforts. We are committed to investing in autonomous driving technology and have a unique organizational structure, with full VPs reporting directly to me. This initiative spans multiple teams focusing on hardware, systems, algorithms, and operations, emphasizing collaboration across the company rather than functioning as a single department. Currently, our autonomous driving department has about 500 employees, and we expect this to grow by an additional 300 to 800 by the end of the year. Since 2016, we have made significant investments in technology and talent acquisition. NIO is a pioneer in mass production with the EyeQ4 chipset and has developed our autonomous driving assistant in-house from the beginning. We have gained valuable experience and are now focused on enhancing our capabilities in computer vision for autonomous driving algorithms. In the second quarter, we accelerated our R&D efforts, and we plan to launch three new products in 2022, with even more in 2023 and beyond. We believe NIO is the fastest in the industry for product delivery, averaging an R&D timeline of around two years. This year, we have initiated various R&D programs and expect our spending on R&D to increase due to our team size and pipeline projects. Our goal for 2021 is to spend around RMB 5 billion on R&D, reflecting our progress and keeping our development projects aligned with our plans. By the end of this year, we anticipate that our R&D team will have doubled in size compared to last year. In July, the take rate for battery-as-a-service reached 60% and continues to grow monthly. Additionally, the take rate for NIO Pilot has reached 80% across selected and full packages, indicating a positive trend for both BaaS and NIO Pilot.

Okay. Thank you.

Thank you, Chang.

Thank you so much. And your next question comes from the line of Edison Yu from Deutsche Bank. Edison, your line is now open.

Thank you for taking our questions. I have two follow-ups on Europe. First, it seems there is quite a bit of hiring going on in the Netherlands and a little bit in Germany. Could you maybe discuss the next phase of Europe after Norway? And then the second question on Europe, it's very encouraging to see this user advisory board. Can you maybe discuss some of the things that you're doing differently in Europe relative to what's been going on in China?

I would like to share some numbers with our investors. In Norway, our team has grown to 40 employees. Norway is just our first step into international markets. We have also expanded into other European countries and regions. Consequently, we are continuing to hire more people in Amsterdam. Additionally, in the second quarter of this year, we appointed a CEO for Europe who is already on board and has been developing the team for NIO Europe. We plan to enter more markets in Europe, including Germany. Most of the products we will deliver to Europe will be based on the NIO Technology platform 2.0, with the exception of the ES8. This is our current strategy for the European market. As we enter new markets or regions, we firmly believe that user participation and support are vital principles to uphold. Each market has its own cultures, environments, and use cases, and we must adapt to these differences. Nonetheless, we believe that the concepts of user community and user enterprise should be relevant globally, as our vision is to prioritize user experience and interests. An interesting point to note is that when we launched our user advisory board in Norway, we expected around 200 participants, but ultimately, 700 to 800 people signed up. This demonstrates that Norwegians are quite eager to engage in community events, disputing the belief that they are typically cautious about socializing. This example challenges the stereotype of Norwegian people, reinforcing that the user community concept is applicable to everyone worldwide.

Thank you, Edison.

Thank you.

Thank you so much. And your next question comes from the line of Paul Gong from UBS. Paul, your line is now open.

Yeah. Thanks, everyone. I have two questions. The first question is regarding your plan to address new models based on the MP2 in 2022. Given most of the NIO spaces although they cannot put six models together, will you try to expand the average size of your deal space? Or are you going to gradually resource via the existing first generation of the products? As just now you mentioned that you'll have a shorthand the differentiation and amortization of the first generation of your products. Does that mean it would be a gradually fizz out and migrate into the second generation of the platform? This is my first question. My second question is regarding the mass market brand. I understand at this moment you are still pending decisions in terms of the timing and how to position itself. But can we have a little bit of color when you think about the relationship of NIO brand versus your NIO mass market brand? Would it be more similar to, let's say, Mercedes Benz and Smart or BMW MEV or Audi versus say Volkswagen brand? How do you think about the relationship between the two brands? I recall in last quarter's results you mentioned that there is only one more thing that somehow assured that is, would income from EVT reversion. Is that an indication that somehow the recent online discussion is say on NIO's mass market brand which also announced some tiny small vehicles. Is it something you are bearing in mind at this moment? Thank you.

We recognize that various campaigns will require different strategies related to their product offerings. Our goal is to provide a more diverse range of choices for our users while maintaining a balance. We do not plan to operate like traditional OEMs by offering a wide array of options nor do we intend to limit ourselves to just a few products. Different users have varying preferences and tastes in body sizes, types, and designs, which is why we aim to present limited yet diverse product offerings. The automotive landscape has changed significantly since the Model T, and our strategy reflects that evolution as we incorporate digital technologies and utilize rotation mechanisms for users to experience our products in our NIO houses and spaces. However, based on current data, it appears that most of our users prefer to place their orders online, which we do not see as a major concern. All of our current products are built on the NIO Technology Platform 1.0, which remains competitive when compared to offerings from brands like Audi and BMW. We believe our products are still on par with their electric vehicle (EV) offerings and belong to a different generation than their internal combustion engine (ICE) products. We will continue to market NIO Technology Platform 1.0 products and anticipate that the introduction of three new products in 2022 will not disrupt the regular upgrade cycle of NT 1.0 products. We are being cautious by reducing the depreciation and amortization period for the NIO Technology Platform 1.0, signaling that we will continue to enhance our NT 1.0 offerings. In terms of positioning for our new brand and mass market brand, it is akin to the relationship between Audi and Volkswagen or Lexus and Toyota. However, we are not looking to enter the same segments as those competitors; we aim to distinguish ourselves with unique products for the mass market. Our strategy is to launch competitively priced products compared to Tesla, while offering superior products and services.

Best services, much better service.

...and have better products and the much better services compared with Tesla.

Thank you very much. Very helpful. Thank you.

Thank you so much. And your next question comes from the line of Jeff Chung from Citi. Jeff, your line is now open.

Hello, William and Steven. Congratulations on the great results. I have three questions. First, regarding the ET7 pricing, if it is set above RMB 400,000, can we expect the second quarter margin to be significantly higher, possibly around 30% to 35%? Second, about the export margin, if we reach a scale of 2,000 to 3,000 units per month, would this be accretive to the second quarter margin given that we've heard overseas average selling prices could be much higher? Can you provide some insight on whether the export margin will be similar to the domestic margin in China? The third question is about G&A costs. You mentioned these will accelerate in the second half of the year, indicating an increase of about 3% per car. Can you clarify whether this will primarily affect the second quarter margin or the EBIT margin? Lastly, regarding R&D and SG&A, we previously anticipated R&D costs around RMB 5.2 billion and SG&A above RMB 6 billion this year. Do you believe there is still potential for these to grow faster than revenue in the second quarter? When do you expect their growth to slow relative to revenue growth, perhaps from two to three or two to four? That concludes my questions. Thank you.

Thank you for your question, Jeff. About overall speaking for the gross margin targets, previously I have also mentioned that on the NIO Technology Platform 2.0, the vehicle gross margin target should be at the level of 25%. So on the current data we gathered it seems that the ET7 should be able to achieve this target. But the actual additional gross margins of ET7 will need to be validated until the mass production and the delivery of ET7 to our users. So for the other products or for the product on the NIO Technology Platform 2.0 including ET7, it will probably meet the 25% gross margin level, and this is our target. For the other margins, just like I explained, we have ADS service, NIO Life, battery as a service upgrade, and the swapping services. All this is included in the other margins. So this will also contribute to the improvement of other margins. For the export business, our current strategy is that we'd like to have global pricing. But for the specific pricing in different markets, it will vary a little bit considering the tax and the tariffs in different countries.

We accelerated our depreciation and amortization for the fixed assets for end-to-end products, which will be booked in the cost per vehicle. So gross profit margin, starting from Q3, will decrease by 2% as I mentioned in the prior questions. Yeah.

Okay. And also Jeff with regard to the fixed ratio we believe for now the next 12 months is a very decisive window for us to accelerate our product development and also service and track infrastructure deployment. However, in front, the second half contributed to our economy of scale will gradually manifest and our expense ratio will start to decline again.

Okay. Thank you. Thank you, Stephen. Thank you, William.

Thank you so much.

Thank you.

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

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

This concludes the conference for today. Thank you for participating. You may all now disconnect.