Hello, ladies and gentlemen, thank you for standing by NIO Inc. Third Quarter 2022 Earnings Conference Call. Today's conference call is being recorded. I will now turn the call over to your host Ms. Eve Tang from Capital Markets. Please go ahead, Eve.

Good morning, and good evening, everyone. Welcome to NIO's third 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 Vice President 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 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 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 rules. Please also note that NIO's 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 third quarter 2022 earnings conference call. In the third quarter of 2022, NIO delivered a total of 31,607 smart electric vehicles, an increase of 29.3% year-over-year, setting a new quarterly record. Utilizing our latest technology platform, NT2.0, we launched and delivered three new products that have enhanced our product lineup's competitiveness and allowed us to penetrate more premium segments, driving consistent demand growth. In October, despite the challenges in production and supply chains, we delivered 10,059 vehicles, which is a 174.3% year-over-year increase. We will continue to work closely with our supply chain partners to stabilize component availability and further expedite vehicle production and delivery. We anticipate total deliveries in the fourth quarter of 2022 will range from 43,000 to 48,000. Next, I would like to share some recent highlights from our R&D and operations. In September, the show cars of the ET5, a smart electric midsize sedan, began displaying in our stores. This attracted record store traffic and significant growth in order intake. On September 30, we officially began delivering the ET5, and preliminary user satisfaction exceeded our expectations. Over the past few months, Banyan, the digital system of NT2, has undergone multiple iterations and upgrades, continuously improving user experience. We are confident in the market competitiveness of our new models based on the NT2 platform. Regarding the sales and service network, we currently operate 399 new houses and spaces across 149 cities, along with 280 service and delivery centers in 163 cities. In our charging and swapping network, NIO has established a total of 1,210 power swap stations and has facilitated 14 million battery swaps. We have installed 2,055 charging stations equipped with 5,765 power chargers and 6,077 destination chargers. Additionally, our power network connects to over 590,000 third-party chargers in China and more than 380,000 in Europe. Since entering the Norwegian market last September, our products and services have been well received by local users, and our user community has been rapidly expanding, establishing a strong foundation for our entry into more European markets. On October 7, we hosted NIO Berlin 2022, where we comprehensively introduced our products and services in Europe, marking our official entry into Germany, the Netherlands, Denmark, and Sweden. NIO Berlin garnered significant attention and endorsements from users and the automotive industry. We are now organizing larger-scale test drives and have started user deliveries in Europe. Yesterday, the NIO ET7 received the 2022 Golden Steering Wheel award from the respected German Magazine Auto Bild, recognized as the best car in the median and upper class category. Our products and innovative technology have gained substantial recognition from users, industry experts, and professional media in Europe. To better serve user communities in Europe, we plan to open new houses and spaces in 10 major European cities such as Berlin, Frankfurt, Rotterdam, Copenhagen, and Stockholm. We aim to install 20 power swap stations in Europe by the end of the year and another 100 by 2023, allowing more users to experience our chargeable, swappable, and upgradable power system. Additionally, we have set up an R&D center in Berlin to focus on localized development and deployment of the digital cockpit and ADAS, continually enhancing the intelligent digital experience for local users. On September 27, NIO announced a partnership with the Danish Society for Natural Conservation and the Danish Nature Foundation as part of the Clean Parks initiative, aiming to actively engage with local communities and contribute to a more sustainable future. On September 30, adhering to NIO’s commitment to Blue Sky Coming, we released our first NIO Environment, Social, and Governance report for 2021, detailing our ESG management practices and performance. In 2022, NIO has made significant progress in core product technologies, our charging and swapping network, and our sales and service network, laying a solid groundwork for competing in the global market long-term. Despite operational challenges arising from a changing macroenvironment, we believe NIO can maintain its focus on product and technology innovations as well as service capability improvements, while optimizing cost structures and enhancing operational efficiency to introduce more products and services globally. Thank you as always for your support. Now, I will turn the call over to Steven to provide the financial details for the third quarter of 2022.

Thank you. I will now go over our key metrics for the third quarter of 2022. To be mindful of the length of this call, I will reference RMB only in my discussion today. I encourage listeners to refer to our earnings press release, which is posted online for additional details. Our total revenues in the third quarter were RMB 13.0 billion, representing an increase of 32.6% year-over-year and 26.3% quarter-over-quarter. Our total revenues are made of two parts: vehicle sales and other sales. Vehicle sales in the third quarter were RMB 11.9 billion, representing an increase of 38.2% year-over-year and 24.7% quarter-over-quarter. The increase in vehicle sales year-over-year and quarter-over-quarter was mainly attributed to higher deliveries as a result of a more diversified product mix offered to our users. Other sales in the third quarter were RMB 1.1 billion, representing a decrease of 8.5% year-over-year and an increase of 48.2% quarter-over-quarter. The decrease in other sales year-over-year was mainly due to the decreased revenue derived from sales of automotive regulatory credits, offset by the increase in other revenues in line with the incremental vehicle sales. The increase in other sales quarter-over-quarter was mainly attributed to the increased revenue derived from sales of automotive regulatory credits and an increase in other revenues in line with the incremental vehicle sales. Gross margin in the third quarter of 2022 was 13.3%, compared with 20.3% in the third quarter of 2021 and 13.0% in the second quarter of 2022. The decrease in gross margin year-over-year was mainly attributed to first, the decreased revenue derived from sales of automotive regulatory credits with high sales margin; second, the decrease of vehicle margin; and third, the reduction in other sales margin resulting from expanding investment in the power and service network. The increase in gross margin quarter-over-quarter was mainly attributed to the sales of automotive regulatory credits with high sales margin. More specifically, vehicle margin in the third quarter was 16.4%, compared with 18.0% in the third quarter of 2021 and 16.7% in the second quarter of 2022. The decrease of vehicle margin year-over-year was mainly attributed to the increased battery cost per unit, which was partially offset by the decrease in subsidization in user vehicle financing arrangements. Vehicle margin remained stable quarter-over-quarter. R&D expenses in the third quarter were RMB 2.9 billion, representing an increase of 146.8% year-over-year and 37% quarter-over-quarter. The increase in R&D expenses year-over-year and quarter-over-quarter 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 third quarter were RMB 2.7 billion, representing an increase of 48.6% year-over-year and 18.8% quarter-over-quarter. The increase in SG&A year-over-year and quarter-over-quarter was primarily due to, first, the increase in personnel costs related to sales and general corporate functions; second, increased expenses related to the Company’s sales and service network expansion; third, an increase in marketing and promotional activities to promote our vehicles in China and Europe. Loss from operations in the third quarter was RMB 3.9 billion, representing an increase of 290.2% year-over-year and 36.0% quarter-over-quarter. Other losses, net in the third quarter of 2022 was RMB 495.6 million, representing an increase of RMB 528.2 million from other income of RMB 32.6 million in the third quarter of 2021 and an increase of RMB 305.6 million from the second quarter of 2022. The increase of other losses over the third quarter of 2021 and second quarter of 2022 was mainly due to the loss from the revaluation of our overseas RMB-related assets as a result of the depreciation of RMB against U.S. dollars in the third quarter of 2022. Net loss in the third quarter was RMB 4.1 billion, representing an increase of 392.1% year-over-year and 49.1% quarter-over-quarter. Net loss attributable to NIO’s ordinary shareholders in the third quarter was RMB 4.1 billion, representing an increase of 44.9% year-over-year and 50.9% quarter-over-quarter. Our balance of cash and cash equivalents, restricted cash, short-term investment, and long-term time deposits were RMB 51.4 billion as of September 30, 2022. Now, this concludes our prepared remarks. I will now turn the call over to the operator to facilitate our Q&A session.

Thank you. We will now begin the question and answer session. Our first question comes from Ming Hsun Lee with Bank of America. Please go ahead.

William, Steven, hi. Previously, your capacity was capped by component supply, especially the welding part, as well as the chips. So could you also update your latest component capacity? If there is no COVID control impact. Thank you.

Thank you, Ming, for the question. Yes, there has been some impact on production in October due to several reasons, amounting to several thousand units. One factor is the subframe issue you mentioned, but we anticipate resolving this in November. The second reason involves the new EDS for ET5. We have a new EDS pump next to our factory, and its high level of automation means we only require around 30,000 people for overall operation. However, ramp-up volatilities with the EDS have affected our production by about 2,000 to 3,000 units. The third reason is the COVID-19 situation, which I believe impacted production for about one week. Overall, these factors have affected production in October, but we have returned to normal production. We expect to establish a new production line for the new EDS next week, and by the end of this month, it should be ready, allowing us to ramp up production. The subframe issue has already been resolved, and I believe that by December, ET5 production should not present any issues. Currently, I don't see any production issues for the ET7 and the ES7.

How will the U.S. semiconductor ban affect the industry's development and NIO specifically? In addition, since Nvidia can still sell chips to China, what is your perspective on how this will influence the progress of our autonomous driving training?

Thank you for your question. Regarding the Chip Act, I believe this may affect the chips used for cloud training. Currently, I believe we have enough chips like the A100 to meet the long-term demand for AD training. However, we are also looking into different opportunities. For instance, we are considering collaborations with some cloud service providers and evaluating long-term solutions to support the integration of our AD solutions. As of now, I don't see any impact on overall operations. Thank you, Ming.

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

My first question is about the ET5 order. You mentioned that the satisfaction level has met your expectations, but I would like to know how the order intake has been since the launch. Specifically, after the price cuts from Tesla at the end of October, have you noticed any impact on the order intake? This is my first question.

Thank you, Paul, for your question. I understand your concerns about the ET5 orders. Our priority right now is to find ways to deliver the ET5 to users and reduce the waiting time. Generally, order volumes are not a challenge for us concerning the ET5. The ramp-up is still in a relatively early phase, so we are focusing on quality improvement to ensure we stabilize the ET5's quality. The demand for the ET5 is as strong as we anticipated. While higher orders are beneficial, we also want to minimize long wait times for users. Regarding Tesla, they often adjust their prices, but we don’t believe this has impacted demand for our new product. When we consider specific models like the Model 3, there’s a significant price difference compared to our offerings. Additionally, when comparing the Model Y with our ES6, we believe we are not competing in the same market segment. Therefore, when we analyze the pricing and positioning of our products, we are not directly competing with Tesla in the same segment.

My second question is about the expenses, including R&D and SG&A. I've noticed they have increased significantly quarter-over-quarter this time. Is this increase temporary due to new products and your efforts to enter the European market, or is it more of a structural change? If so, what do you expect the trend to be moving forward?

Hi, Paul, this is Stanley. The increase in SG&A in Q3 compared with Q2 is because of our sales and service network in China, and also in Europe since we entered more country markets in Europe this third quarter and also some more marketing and promotional activities in Q3 compared with Q2. From the long term, I think also you can check with this result from Q3 that SG&A as a percentage of sales revenue will continue to be optimized along with the improvement of our operational efficiency. I think in 2023 and also the coming years, you will see a stable trend for further improvement of this ratio.

Regarding the R&D expenses, we have noticed an increase in the third quarter compared to the second quarter. This rise is primarily due to our new product development schedule, along with initiatives like the battery chipsets and tests for entering new markets, which also includes employee costs and ETP costs. This aligns with our planning, and we don't anticipate any unexpected R&D expenses. Currently, our R&D operations are in a stable phase, so we expect the R&D expenses, including human resources costs, to remain steady, likely around RMB 3 billion each quarter. Additionally, we will continue to enhance the efficiency of our R&D efforts, but for the foreseeable future, we expect these costs to remain at this level to ensure we can introduce more product and technology innovations for a better user experience.

What is the approximate ratio of Europe accounts for this quarter?

Yes. Hi, Paul. You know, Europe is now at quite an initial stage. So currently, the overall expense is not a big percentage of the overall SG&A. Now the sales and marketing team for our Europe business is about 500 headcount. So yes, that's basically the information for our Europe business.

Our next question comes from Tim Hsiao with Morgan Stanley. Please go ahead.

My first question is about production and delivery. Based on the fourth quarter guidance, the average delivery in November and December could be around 17,000 to 19,000. What would be the peak monthly output NIO can reach by the end of this year? And how does the trajectory look like into the first half of next year, considering the supply chain bottleneck issues, the unchanged COVID policy, and the emergence of new model competitors, as well as potentially longer times for suppliers to expand their capacity?

It is quite challenging for us to assess the effects of corporate control and prevention measures on the company's operations. However, regarding vehicle production, I believe our capabilities will align with the delivery targets we have set for next year. In terms of the supply chain, we are encountering some challenges. For instance, in December, we anticipate facing constraints in the supply of silicon topping. Nevertheless, for 2023, I am confident that our supply chain and production capacity will be sufficient to meet the demand and our targets. Specifically for vehicle production, I expect we will have a robust production capacity to satisfy demand. If we can reach a production capacity of 150,000 with one shift, I am confident that vehicle production will proceed smoothly.

My second question is about profitability. We have observed that the life cycle of smart EVs in China is actually decreasing compared to traditional cars. Given the significant investments in R&D and manufacturing, what do you think is a more realistic expectation for terminal growth in your operating margins? Should we anticipate challenges with increasing competition? Thank you.

Thank you for your question. Regarding smart electric vehicles, I believe we have a much faster iteration cycle compared to traditional vehicles. We expect this cycle to be around three years, which is how we develop our smart technologies at NIO. Different companies have varying strategies and iteration cycles. Looking at our technology platforms, we have similar hardware and software across all vehicles based on our data technology platforms. All our products use NIO Technology 1.0 and Technology 2.0. We also have a unified battery pack and share many commonalities in vehicle issues. Given our technology platforms and vehicle strategy, I think maintaining a vehicle gross margin of 20% to 25% is achievable. However, in 2022, battery costs soared. We raised our product prices, and despite this, we managed to achieve a reasonable vehicle gross margin. In the past, we also reached a 20% vehicle gross margin. If battery costs decrease to more manageable levels, we could regain the 20% to 25% vehicle gross margin. Additionally, due to our vertical integration of vehicle technology, including batteries and chipsets, I believe we have more potential to enhance our vehicle gross margin, making a 25% to 30% gross margin possible. The challenges in the mass market are greater because currently, most companies in that space are facing negative overall gross margins. BYD is an exception due to their vertical integration of batteries and other technologies. Without similar vertical integration in the mass market, it will be quite challenging to compete. However, with our capabilities, I believe we could also achieve a 20% to 25% gross margin with other mass market products.

Thank you, team.

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

My first question is about your guidance. I have three inquiries. First, will the ET5 have a higher volume than the BMW 3 Series? Second, do you expect to break even in Q4 next year? And third, at the beginning of this year, you projected an 18% to 20% gross margin for the vehicle. Do you still maintain this guidance for these orders? Thank you.

Thank you, Bin, for your question. Overall, we are still aiming to achieve breakeven in the third quarter of 2023, and this is still our plan. At the same time, we're also working on different strategic new business initiatives. For example, we have two new brands, battery chipsets, and a smartphone business. For 2023, the investment for these strategic new businesses is expected to be around RMB 3 billion to RMB 4 billion, translating to roughly RMB 1 billion every quarter. If we exclude these strategic new businesses, we are still confident about achieving breakeven for our core business in the fourth quarter of 2023. Regarding your question about the ET5, one of our co-founders previously mentioned that the ET5 volume is expected to exceed the volume of the BMW 3 Series in some markets. This is not a formal guidance, but I believe the ET5 is superior to the BMW 3 Series. Therefore, we are very confident about achieving this target. As for vehicle gross margin, 2022 posed many challenges for us, especially concerning the cost of lithium carbonate. Currently, the cost remains quite high. Previously, it dropped to around RMB 400,000, but it has now risen to approximately RMB 600,000, which has significantly impacted battery costs and is beyond our control. Nonetheless, I believe we can maintain a relatively stable vehicle gross margin in Q4 compared to Q3. Regarding the impact of lithium carbonate costs, if we consider a cost of RMB 100,000 for lithium carbonate, it affects our vehicle gross margin by about 2%. If the cost can decrease from RMB 600,000 to RMB 400,000, it would improve our vehicle gross margin by around 4%. If the cost drops even further, to approximately RMB 100,000, which is a reasonable price, we could enhance our vehicle gross margin by around 8%. This reflects the situation we are currently facing.

So my question is about the Model Y compared to the ET5, Tesla. Are we going to showcase this at the year-end event in December? Thank you.

For the product lineup in the first half of next year, we're planning to have five new products. I believe one of them will be similar to Tesla's Model Y, as you mentioned. However, our focus is on the overall volume of all products. We are positioned in the premium market segment, so our philosophy is to meet the diverse user demand efficiently. Within the price range of RMB 300,000 to RMB 500,000, we will offer different products to cater to various user preferences. I am confident that with our product lineup, we will achieve a strong delivery volume that meets our expectations. I do not anticipate any single product will exceed 100,000 units sold in China. For example, the ET5 may sell around 30,000 units per month, but I believe this volume is typical for a standard car and may not be ideal for the ET5 or NIO. The mass market presents a different scenario; we just had a meeting today with our mass market team. We estimate that a mass market product can sell approximately 50,000 units per month for one model, as the market segment and target user groups vary significantly.

Our next question comes from Jeff Chung with Citi. Please go ahead.

So my question is about sales volume growth for November and December. To meet our quarterly target of 43,000 units, if we expect a month-on-month improvement of about 37%, we should reach a monthly run rate of approximately 19,000 units by December. Can you provide a breakdown of the ET5 volume? Additionally, will the ramp-up pace be nonlinear, with most of the growth occurring in December? What factors will influence our run rate exceeding expectations in December but not in November? Thank you.

Thank you, Jeff, for your question. In November, we will still need some time to ramp up production, including the ET5, considering the factors I just mentioned, like the EDS. In December, aside from the silicon carbide I mentioned earlier, I believe we will have increased production compared to November. We hope that in December we can achieve a production run rate of over 20,000 units.

No more questions. Thank you.

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

Let me take my two simple questions. The first question is about the cash burn and the CapEx expectation as we move into '23 and '24, and also take into account of incremental investment. The second question is again on the AI shift to pipeline strategy, and if you can just talk about the potential opportunity dilution. We have stock of chips that we are looking to find a solution for, but what about the chips used in the car?

Hi, Nick, this is Stanley. As introduced by William and me, we will further improve our SG&A operating efficiency. Furthermore, our R&D expense will remain relatively stable compared with 2022. Thus, regarding cash flow, we are quite optimistic about achieving positive cash flow in future years. However, our cash burn mainly depends on capital investment. We are currently planning our budget for next year. Generally, I think the total CapEx next year will not significantly increase compared with this year. We are focusing more on sales and service networks and production and supply chain capacity. At this moment, I won't provide clear guidance. We are confident that our cash on hand can support our ongoing operations until breakeven is finally achieved.

We recognize that there are still many uncertainties in the market. However, with our current cash reserves and bank facilities, we can support the company's operations until we reach breakeven. We don’t expect this to pose a significant challenge. Regarding the chipset, as we have mentioned, the AI training chipset is the NVIDIA A100. I would like to provide more details about the onboard chipset. We were the first company in the world to launch products with NVIDIA, doing so six months ahead of our competitors. We also maintain a close collaboration with NVIDIA. Last year, we started the research and development of our AD chipsets, with around 500 people currently working on it. It is widely accepted that the AD chipset is closely related to the AD algorithm. By utilizing the AD algorithm in the design of the AD chipset, we can significantly enhance overall efficiency, which positively impacts our vehicle gross margin. The R&D progress of the AD chipset is on schedule, and we have achieved some encouraging milestones.

Thank you.

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

My first question is about the current external environment. Everyone is facing a lot of production difficulties. In the longer term, will we consider switching from an OEM model to self-built production? Are there any challenges in obtaining qualifications, and will this optimize our new product ramp-up speed or reduce manufacturing costs? My second question concerns our R&D investment and capital expenditures in relation to the limits of our in-house R&D. In Q3, R&D expenses reached RMB 2.8 billion. Considering the current capital market environment and the increasing competition in the Chinese EV market over the next few years, will we adopt a more conservative approach for R&D and capital expenditures? Under what circumstances would we modify our current strategy? Is our organization adaptable enough to make these adjustments? Lastly, I am interested in the MPV market. Will we introduce a new product pipeline in this segment in the future?

For Factory II, we are continuing our collaboration with JSE, and I believe our joint manufacturing efforts are progressing well. In terms of vehicle production, I’m confident that our production capacity will meet the company's short-term delivery goals. I mentioned earlier that one plant has the potential to produce 150,000 units with one shift, and by combining Factory I and Factory II, we can reach a total production capacity of 300,000 units. If we implement two shifts, we can further double this capacity. There are some supply chain volatilities across the industry, not only affecting NIO, but I believe that as we increase our production capacity and deliveries, we can minimize these supply chain risks. Regarding our investment parameters, we have adequate cash reserves to sustain the company's operations. For our overall investment in R&D, we plan to invest about RMB 3 billion every quarter for the next three years, covering all the R&D projects we have previously discussed. In terms of capital expenditures, we will focus on improving the efficiency of our investments and practicing strict management in finance and investments.

And regarding the MPV market, our strategy is straightforward. In the short term, we have no plan to launch an MPV model. However, in the long term, we will keep monitoring this lucrative market. Several Chinese brands have launched their high-end MPV models, while from the demand side, at least right now, the MPV segment remains quite a rich market. Thus, we want to explore this opportunity further and assess the strategy for this segment over the next few years.

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

I've got two questions. First, to follow up on the margin side. Next year's gross profit margin improvement will come primarily from increasing economic scale? Could we have some quantification over there? We observe that prospects from the product mix may decline slightly. Regarding our breakeven in Q4, does that assume the current lithium price, or does it reflect a normalization of lithium prices? My second question is about the City Pilot on the autonomous driving side. What's the timeline to push for City Pilot, and when do we expect our autonomous driving capability to improve significantly to support margins?

Thank you, Yuqian, for your question. Currently, it seems that the lithium carbonate costs are not dropping as expected in Q4. I believe this is not a supply problem because all the car companies currently have sufficient battery supply. Regarding lithium resources, we have seen some lithium resources entering the market and expect that next year, the cost of lithium carbonate will be around RMB 300,000 to RMB 400,000. In terms of company budget planning, we want to be conservative. Thus, our assumption is around RMB 400,000 for the next year. Regarding autonomous driving, I believe we will need time to see a significant contribution from autonomous capabilities to vehicle gross margin and overall margin. There are various factors at play, including feature and function development and legislative progress. We have noted some positive movement on the legislative front. For now, we expect that it may take 1 to 2 years for the autonomous driving technologies and legislations to mature. Hence, in the short term, we do not anticipate any substantial contribution from autonomous driving to vehicle gross margin and overall margin.

Our next question comes from an unidentified analyst from CITIC Securities. Please go ahead.

My first question is about inventory. The inventory stands at approximately RMB 6.7 billion in Q3, which is nearly double compared to Q2. Does this suggest there are around 10,000 additional inventory cars on your balance sheet? My second question is about the ET5, which received positive feedback in September. However, we've recently seen some negative remarks on social media regarding its energy efficiency. What actions will you take to address consumers' concerns?

This is Stanley. Regarding the increase in inventory in Q3, there are mainly two reasons. First, we increased our inventory of cars in Q3. Our production was negatively impacted by our supply chain in Q3. Moreover, we increased production of EC8 and EC6 in Q3. Second, we increased component inventory to secure production in coming months, storing more key materials like chips and other raw materials in Q3. So all those factors led to the increase in our inventory stock.

Yes, concerning the ET5, different types of tires can affect power consumption differently. Choosing performance tires will result in higher power consumption, while opting for long-range or low-resistance tires will improve power consumption performance. Additionally, we would like to point out that if you enjoy driving and handling and want to experience the acceleration of the EC5 in under 4 seconds, performance tires might be the right choice. However, if your priority is driving range, it's advisable to select long-range tires for better performance in that area.

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

The conference has now concluded. Thank you for attending today's presentation. You may all now disconnect.