Hello, ladies and gentlemen, thank you for joining the NIO Incorporated Third Quarter 2023 Earnings Conference Call. All participants are currently in a listen-only mode. Today's call is being recorded. I will now hand it over to your host, Mr. Head of Investor Relations of the Company. Please proceed.

Good morning and good evening, everyone. Welcome to NIO's third quarter 2023 earnings conference call. The company's financial and operating results were published in the press release earlier today and are posted on the company's IR website. On today's call, we have Mr. William Li, Founder, Chairman and the CEO; Mr. Steven Feng, our CFO; and Mr. Stanley Qu, Senior VP of Finance. Before we continue, please be kindly reminded that today's discussion will contain forward-looking statements made under the Safe Harbor provisions of the 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 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 NIO's press release, which contains a reconciliation of the unaudited non-GAAP measures to comparable GAAP measures. With that, I will now turn the call over to our CEO, Mr. William Li. William, please go ahead.

Please 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 NIO's press release, which contains a reconciliation of the unaudited non-GAAP measures to comparable GAAP measures. With that, I will now turn the call over to our CEO, Mr. William Li. William, please go ahead.

Hello everyone. Thank you for joining NIO’s 2023 Q3 earnings call.

In the third quarter of 2023 by making the most of a complete product line-up on the NT2 platform, the improvement of over our self-capacity and capability as well as the continuous expansion of self, service and power networks, NIO delivered a total of 55,432 premium smart electric vehicles, up 75.4% year-over-year. The retail stat from Cathart showed that in Q3 NIO ranked first in China’s EV segment with an average construction price of over RMB300,000 with market share above 45% in the segment.

In September, NIO launched and delivered the All-New EC6, a mid-sized coupe SUV upgraded to the second generation. It also marked the completion of NIO’s product line-up on the NT2.0 platform. In Q4, as the price war deepens and the competition gets tighter for Smart EVs, NIO delivered a total of 32,000 and 33 vehicles in October and November, up 32.2% from last year while maintaining our prices stable. In Q4, total deliveries are expected to be between 47,000 to 49,000.

Going forward, we will stay focused on executing self-strategies and improving operational efficiency. We believe the competitiveness of NIO’s second generation products will be further unleashed next year.

In terms of NIO’s financial performance attributed to the increased sales mix for higher priced models, decreased parts costs and improved economies of scale enabled by more deliveries combined with the refined management of sales policies, the vehicle margin in the third quarter reached 11%.

Next, I would like to share with you the recent highlights of our products R&D and operations.

On September 21st NIO held NIO Inc. NIO’s innovation and technology day. At the event, NIO’s 12 full stack technology capabilities covering the holistic business scenarios for Smart EVs from multiple brands and platforms were introduced to the public for the first time. In the meantime, NIO also unveiled China's first vehicle operating system SkyOS and the in-house developed LiDAR SoC named Yang Jian demonstrating NIO's systematic R&D capabilities leading the industry.

Regarding assisted and intelligent driving, NIO has been quickly iterating the system capabilities. On November 15th, Power Swap Pilot for Highway beta was released in China. So far, 29 Power Swap stations on highways already support this feature. PSP seamlessly combines NLP+ and Power Swap, bringing NIO users a hassle-free highway driving and battery swapping experience that is automated and intelligent from end to end.

In the meantime, NIO has rolled out the NLP+ for urban traffic, providing users with uninterrupted driving experience from point A to point B both on highways and on city streets. Enabled by NIO's generalization capability in-house and taking into consideration the high-demand routes on users' wish lists, we've started to roll out NLP+ for cities, route by route, from November, and will gradually realize wider coverage. At present, the NLP+ has been released to early-bird users in several major cities and is quickly becoming available for more routes and in more cities, which has far surpassed the target announced at NIO Inc. At our upcoming NAD Communication event, we will be sharing more information about that.

In terms of the sales and service network, so far we have 468 new house, new space, and pop-up stores in 152 cities, as well as 314 service centers and 62 delivery centers in 217 cities.

As for the charging and swapping network, to date we have installed 2,226 power swap stations, over 9,400 power chargers, and over 11,000 destination chargers worldwide. More than 1.46 million public chargers have been connected with NIO's charging map.

NIO's long-tested and well-proven battery swapping system has offered over 32 million convenient, efficient, and safe battery swaps to new users, making Power Swap the most trusted recharging solution for them. NIO Power Cloud and NIO's Power Swap Network have been opened to the entire industry. In November, NIO partnered with Changan Automobile and Geely Holdings respectively on battery swapping. In the future, NIO will join hands with more industry partners in such areas as formulation of swappable battery standards, battery swap network, R&D of battery swapping vehicles, and the management of battery assets, so as to provide the holistic, chargeable, swappable, and upgradable solution to more smart EV users and jointly contribute to the development and wider adoption of battery swap. NIO Day, NIO’s annual gathering with users will be held on December 23 in Xi'an, Shaanxi province. This year we will unveil a brand new flagship model, a real epitome of NIO’s innovative technologies. This product will become a technology benchmark for Smart EVs and a trendsetter of the Smart EV technologies worldwide. On September 26, with contributions to shaping a low-carbon industry where innovative EV battery swapping, NIO received the great innovation award of the 2023 Paulson Prize for sustainability. This award is a recognition of the novelty and expandability, as well as the economic and environmental benefits of NIO’s battery swapping technology and the business model. The 2023 NIO Cup Formula Student China, a racing car design competition for college students, was held from November 8 to November 12 in Hefei. NIO has been sponsoring and supporting the competition since 2015. So far, Formula Student China has cultivated more than 40,000 young professionals for China’s automotive industry, becoming one of the most important cradles of young automotive talent in China. The next two years will see the most intense competition during the transformation of the automotive industry. Faced with massive uncertainty in the external environment recently, we’ve sorted through and have adjusted our key objective priorities and action plans to become more focused on efficient execution and improvement of system capabilities. While ensuring long-term investment in core technologies, strong sales and service capabilities to navigate the intense market competition, we will continuously optimize internal working processes and the division of roles and responsibilities, stay focused on projects that can contribute to the company's financial performance, and comprehensively improve organizational efficiency and resource utilization. We are very confident of NIO's long-term competitiveness in the Smart EV industry. 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 third quarter. Over to you, Steven.

Thank you, William. I will now go over our key financial results for the third quarter of 2023. 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 earliest press release, which is posted online for additional details. Our total revenues in the third quarter were RMB19.1 billion, representing an increase of 46.6% year-over-year and an increase of 117.4% quarter-over-quarter. Our total revenues are made up of two parts, vehicle sales and other sales. Vehicle sales in the third quarter were RMB17.4 billion, representing an increase of 45.9% year-over-year and 142.3% quarter-over-quarter. The increase in vehicle sales year-over-year and quarter-over-quarter was mainly attributable to higher vehicle deliveries. Other sales in the third quarter were RMB1.7 billion, representing an increase of 55% year-over-year and an increase of 4.5% quarter-over-quarter. Gross margin in the third quarter of 2023 was 8%, compared with 13.3% in the third quarter of 2022 and 1% in the second quarter of 2023. The changes in gross margin year-over-year and quarter-over-quarter was mainly attributable to the changes in vehicle margin. More specifically, vehicle margin in the third quarter was 11%, compared with 16.4% in the third quarter of 2022 and 6.2% in the second quarter of 2023. The decrease in vehicle margin year-over-year was mainly attributable to changes in product mix, partially offset by decreased battery cost per unit. The increase in vehicle margin quarter-over-quarter was mainly due to changes in product mix, as well as decreased promotion. R&D expenses in the third quarter were RMB3 billion, representing an increase of 3.2% year-over-year, and a decrease of 9.1% quarter-over-quarter. The slight increase in research and development expenses year-over-year was mainly attributable to increased personnel costs in research and development functions, partially offset by the decreased design and development costs, and deduction of expenses due to support for technology advancement provided by local government authorities during the third quarter of 2023. The decrease in research and development expenses quarter-over-quarter was mainly due to the support for technology advancement provided by local government authorities during the third quarter of 2023. SG&A expenses in the third quarter were RMB3.6 billion, representing an increase of 33.1% year-over-year and an increase of 26.3% quarter-over-quarter. Loss from operations in the third quarter was RMB4.8 billion, representing an increase of 25.2% year-over-year and a decrease of 23.3% quarter-over-quarter. The loss in the third quarter was RMB4.6 billion, representing an increase of 10.8% year-over-year and a decrease of 24.8% quarter-over-quarter. Our balance for cash and cash equivalents, restricted cash, short-term investment, and long-term time deposits was RMB45.2 billion as of September 30, 2023. 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. Our first question comes from Tim Hsiao with Morgan Stanley. Please go ahead.

Thank you very much for taking my questions. I actually have two parts of the questions. The first one is about the battery swapping because a new development as just mentioned for the expanded strategic alliance in battery swapping from previous partners like Sinopec to Changnan and Geely. Could you share a little bit more about your plans of how to structure the new alliance of battery swapping and the potential financial impact like your CapEx and operating loss? So in the long term, will you consider spinning off the battery swapping business and operate it independently or even go public as a stand-alone third-party battery swapping or utility operator? So that's my first question.

Could you share more about your plans for structuring the new battery swapping alliance and the potential financial impact, such as your capital expenditures and operating losses? In the long term, will you consider spinning off the battery swapping business to operate it independently or potentially take it public as a standalone battery swapping or utility operator? That's my first question.

Thank you, Tim, for your question. Yes, recently we have announced the cooperation agreement with both Changnan and Geely on the battery swapping. And in terms of the battery swap network, the way we look at it is a bit similar to the cloud service or the cloud infrastructure. Both power swap stations and cloud infrastructure require and rely on the network effect. Both can have a pretty long investment cycle. And both actually started with the internal services first. After sufficient validations and verifying the demands and the fulfillment for our users' needs, we will then open up the service to the public. So after five years of validation and internal services, we believe that we are ready to provide such a network and a service to the industry. And it's about time to open up the network to the industry.

And as we all know that there are quite a lot of benefits with power swap. It is faster than charging and also it has better user experience. It also brings values and benefits to users and also to society. Especially in China, many users living in the urban environment or compound and apartments do not have a home charger. In fact, actually, more than 50% of our users cannot install a charger at home. In this case, battery swap becomes even more important and convenient for those users who do not have home chargers. This is also very important for the mass market brand because NIO is, after all, a premium brand and many of our users can still have chargers at home. But for the mass market brand, the percentage of not being able to have home chargers will be higher. That's why when we started to share our battery design standards and also specifications for the mass market brand to the industry peers, many of them are very interested in this alliance. We have already announced two agreements and there are several more that are still in negotiation. And also in terms of the business model for the power swap, we believe that it is sustainable both from the business perspective as well as from the financial perspective especially after 5 years of operations and validation we have confidence in the sustainability of battery swap. In terms of our battery swap network as we will continue to expand our power swap network there will be a CapEx also relevant to such network development. But in the meantime we are also looking for approaches where we may introduce partners into our power swap network. Basically, they will buy the battery swap station as a product from us and then they will install stations and hand it over to us for the operations. In this case, they will be holding this battery assets for us. There are a thousand of such stations already running based on this business model. For the longer term, we will also be looking for partners holding the battery swap station assets. In terms of NIO Power's charging service, it is already almost break-even. As you may know, that 80% of our power was charged for the non-NIO users. For the longer term, NIO Power charging will also be a profitable business. Actually, in certain areas and with certain charging stations, the operations with certain swap stations, the operations are already profitable. In terms of spinning off the power swap stations, there are some investors showing their interest into having the power swap business as an independent business. We are also in conversation with them.

Sure. Thank you, William for sharing all the details. My next question is about car manufacturing. As you just mentioned, NIO announced to acquire the production facility from JAC. First, does that mean NIO has been granted the manufacturing license? In the meantime, I think that means NIO officially shifted from the asset-light business model to asset-heavy. In the near term, how should we think about the unique cost of vehicle manufacturing from the fourth quarter onwards? I think previously you provided vehicle margin guidance for 50% for December quarter. In the long-term, do you still think that the full stack in-house development, production, and direct vehicle sales without relying on dealers would be the most ideal model for both NIO and ALPS mass market brand, or if there would be any major difference? That's my second question. Thank you.

Steven will answer this question.

Okay. So, Tim, you started with your question about manufacturing and car manufacturing. During this acquisition, the manufacturing agreements between NIO and JAC are still performed and stipulated. The production activities of the models in the corporation are going on normally. Going forward, if there is any change to the manufacturing corporation with regards to the rest of the models between NIO and JAC or other institutions that constitute significant information after this acquisition or in the future, NIO will communicate with and disclose to the capital market in a timely manner, complying with the right norms and regulations and the rules for listed companies.

And also to add to Steven's comment, if we bring the entire manufacturing fully in-house, overall speaking, our manufacturing costs will be reduced by around 10%.

Great. Thanks very much, William and Steven, for details. Thank you.

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

And also to add to Steven's comment, if we bring the entire manufacturing fully in-house, overall speaking, our manufacturing costs will be reduced by around 10%.

Thank you, Nick.

In this round of organizational optimizations, we have identified several principles because over the years of development, we have some low-efficiency positions and jobs and also some duplicated roles and responsibilities. In this case, we have identified these low efficiencies or redundancies in the organization. We've improved the processes of lower efficiencies and we've also eliminated jobs and positions that are duplicated or are of low efficiency. And also, in terms of the projects deferred or terminated, basically we look at the projects and their financial contributions. If they cannot bring any financial contribution in the coming three years, we will think about deferring them or terminating them. A quick example is regarding the in-house manufacturing of our batteries. We've identified that in the coming three years, bringing battery production in-house will not help us with the gross margin improvement. In this case, we have decided to defer the plan. We will still continue to do the in-house R&D of battery cells, battery materials, and battery packs. But we will outsource the manufacturing of the battery packs for better overall efficiency and performance. So for this round of optimization, we've done a detailed and thorough review and adjustments and also made the necessary adjustments based on the needs of the business and the resources of the entire company.

We have decided to postpone our plan for the gross margin improvement. However, we will continue our in-house research and development of battery cells, materials, and packs. To enhance overall efficiency and performance, we will outsource the manufacturing of the battery packs. For this round of optimization, we have conducted a detailed review and made necessary adjustments based on the business needs and the resources available to the company.

But in the meantime, we will still make sure that we don’t miss our – will dilute our investment and resources for the high-priority items for the coming two years. The first is the long-term investment for the core technologies so that we can still keep leading in terms of the product and the technologies. As mentioned earlier today, at the NIO Day 2023 we are going to unveil a brand new flagship model and this car will be equipped with a lot of state-of-the-art technologies that are leading the entire automotive industry. Our second priority is the continuous development of our sales and service network. Recently we have enlarged the sales teams. We have also increased the number of the points of sales so that we can get ready for the more intense competition in the coming two years, because if we don't make such preparations, we will not navigate the intense competition. An example is that in October in Shanghai, our sales volume has outnumbered that of BMW and Mercedes running on all power sources, including ICE cars as well as EVs. In cities from Jiangsu or Zhejiang provinces, we are also establishing a pretty solid foothold with a significant market share. But when it comes to lower-tier cities like 4th tier or 5th tier cities, we still have a long way to go. In cities where the EV infrastructure is not yet ready, we are also not outperforming those well-established brands. In this case, we need to continue to develop our sales and service networks. In terms of our sales performance in Zhejiang, Jiangsu, and Shanghai, actually 50% of our sales volume is contributed by the sales in these three areas. On the one hand, it shows that our products are well recognized in the highly competitive markets in these three places. On the other hand, it also means that we need to further enhance our brand awareness in the lower-tier cities. The third priority in the coming two years is to secure the on-time release of our NIO core products from the third brands. We have already made investments and the products of this third brand will be coming into the market very quickly in the coming two years.

Thank you, Nick.

Thank you. It's clear. My second question is about sales performance and margin, and how to evaluate these factors in relation to market competition while maintaining a 15% margin in the fourth quarter and aiming for a target of 20% to 22% for the 2022 margin into 2024 and beyond. Thank you.

Thank you, Nick. It's very clear. My second question is really about the sales performance and margin. How should we consider these two factors in relation to market competition while maintaining a 15% margin in the fourth quarter, and aiming for a target of around 20% to 22% for the 2022 margin into 2024 and beyond? Thank you.

Our strategy for the third quarter is pretty clear. That is to keep our prices stable. Earlier this year, in June we have adjusted our user benefits. Actually both our existing users and the new users were affected by this adjustment pretty well. So we may be the only company able to satisfy both existing users and the new users with a benefit of adjustments. Since then we have been keeping a pretty stable price strategy as we believe that it is beneficial to our brand image and also product competitiveness. Also user experience and benefits. As going into Q4, the price war steepens, and the competition also gets fiercer. For many well-established brands like our competitors BMW and Mercedes, they are also slashing prices pretty aggressively. Even on their EV models the price reduction can be as high as 31%. But we still keep a pretty stable price amid this fierce competition.

This stable price is also reflected in our improved vehicle margin. So our longer-term strategy will be keeping our price stable while continuously improving our vehicle margin. In the meantime, we will also improve our sales capacity, capability, and efficiency so that we can bolster our sales volume. But this can take time, and we will be staying patient. We will not realize or boost our sales volume at the cost of our product margin as this is not healthy for the longer run. Maybe Stanley can also add more information regarding the specific financial numbers.

Hi Nick. Our vehicle gross profit margin is 11 for Q3. And we are confident to achieve a higher margin in Q4 considering more production efficiency, lower price of lithium carbonate, and also decreased part costs. Our target is also still kept at 15% for Q4. From the long run, as an important project internally, we have started to further improve our cost structure for NT2 products by optimizing design, improving supply chain and production efficiency and also business negotiation with our partners. As mentioned by William, our new brand keeps focus on the premium market segment and we will keep product prices relatively stable. So combined all those factors together we believe our vehicle margin can be further increased to 15% to 18% in 2024. That's the general guidance for vehicle margin.

We have started to further improve our cost structure for NT2 products by optimizing design, enhancing supply chain and production efficiency, and negotiating better terms with our partners. As mentioned by William, our new brand focuses on the premium market segment, and we will maintain relatively stable product prices. Considering all these factors, we believe our vehicle margin can be increased to 15% to 18% in 2024. That's the general guidance for vehicle margin.

Also looking at our previous – margin for Q3, we actually managed to build a deeper margin that stood at 21%. So for a much longer term, we will also target actually a deeper margin.

Thank you.

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

Thanks Tim. This is Yuqian Ding here. I got two questions. Maybe we roll it one by one. The first one is on the cash position. We noticed the cash balance increasing quarter-on-quarter. Other than the strategic investment and the convertible bond, there is also still a 1 billion increase. Does that come from the improving operation? Can you shed a little bit more light on that?

Hi Yuqian Ding. This is Stanley. As the new product delivery wrapped up in Q3, we achieved positive operating cash flow. Going forward, if our sales continue to grow we are confident to realize healthy operating cash flow.

Okay. Got it. Thank you. The second question is on the OPEC reduction. Thanks for William's sharing on optimizing the battery business. We also read there is a headcount cut. Could you share more on whether there will be asset write-offs during the process of the cost optimization? And when would we expect us to reach a lean yet sustainable shape?

Hi Yuqian. About the cost optimization. We reduced 10% working positions and completed the adjustment in November. But for Q4, there will be almost no financial impact since we need to pay additional compensation for the employees who left the company. Offset with less payroll cost. But for next year together with the headcount reductions, we also delayed or canceled certain projects as mentioned by William. So the total impact on 2024 will be a total cost of around RMB2 billion.

Hi Yuqian. Regarding cost optimization, we reduced 10% of our workforce and finalized those changes in November. However, in Q4, there will be minimal financial impact due to additional compensation for the departing employees, which will be balanced by reduced payroll costs. Looking ahead to next year, alongside the headcount reductions, we have also postponed or canceled several projects as William mentioned. Therefore, the overall impact for 2024 is expected to be around RMB2 billion in total costs.

Around 200 million. Yes. This round of optimization has helped us to improve the financial performance slightly over our previous budget. However, we do need to have some one-time expenses due to the severance package for the terminated employees.

Got it. Thank you. Thanks William and Stanley.

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

Hello William and management. Thank you for taking my question. My first question is regarding your second brand, ALPS, in 2024. In the future, will you consider sharing the charging station and the battery swap station along with the NIO brand? And also, will you also consider to share the sales channel with the NIO brand? Thank you.

Thank you, Ming.

Yes. When it comes to our mass market brand the – out. Actually recently we have just had the very first validation field of this brand real of the production line actually of the condition of this verification view this is pretty good. It can be maybe one of the best VB cars we have in the history of NIO. So we are very confident in the competitiveness of this project. And before the official launch and the delivery we still have time to continue to optimize and improve the project. In terms of our power swap and charging network strategy, for NIO, our battery swap network will be coming in two parts. The first is the exclusive network for NIO and NIO users. The second will be a shared network, not only for NIO users, but also for ALPS users and other brands with swappable vehicles. In terms of the charging network, we have been sharing our chargers already with many non-NIO brands. In terms of the self-network, this will be separated. So they will have their own self-stores. But we will be sharing the service capacities and the facilities. So service centers will be shared between NIO and ALPS.

Thank you, William. Thank you. My second question is regarding your 2024 product. Because this year you already updated all of your new models and also launched some new models. So in 2024, will you have some facelift version of the existing model and start to use 800-voltage charging system on your car? In this case, do you have any guidance about the battery swap station you will expect? Thank you.

Thank you, William. My second question is about your 2024 product. Since you have already updated all of your new models and launched some new ones this year, will there be any facelift versions of the existing models in 2024, and will you start using an 800-volt charging system in your cars? Also, do you have any guidance regarding the expected battery swap stations? Thank you.

Yes, it's a common standard and practice for the automotive industry to have model years or facelifts. But for our NT2 products, we will not have any major modifications or upgrades. As many of them were just newly launched or delivered to the market. To stabilize our quality and the supply chain, we will only make minor improvements and upgrades on our NT2 products. In terms of our plan for the power swap stations in 2024, as I've mentioned, we will not only build our exclusive battery swap network but also a battery swap network for sharing. On the one hand, we will build this power swap network for other brands that can be shared with other brands. In the meantime, we will also continue to look at the demand of our NIO users. So that if there are any requirements for high-demand stations or locations, we will also install stations there. But we are still working on the specific plans and the numbers.

Thank you, William.

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

Hi, thanks. Thanks for taking my question. My first question is regarding your sales force, sales team. I think in last quarter's earnings, you mentioned that you are going to significantly increase your sales people's headcount. May I double-check how this has been proceeding at this moment? Have you achieved your original target of expanding the sales team or have you adjusted your original plan?

Thank you, Paul.

At the present, for our frontline fellows, we have a team of around 5,700 persons. But many of them were just newly on board. Around 3,300 of them were newly on board into the company. It still takes some time for them to really get to know the brand and also get familiar with the entire sales processes. Because for the newly hired fellows, we will spend around one month and a half on the trainings. Afterward, we can start to sell vehicles to our users. According to our history data, a seasoned fellow on average will need to spend around six months to be familiar with the brand and the processes and will become a real sales force for the company. So we need to be patient with these newly hired fellows, as many of them just joined the company in September and October. But in the meantime, we will also be completing and improving our assessment and evaluation systems and our training systems. We will also bring these fellows more efficient tools so that they can really make full use of their sales capacity and capability.

Thanks. My second question is regarding the R&D spending. I think this quarter you had about RMB300 million, quarter-over-quarter decline on the R&D. And the explanation is some incentives from the local government. Can you quantify that number? And more importantly, going forward, what would be your projected quarterly R&D spending?

Stanley, you answer the question.

Yes. There are some slight decreases, considering the support we received from the local authorities. But in the long run, as we mentioned during the past earnings quarter, our non-GAAP R&D investment per quarter will also be kept at RMB3 billion to RMB3.5 billion. As mentioned by William in the previous statement, we will also ensure investment in core technologies and also the advantages of technology and product, and guarantee the timely launch of the new product. Therefore, investment in R&D will not decrease. There will be a slight fluctuation across different quarters.

Thank you. That's very helpful. Thank you.

The next question comes from Cheng Jing with CICC. Please go ahead.

My first question is about autonomous driving. We opened a wish list submission in September. Using group intelligence, we are working to expand the NOA function in NMAP cities, which is somewhat different from other OEMs that approach it city by city. Can you share our plans for implementing the NOA function in urban areas? Additionally, considering our goal of achieving a cumulative mileage of 60,000 kilometers by the end of this year, what is our current progress?

Thank you, Cheng Jing.

In terms of NIO's NOP Plus for cities, actually, we leverage our generalization capabilities as well as the crowd-sourcing AI capabilities so that we can roll out this NOP route by route for our users based on their demand. Of course, in the meantime, we have also formulated the data closed-loop capabilities where we can really leverage all this data coming from the generalization and also crowd AI. At NIO Inc, we have announced that by the end of this year, we are going to open up the route covering around 60,000 kilometers of mileage. So far, our progress is pretty good. We already have established the capabilities of releasing NOP Plus for early-bird users in more than 100 cities. We will be rolling out such a service and invite our users into the program step by step so that it can cover more cities with more users gradually. Of course, in terms of city-based or road-based autonomous driving or NOP, we will see some of our peers have some marketing slogans regarding their services. But we believe that NOP Plus, especially NOP Plus for cities, is a pretty serious service. We would like to make sure that our users have a safe and also good experience. We will roll out the service and its coverage step by step. Overall speaking, our progress has far surpassed our expectations. We already have more than 100,000 vehicles running on the road. This will also help us to further formulate and improve our data closed-loop.

We believe that NOP Plus, particularly NOP Plus for cities, represents a significant service. Our goal is to ensure that our users have a safe and positive experience. We will gradually introduce the service and its coverage. Overall, our progress has exceeded our expectations, with over 100,000 vehicles already in operation. This will also assist us in further developing and refining our data closed-loop.

Especially for every new NT2 vehicle, it is standard with 4 Aurene chips and also 33 high-performance sensors. This will further help us to formulate the data close loop and improve the data capabilities and in return we will also accelerate the capabilities for iteration. This is also a very unique advantage of NIO, which is quite different from any other competitors offering a similar service.

My second question is about the overseas market. Will it continue to be one of our strategic focuses? Can you provide a brief overview of the current operating situation of our overseas market this year in terms of sales volume, our layout program in key regions, the status of our dealerships and infrastructure, as well as our targets and plans for next year?

So my second question is regarding the overseas market. Will it still be one of our strategic focuses? And can you briefly introduce the current operating situation of our overseas market this year regarding sales volume, our layout program of our core regions, the dealerships and infrastructures, and our target and plan for next year?

At the moment, in five European countries, we have opened six new houses, eight new spaces, two multifunction service centers, and also partnered with 54 authorized service centers. We have also installed 30 power swap stations in five European countries. But in terms of our business development in Europe, we are still at the early stage of the business development and expansion. We want to continue to test the water and ensure we have good user experience before we scale our operations and the business there. That's why volume is not a priority for us in terms of our European business. In the coming year, we will continue to stay at this stage. We will make sure that our capability and capacity are sufficient to serve our users in Europe before we start to work on a higher scale.

Thank you.

Our next question comes from Jason Getz with Mizuho Securities USA. Please go ahead.

Hi guys. Thanks for letting me ask the question. You talked a couple of months back about 20,000 vehicles a month in December. We are running a little bit below that now. What have been the biggest headwinds there? Has it been some production challenges, maybe broader macro weakness? And then what would it take to get to that 20,000 units? And how should we think about the run rate moving through 2024 with the new Salesforce?

Hi guys. Thanks for letting me ask the question. You mentioned a few months ago about reaching 20,000 vehicles a month by December. Currently, we are slightly below that figure. What have been the main challenges? Are there any production issues or broader economic factors at play? What would be required to reach 20,000 units? Additionally, how should we view the run rate as we progress through 2024 with the new Salesforce?

Thank you for the questions. As we have mentioned earlier today, in the premium battery electric vehicle segment priced over RMB200,000 NIO has realized a 45% market share in the third quarter of this year. Actually, our market share in this segment has been pretty stable around 40%. This has proven that we have a relatively solid foothold in the premium BEV segment. We have a pretty significant also stable market share already established in the segment. But when it comes to convincing users of premium ICE costs of buying a premium EV, it is actually more difficult than convincing a mass market user, because for the mass market user buying a car of RMB100,000 or RMB200,000, they pay attention to the ownership cost and also the usage cost of the product. The second reason that may be affecting the wider adoption of premium BEV is regarding the coverage of infrastructure. I've also shared in the Yangtze River Delta areas, mainly Shanghai, Jiangsu and Zhejiang, we have a pretty significant market share. Our sales volume has outnumbered that of BMW, Audi, and Mercedes with their ICE car sales. A very important reason behind this is because we have 700 power swap stations already established in this area. So infrastructure is also playing a very important role in boosting the sales volume and the adoption of electric vehicles. So far in China, we have already installed over 2,000 power swap stations, but roughly 700 of them are along the highways. In some regions and areas, our power swap stations are still not widely accessible. In this case, we will need to also speed up and enhance our infrastructure coverage so that we can further boost the wider adoption of electric vehicles. So basically, the two main reasons. The first is regarding the consumption habits of the premium vehicle users, and the second is mainly because of the coverage of the infrastructures for electric vehicles. But we believe that this trend of convincing ICE users of buying EVs or this overall trend of transforming into battery electric vehicles, will be picking up its speed. Because we also find that some of our peers and competitors, before they only had hybrid vehicles or range-extended vehicles, but now they are also launching their battery electric vehicles. Such strategy will also push the transformation of the entire industry. We are actually happy to see such transformation. Many car companies are now also installing and expanding their charging network, and NIO is working on our battery swap network. With wider infrastructure, we will also boost the adoption of the battery electric vehicles. Overall speaking, we believe that 2024 will be better off than in 2023, because in 2024 we will also be having a more stable product portfolio without frequent product launch and delivery, which has also slightly disturbed our overall execution.

Got it. Thanks. And then a quick follow-up. On the battery swap partnership side, is there any kind of design changes that your partners would have to do to their vehicles in order for them to use the swap stations? And if so, have you guys talked about what percent of mix of vehicles they produce might need to be kind of changed or edited in the production process in order to do battery swapping?

Got it. Thanks. And then a quick follow-up. On the battery swap partnership side, is there any kind of design changes that your partners would have to do to their vehicles in order for them to use the swap stations? And if so, have you guys talked about what percent of the mix of vehicles they produce might need to be changed or edited in the production process in order to do battery swapping?

Actually, we have shared the battery specs and also the design details of our battery packs for the mass market brand with our battery swap partners. They will need to design and engineer their vehicle products, mainly chassis interfaces, following our battery standards. It will take some time for them to decide on the right models and complete the product R&D. But the overall investment and R&D expenses for developing such new models based on our battery standards won't be very high.

Got it. 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 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 today's conference call. You may now disconnect your line. Thank you.

Thank you.