NIO-SW (09866) Q2 2026 Earnings Call Transcript

Hello, ladies and gentlemen. Thank you for standing by for Neo Incorporated's Second Quarter 2026 Earnings Conference Call. At this time, all participants are in listen-only mode. Today's conference call is being recorded. I will now turn the call over to your host, Mr. Roy Chen, AVP and Head of IR, Corporate Finance, and Strategic Investment of the company.

Please go ahead, Roy. good morning and good evening everyone welcome to new second quarter 2026 earnings conference call the company's financial and operating results were published in the press release earlier today and i posted on the company's ir website on today's call we have mr william lee founder chairman of the board and chief executive officer and miss denny chu chief financial officer before 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 views expressed today. Further information regarding risks and uncertainties is included in certain findings 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 news earning 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 Lee.

William, please go ahead.

Hello everyone, and thank you for joining Neal Inc.'s 2026 Q2 Earnings Call. In Q2, the company delivered a total of 107,658 smart EVs, achieving year-over-year growth of 49.4%. In Q2, the new Envo and Firefly brands all achieved year-over-year and quarter-over-quarter growth in both sales volume and average transaction price. More specifically, the new brand delivered 60,945 vehicles, leading China's passenger vehicle market with transaction prices above 350,000 RMB across all powertrain types. The Envo brand delivered 29,124 vehicles, demonstrating strong growth momentum, and the Firefly brand delivered 17,589 vehicles, maintaining its leadership in the high-end compact car market. In July and August, the company delivered 35,534 and 35,836 vehicles, respectively. In Q3, the total deliveries are expected to range between 108,000 and 111,000 units. On the financial side, in Q2, the company's growth margin stood at 18.4%, Driven by continued strong performance from the higher margin products and ongoing cost optimization, despite pressure from sharply rising raw material and chip costs, the vehicle growth margin remained solid at 18.5%. The growth margin of other sales was 17%, with services and community-related businesses continuing to contribute to profitability. In Q2, the company continued to generate non-gap operating profit as well as positive operating cash flow and free cash flow, further increasing its cash reserves to 56.7 billion RMB. This helps strengthen the company's business fundamentals, while laying solid groundwork for its long-term, sustainable development.

Now, turning to our product, R&D, and operations. 更好地满足用户多元化全场景的出行需求 全新S8上市以来市场表现持续强劲 上市335天即实现第14万辆新车交付 在40万级乘用车市场以及大型SUV市场均保持领先 在截拦路用户近推荐值的研究中 未来S8位列纯电车型第一 实现销量与用户口碑的双冠军 With this, the technology-owned Suv-1 S9 is started in the pandemic in the 5th and 6th century. The U.S. market market market market market market price is the first one in the US and 6th and 7th.

The stock market market market market market market market market market market is the leading role of the new brand. for the new brand on july 9th the flagship suv es9 launched and began deliveries of the five seat version catering to more diverse user needs and scenarios with its five seat layout and spacious interior the es8 has maintained strong momentum since launch and achieved the 140 000 units delivery milestone in just 335 days, leading China's passenger vehicle segment in the 400,000 RMB price range and the large SUV segment. In the net promoter score survey by Land Roads, the new ES8 achieved the highest NPS among BEVs, ranking first in both sales volume and product reputation. In the meantime, the flagship executive SUV ES9, which began deliveries in late May, has started winning over users from traditional luxury fuel-powered SUVs, leading in self-volume among passenger vehicles with transactional prices above 500,000 RMB in June and July.

The continued strong performance of new brands' flagship models has further strengthened its leading position in the premium BV market. 纯电大型SUV市场位列第一 乐道L80持续稳定交付 依托出色的专载空间与场景化的产品力 获得用户的广泛认可 二季度依托L90和L80突出的产品优势 乐道品牌在成交价30万以内的大型SUV中位居第一 同时更新迭代后的L60实现了全面的升级 to match the target users' needs, and the overall product has become an effective support.

For the Anwo brand, the L90 surpassed 60,000 deliveries within its first year since launch, ranking number one among the large battery electric SUVs priced around 300,000 RMB. The L80 continued to see steady deliveries, winning broad recommendations with its exceptional cargo space and scenario-based functionality. In Q2, leveraging the outstanding product strength of the L90 and L80, the Envo brand became the sales leader among large SUVs priced below 300,000 RMB. In addition, the upgraded L60 better meets the needs of its target users, further strengthening Envo's sales momentum. The Firefly brand has been number one in market share among high-end compact cars for 15 consecutive months, maintaining its leadership in the segment. Its precise product positioning and unique brand identity continue to win the hearts of target users.

Thank you very much.

In terms of smart driving, on June 18, the latest version of new word model was rolled out to over 700,000 Neo and Envo users. As the second major release this year, the new version further leveraged the word model architecture and closed-loop reinforcement learning, delivering significant enhancements in functionality and user experience. user adoption has continued to grow. Since the upgrade, new users' mileage with urban NOP has increased by 92.8%. The upgrade also covered all Envo users whose mileage with urban NOA increased by 127.8% following the upgrade. Powered by leading model algorithms, systematic architecture, and strong engineering capabilities, NIO is the industry's first car company to develop and roll out smart driving systems in parallel across general purpose and proprietary chip platforms, with a common software branch and synchronized releases. Users across different technology platforms and brands can enjoy a continuously evolving industry-leading smart driving experience throughout the vehicle lifecycle. On the sales and service front, So far, the company has 165 new houses, 376 new spaces, 441 almost stores, as well as 420 service centers and 93 delivery centers. In J.D. Power's 2026 customer service index study for NEVs, the new brand ranked number one among both premium brands and Chinese brands, maintaining its top position since the rankings were first introduced. Our high-quality services have earned widespread recognition from both the industry and users. in terms of the power network at present the company has 4,123 power swap stations and 30,294 power chargers and destination chargers worldwide. On August 7th, NIO's 4,000th power swap station went live, marking the launch of its first fifth-generation station. The fifth-generation can support battery swaps for all models of NIO, ANWO, and Firefly, covering a wide range of vehicle sizes, from compact cars to full-size SUVs. With significantly enhanced operational and service efficiency, the fifth-generation station is able to provide enhanced external services and support open operations. Leveraging standardized power operations at scale, the company is also exploring value-added businesses, such as electricity trading, further unlocking the commercial value of battery swapping. On July 23rd, Niu was named by Time Magazine as one of the world's most sustainable companies of 2026. Becoming the only Chinese automaker on the list, we will continue to advance our BEV roadmap, shaping a more sustainable and brighter future with our users. As China's automotive market enters a new phase of competition, the landscape is undergoing going several important changes. First, with the rapid growth of BEV penetration, BEVs have become a mainstream power train in the market. Second, the industry is moving from a period of brand ambiguity toward greater brand clarity, with brand becoming an increasingly important factor in consumers' purchasing decisions. Third, the final round of competition is shifting from product-level competition to competition in comprehensive system capabilities. For years, we have remained committed to the premium BEV strategy and have been building our system capabilities. This puts us well aligned with the industry's evolution and positions us for a new phase of high-quality growth. We are confident in achieving our operating targets.

Thank you for your support. Now, Stanley will introduce you for the second year's business development. I'm Stanley.

Thank you for your support. With that, I will now turn the call over to Stan Lee for Q2's financial details. Over to you, Stan Lee.

Thank you, William. Let's now review our key financial results for the second quarter of 2026. Our total revenues reached 32.1 billion RMB, up 69.1% year-over-year, at 25.9% quarter-over-quarter. Vehicle sales were 29.1 billion RMB, up 80.1% year-over-year, and 27.5% quarter-over-quarter. The year-over-year growth was mainly due to the increased delivery and a higher average selling price, driven by a more favorable product mix. The quarter-over-quarter increase was driven by higher deliveries. Other sales were 3.1 billion RMB, up 7.2% year-over-year, and 12% quarter-over-quarter. The year-over-year growth was driven by increased sales of parts, accessories, and after-sales vehicle services, partially offset by decreased sales of used cars and technical research and development services. The quarter-over-quarter increase was due to increase in revenues from used car sales and parts, accessories, and after-sales vehicle services sales. Looking at margins, vehicle margin was 18.5%, compared with 10.3% in Q2 last year, and 18.8% last quarter. year. The year-over-year improvement was driven by a more favorable product mix, while quarter-over-quarter vehicle margin remained stable. Overall gross margin was 18.4% versus 10% in Q2 last year at 19% last quarter. The year-over-year increase was mainly due to the increased vehicle margin, and the quarter-over-quarter slight decrease was mainly due to gross margins from vehicle sales, provision of power solutions, and sales of parts, accessories, and after-sales vehicle services. Turning to OPEX, R&D expenses were 2.1 billion RMB, decreased 28.7% year over year, and increased 13.8% quarter over quarter. The year over year decrease was mainly driven by lower personnel costs in R&D functions due to organizational optimization, reduced design and development costs from different development stages, and improved operational efficiency. The quarter over quarter increase was mainly due to the incremental design and development costs for new products and technologies, as well as the increased personal costs in research and development functions. SG&A expenses were 4.4 billion RMB, increased 11.6% year over year, and 22.5% quarter over quarter. The year over year increase was mainly driven by increase in sales and marketing activities associated with new product launches, while the quarter over quarter increase This also reflected increased sales and marketing activities associated with new product launches as well as higher personnel and related costs for marketing functions and share-based compensation for general corporate functions. Loss from operations was 0.3 billion RMB, down 92.9% year-over-year and up 12.4% quarter-over-quarter. Excluding share-based compensation expenses, adjusted profit from operations was 0.2 billion RMB. Net loss was 0.5 billion RMB, showing a decrease of 89.4% year-over-year and an increase 59% quarter-over-quarter. Excluding share-based compensation expenses, adjusted net profit was 26.1 million RMB. Furthermore, our positive operating cash flow grows substantially and we achieved positive free cash flow. Our cash position strengthened further with 56.7 billion RMB in total cash and cash equivalents. restricted cash, short-term investments, and long-term time deposits. That wraps up our prepared remarks. For more information and the details of our audited second quarter financial results, please refer to our earnings press release. Now I will turn the call over to the operator to start our queuing session. Operator? Thank you.

Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. For the benefit of all participants on today's call, please limit yourself to two questions. And if you have additional questions, you can re-enter the queue. Your first question comes from Bin Wang with Deutsche Bank.

Thank you.

My question is about the order flow sustainability about your ESA and ES9 SUV. We noticed that in the premium SUV markets, some of your peers, competitors, although it's shown live on a few several months.

So can you explain why that and how NIO differentiates to facing the competition in the high-end premium SUV market?

Thank you.

Thank you, Wang Bin. Thank you very much. will come to the next 15,000台交付. So in a year's time, we will be able to get over 15,000台. So its demand is very strong. We先 talked about the Chinese car industry because the new product is too fast, so very rarely have cars can continue to sell. So ES8, our new ES8, it broke the industry of this situation, Thank you for the question.

Regarding new flagship models, including the YES-8 and YES-9, they will continue to see strong demand. For the YES-8 in August, we delivered around 10,099 units. And in 11 months, we have delivered more than 140,000 YES-8. And in September, it's going to witness its next milestone of 150,000 deliveries, which means that in less than one year since its launch, it has already surpassed 150,000 unit delivery. So the demand for the models are pretty strong. And as previously, we've talked about how the products are quickly iterated and introduced in the Chinese automotive market, where for a new model in the market, it's normally difficult. We're having difficulty to lost its popularity and attention by the market.

But for the ES8, it may be the first model that is breaking away from this market trend. monthlonal risk related to chez民 to ECP waiting for 3 months 한by 5 months And they are still notительit As you can see in the short vous l are rising We really need to see what happens in October And this is what happens in May But back applying 7 month Then we're seeing 위해서ator

And regarding our flagship executive SUV ES9, it also sees strong demand since its launch, especially for the Horizon Edition and the Signature Edition. Right now, for users placing an order, they will need to wait for three months or nearly four months to pick up a new car. And if we look at the sales number of the ES9 in August and July, as in July we were still consuming some pre-orders, but if we are making a comparison between the incremental orders in July and August, we actually have seen a growth from July to August. So we are also confident in the continuous popularity and also demand for the ES9. And also, one thing worth noting is that around three quarters of the ES9 users are actually from non-existing new users, from users outside of the new user community, this also shows that the ES9 has successfully reached out to a broader user base. And there are several reasons for the popularity and the demand for the ES9. The first is the technology innovation. On the ESMI, we have introduced or debuted several thousand of industry-first or industry-leading technologies. And tech innovation still so far has a very important competitiveness and also differentiation of our products. Secondly, the product definition has precisely catered to the needs of the users in the premium segment, especially users buying the car for their business needs and also for their family occasions, where our cars have catered to both their emotional as well as functional needs. And our users also speak highly of the product experience. And the third is the holistic and one-of-a-kind experience enabled by our charging and swapping network as well as our after-sales services, which are actually a systematic capability difficult to replicate by the competitors. According to the Land Road recent study on the aftermarket satisfaction on the new energy vehicles, we've been topping the list for three times consecutively. And also in J.D. Power's recent research in terms of the post-market satisfaction on the new energy vehicles, We are also ranking the first for several years in a row.

So for the premium segment, such experience centering on the services and post-market services are also very important. 参数现在已经转向了选品牌 先选品牌 那我们在高端的纯电的这个市场已经建立了一个 这个建立了一个品牌的新制 那用户其实也形成了广泛的形成了一个

BBA的下一辆选未来 高端的纯电选未来 这样的一个市场的共识 如果去看这个我们未来品牌在构车 And the fourth one is, as also previously talked about, the entire automotive market is now shifting from a period of brand ambiguity to a period of brand clarity. where users' purchasing decisions was previously largely based on the specifications of a product, and now their decision is mostly driven by the brand. And in that case, NIO has also established a pretty solid foothold and a clear brand awareness in the premium battery electric vehicle market. Among many users, they naturally believe that if they are going to choose a car to replace their existing Mercedes, BMW, and Audi, and the NIO will be their natural choice. And if they're looking for a premium BEV model, then NIO is also their go-to car. Among our existing NIO users, we've also studied their purchasing decision, where we find that the brand reputation and awareness is already accounted for more than 30% of their purchasing decision. This has further proven our solid foothold in the premium BEV market.

If we look at the numbers by the Insurance Association, In Q2, the average selling price of the new brand was 406,000 RMB, far higher than the prices of Mercedes, BMW, and Audi, and ranking the first among all the mainstream premium

brands. And in July, the average selling price of the new brand was over 430,000 RMB. We believe that the scarcity of such a premiumness of our brands as well as the competitiveness of our brands across all three brands will also become a long-term foundation for our competitiveness. going into the future.

Thank you, Longbin.

Your next question comes from Tim Sao with Morgan Stanley.

Hi, this is Tim from Morgan Stanley. Thanks for taking my questions in Congress on the third consecutive profitable quarter. I have two questions. The first one is about OnVote. Because compared to the robust growth of the NEO and the Firefly brands, We noticed Envo's customer conversion and older momentum have been relatively moderate to RAM since launch. So I just want to know that how's the progress in recent adjustment to customer incentive and selling strategies? And looking forward, what further changes would management plan to effectively improve Envo's older momentum? Yeah, that's my first question.

Thank you, Tim. Angle's market competition has to be a lot of激烈 This is with NIO and FIFLIGHT相比 It is a very激烈 competition competition Whether it's from the product of the amount Or from the car型 of the amount It will be a lot of If we look at Angle's market competition Until now取得的成绩 Actually, if you look at a different market from a different market, it's very good.

Thank you for the question. It's true that Envo is actually in a more competitive market than Neo and Firefly, where the level of competition, the intensity level of competition in terms of the number of brands and also the number of models are also much more intense than that of Neo and Firefly. But if we look at the Envo's overarching performance since its launch, especially from its specific segment and market, it has actually done some good progress and achievements.

Actually, in China, only eight companies have achieved the price and the price. The one that is the one that is the one. So from this perspective, the average average average price has surpassed a lot of traditional quality products. So I think as a high quality product, it should be a better approach to the product. It should be a better approach to the product.

In terms of the, if we look at the average selling price of the Envo products, as we all know that the passenger vehicle market in the first half of this year was a bit challenging. And even amid these challenges, Envo still achieved an average selling price of 240,000 RMB, achieving also significant growth year over year. And in the first half of this year in the China's automotive market, only eight brands managed to achieve increase both in their sales volume as well as the average selling price, where Envo is one of these eight brands. So in terms of the average selling price, Envo is even outperforming some traditional luxury brands. So if we perceive Envo as a premium family-oriented brand, it is actually achieving a pretty good baseline from this brand definition perspective.

So he actually bought our car's success rate is quite high. This can also be seen as our main challenge now is the source of information. Now the source of information of the source of information is the future of the company's future.

So next, we hope that we can through more and more actively and more actively through cross-country cooperation, And in terms of the overall product competitiveness, we also see some good progress and also foundation, especially a good conversion rate from sales leads and opportunities all the way to orders, which means that when users get to know about the brand and products, it's also more possible and likely for them to place an order on the Envo product. So right now for the Envo brand, the challenge is more about its overall brand awareness, where its current brand awareness is maybe comparable with NIO's awareness around five to six years ago. So right now our focus is also to enlarge the brand awareness and also the popularity through also different collaborations, offline activities, and also engagements with more targeted communities. and the second actions we are taking is to keep rolling out our sky stores where we can host the new Envo and Firefly brands under the same roof with that we are able to further expand our sales network and also to really introduce our Envo brand to more users in the lower tier cities

第三个的话呢我们还是接下来呢还是会持续的推出这个新的 产品去服务更广泛的家庭用户群体当然方向上来讲我们还是会 第三个的话 我们还是接下来 还是会持续的推出新的产品 去服务更广泛的家庭用户群体 当然方向上来讲 我们还是会保持乐道 作为一个高品质家庭用车品牌的 这样一个定位 我们不会进到太低的这样一个市场 还会平衡量和毛利的关系 总的来说的话

And the third action is to also introducing new on-wall products so that we can also reach out to broader family user base. But in the meantime, we will still maintain Envo's positioning as a premium, high-quality, family-oriented brand. So we will not be very aggressive in entering into the entry-level segment. We will still strike a balance between the sales volume and also the vehicle growth margin. Right now in the Chinese automotive market, we actually see a vacancy where there is no such brand that is comparable with the upscale product lines of Toyota or Volkswagen that can serve the needs of the family users. This is where we see the opportunity for Anvil to develop its awareness in that specific segment.

Tim, thank you.

Thank you, Raylan, for sharing the details. My second question is the quick one. Just want to know that if management can share next year's new model, refresh, and the key launch milestones uh for the uh the neo envo and the firefly the three brands on that group yeah that's it thank you uh thank you tim uh will continue to enrich our products.

From FiveFlight's perspective, we still have this brand, FiveFlight brand is just this one. Of course, this is a special brand. We will continue to continue. In general, FiveFlight is a little like iPhone. It will continue to have a new special brand.

Thank you for the question. For the new brand, for next year we will be introducing new products coming from the five and the six series product lines. I believe that the market is also aware of some of our latest plans. Where for the Envo brand, next year we're going to introduce a major strategic new product that will also help to enrich our existing product lineup. And for the Firefly brand, we will keep this single model strategy but keep rolling out special editions and also technology upgrades. So for Firefly, it's a bit like taking the iPhone approach where it will stay in this same product but with new editions.

Thank you, team. Thank you, Rayleigh.

Your next question comes from Paul Gong with UBS.

Hi, Rayleigh. Thanks for taking my question. My first question is regarding your vehicle growth margin outlook for the next two quarters. Some bits are ongoing cost inflation. We're aware that the memory costs continue to go up. And I just want to listen to your thoughts. How does that impact the vehicle growth margin?

It's true that since this year the cost structure of the automotive industry has been under pressure and for the company we've been facing pressure coming from the rising material costs including memory chips batteries and also other bulk materials and if we look at the cost in q2 as well as the cost in late q4 last year the average cost impact or cost increase is around to 14,000 RMB per car. VEVE等措施,总体来讲我们基本上实现了一个整车18.5一个相对稳定的毛利率 And also in Q2 we've taken a series of efforts to stabilize our vehicle margin and under the rising cost pressure and as previously mentioned we've been actually using a taking a very stable pricing strategies for our products, we didn't really lower the price in exchange for the sales volume. And secondly, on the supply side, we've been working with the supply chain to take a series of optimization measures, VAE efforts, as well as commercial negotiations. With all these efforts combined, we managed to stabilize our vehicle margin at 18.5% in Q2. And going to the second quarter, we We expect the material cost to continue to increase by another 2,000 to 3,000 RMB. But we will also take a series of content measures to mitigate this risk. In Q3 and Q4, we hope to stabilize our equal growth margin at the same level as interested.

So my second question is, despite all this cost pressure, You have done significant improvements in terms of profitability over the past one year. My question is, what gives you management confidence that these improvements are sustainable rather than, say, cyclical?

We also mentioned that the future of the product of ES8 and ES9 is very stable. And the entire high-end market market is very high. The two cars in the portfolio is very high. The two cars in the portfolio is very high. It's over 20%. So it's our total value.

Thank you for the question. It's true that we need to take a comprehensive measure towards that. The first is that, as also mentioned by William, the automotive competition in China is now shifting to more brand-driven, and for the new brand, our Yes9 and Yes8 are still seeing pretty stable demand and also with significant market share in their respective segment. These two models, they are also making major contribution in our product mix, as well as vehicle margin, as both of them have over 20% vehicle margin, and this will be our foundation for the overall performance. And the second is to keep rolling out optimizations towards our cost structure by making more accurate product definition and also by working on the cost reduction opportunities together with our supply chain partners these are the efforts that we've been working on in the past several quarters and internally we've been doing all this decoupling and decoupling analysis of our R&D and also supply chain capabilities putting them into the atomic granularity identifying also opportunities for continuous cost reduction and we will also keep up this good work.

So there is very much growth rate So we're going to go back to the next year.

And as mentioned, the Chinese automotive industry has been under cost pressure, but even amid all these challenges, the company has still managed to achieve high-quality growth, as shared by Stanley, some of the efforts we've been taking to secure the long-term and sustainable growth of our business. And I'd like to also share some numbers. In the first half of this year, our sales volume increased by 67% year-over-year, where our total revenue increased by 86% year-over-year. That is faster than our volume increase. And in terms of our gross profit, it increased by 282% year-over-year, much faster than the growth of our revenue. And this is amid all the challenges coming from the supply side, the rising raw material costs on the chips and on everything. And as mentioned, also in Q2, the impact on the vehicle is around 14,000 RMB on average, compared from late last year, where in the second half of this year, such impact will continue to enlarge by another 2,000 to 3,000 RMB, which means that in the second half of this year, compared with Q4 last year, our cost structure will be burdened by another 16,000 to 17,000 RMB. But even against this backdrop, we still aim to achieve a steady growth in our gross profit. This is also a demonstration of our system capabilities and also competitiveness in terms of our technology, products, supply chain, sales, and also brand management.

Thank you, Paul.

Thank you very much, William Stanley, and congratulations for the achievements.

Thank you. Your next question comes from Nick Lai with J.P. Morgan.

Thank you for taking my question. My first question is a financial related, with very strong operating cash flow and free cash flow generation by first half, can you maybe remind us our cash burn, including CAPAC and R&D, and what the level of free cash flow can we anticipate by year in? And with very strong cash proposition right now, can you remind us where do we plan to invest or spend our cash in terms of CAPAC and R&D? That's my first question. Thank you.

I would like to talk about this one. One is our CAPEX. For the year's capital開支, we will basically maintain the same with the last year. According to the previous year, it's in the year 60 to 70 years. Sorry, it's not a year. It's in the year 60 to 70 years. The main purpose is our car development, 投入,然后我们的这个销售服务网络的建设这方面,因为基本上工厂相关的应该相对没有那么多了,在今年。 Thank you for the questions.

I will answer to your question through several major aspects. The first is regarding capex. For this year, we expect our full year capex to be relatively flat from last year, roughly 6 to 7 billion RMB per year and such investment is mainly used for basically product research and development as well as the rollout of our sales and service network not much investment going into the capacity and also factory side On the second part, we will continue to build a high-degree level on our solar network.

The goal of this year is still 1,000 new solar network. Of course, this is not the same thing for us before. Since the 2024 year, we started to build a company company's plan. In this year, we have achieved a long-term improvement.

And the second is that we will continue to roll out and expand our charging and also swapping network. For this year, we still plan to build 1,000 new power swap stations, but different from previous years, where in 2024, we've introduced the Power Up Partner Plan, where through the plan, we would like to collaborate with different partners for the construction of our charging and swapping infrastructure. And this year, we've made major progress in this plan, where we've been partnered with over 40 state-owned enterprises, platforms, and also financial institutions across 25 provinces and cities in China in constructing our charging and swapping infrastructure. And for this year, we expect all the newly built infrastructure will be sponsored or funded by our PowerUp partners.

The third point is that our bus model is getting more than one of the users. With the bus model related to the bus model, it is also getting more than one of our financial companies and all of our partners' support and support. So from WaiNom's income point of view, in the past few years, the income point of view is basically all over.

So you can also see that WaiNom's income And the third is that our battery-as-a-service business model is also earning more recognition from also more users. This is also helping our battery asset management and the battery asset management company getting stronger support from the financial institutions and also different partners. In the first half of this year, for the battery asset management company, we know as we also see some good progress regarding the fundraising across different channels. And in terms of the amount due from the battery asset management company, It is also reduced from over 16 billion earlier this year to less than 15 billion in end of Q2. Considering that we are also enlarging the user base and also the business size of the battery asset management. The increase in the absolute term is also relatively proportionally.

So this is also a good sign. 对 所以总的来说呢 随着销量的持续增长 以及包括我们经营的这个 逐步的这个改善 我们整个三四季度的这个目标 对于现金额来说 依然是我们希望能够实现 经营现金流和这个自由现金流的 这样的一个正向的这个目标 总的来说呢 整个的这个现金储备的这个余额 在这样的一个背景下面 in 3-4季度, we can continue to increase.

With increase in sales volume as well as ongoing efforts in improving our operating performance, we expect that in Q3 and Q4, we can maintain the positive free cash flow as well as operating cash flow. With that, we also believe that in the second half of this year, our cash position will continue to enhance.

Thank you, Nick.

Thank you. My second question is ADAS-related. The market is indeed very, very competitive. Every peers offer the autopilot function or features. So I'm wondering, from a user standpoint, how do we differentiate ourselves from peers across our product offering from hiring to entry level? And at the same time, given high adoption or penetration right now, will we consider different payment options such as payouts as you go or subscription option in the future? Thank you.

From the, I should say, our training training is less than our partners. We actually got a very good experience in the user experience. It shows the advantage of our technology.

Thank you for the question. This year, people actually start to see the benefits and also the advantage of our overall architecture featuring the new world model plus the reinforcement close-loop reinforcement learning and also collective intelligence especially considering that the actual investment computing investment and the computing power we used for the co-op training for the autonomous driving and smart driving functionalities relatively small achieving such good experience with our latest release this has also proven the advantages of our technology roadmap. And also, as mentioned earlier today, on June 18th, we actually have pushed our latest new world model version to over 700,000 users across different brands and also technology platform. Simultaneously, this has also proven the advances of our technology and architecture. And also, I would like to share some numbers with you. For the Cedar user, that's our third-generation platform equipped with NX-9031 smart driving chip, where among this group of users, around 58% of them have been engaging smart driving functionalities for more than half of their chips.

That's the type of market. We are now for the new users, the new users, we are all for 5 years, for the 5 years, for the 2-way users. For the 2-way users, or for the 5-way users, we are not for 5 years. For the 2-way users, for example, Thank you very much. And I think that from the users' users' users, we will say that the subscription will become our company's very important.

And regarding the business model for the smart driving service, well, right now for the new users and Envo users, we offer them a five-year complimentary subscription to our smart driving capabilities and systems. But for the used-to-car users, or when they expire on this five-year complimentary service, they will have to definitely pay for the subscription. For the used-to-car users, they are paying 380 RMB per month for the smart driving subscription, where we now see a penetration rate of around 20% among these used-to-car users. This is also a pretty sizable amount, showing also the competitiveness of our product and experiences and of course right now this is just a small user base but for the longer term we believe that this will also be a quite sizable source of revenues for our business right now every year the revenue from that part of business is around several thousands of millions of R&B thank you your next question comes from Ming Sun Lee with B of A hi Willie this is Ming so I also have two questions.

So first question is related to your fifth-generation battery swap station. With more expansion of your new swap station, and this can accommodate all of your three brands, could you give us more details regarding the capex per station and also a maintenance cost compared to your previous generation swap station. Besides that, right now you also open to some other auto OEMs for your battery service. Could you elaborate your pricing strategy and also your uni-economy model? Thank you.

That's my first question. 关于第五代换电站呢从兼容度上就是我们用了一个柔性的这个解决方案 所以未来乐道萤火虫三个品牌不同尺寸的车型都可以在一个换电站里面来进行换电 那从成本上来讲呢第五代站在第四代站的基础上其实还是有进一步的这个下降 Thank you for the question.

Regarding the fifth-generation power swap station, we have adopted a flexible design where the station can accommodate all models from Neo, Alvo, and the Firefly, so basically can be compatible with cars of different dimensions and sizes. And in terms of the cost, we've also achieved continuous improvements on top of the Gen 4, where in terms of the material costs, we've achieved also optimization and reduction in cost. and for per station cost, if we excluding batteries in the station as well as all the costs related to the high voltage power supply and the energy preparation, if you only look at the station itself, it's around 1.4 million RMB per station. That is around 100,000 RMB cheaper than the fourth generation.

From the production of two levels, We all have to keep the production of the market. The entire market, especially in the middle-aged people, due to the damage of the market, due to the increase of the market, the overall market, in the year, it has increased over 50%.

From the five-day market, And in terms of the operations of the swap stations, We've been also making continuous improvements in terms of the actual people efficiency of supporting the operations of all stations. We've also made improvements in terms of the first time through of the power swaps as well as the software features. Between current performance as well as the performance earlier last year, it's already improved by 50%. Of course, for the fifth generation, as they are new to the field, so we are still ramping up it's first time through but comparing with the previous generations around the same time frame we already see quite significant improvement in terms of the success rate of our power swaps among the fifth generation station overall speaking we also believe that the efficiency of fifth generation will be much better than the previous ones Yes.

About the third part of our cooperation. Actually, we had signed up with multiple mobile devices in the past two years. Of course, during this time, some of the projects of the land, or communication and discussion, in the process of continuing the process. Along with this two years of Robotaxi's development, Actually, RoboTaxi and WANDA is a very similar to the foundation of the support. So these work are still still in the same way. From what you mentioned earlier, we will basically use a transfer fee. Of course, this is also in the same way. After the period of time, 等实际落地之后我们再跟大家具体去披露这样的一些细节 当然这些对外合作呢 其实大家也是随着这两年 我们换就是新的人的发展进入到一个新的阶段 大家也逐步认识到换电的这样的一个优势 所以越来越多的主机场其实也是希望加入到这样的一个队伍当中来 那从单纯从对未来能源来讲呢 我觉得对于我们参保我们的运营成本 And the third is regarding the partnership

and also alliance with other OEMs regarding PowerSwap. Several years ago, we signed up with several OEMs regarding this PowerSwap alliance, and we still have this ongoing communications and also collaborations on some projects. And in the meantime, as robo-taxis is becoming a very popular area where we see power swap station and power swap service in general can be a good infrastructure support for the robo-taxi business, so we are also exploring opportunities with our partners from that perspective. In terms of the cooperation framework and also how we charge them on such services, we basically will charge them for the admission fee for the use and access to our power power swap network, but more details are still being discussed and are to be closed when we have the actual project in the implementation. And also for the entire new energy vehicle industry, it has been entering into this new stage where more and more people start to realize the benefits of a power swap and the more OEMs are also embracing the idea of swappable vehicles, where for the new power, the advantage is with more partners joining this effort, it can help us to optimize and amortize our operating costs. And by standardizing the battery packs, we can also improve the efficiency as well as optimize the cost structure.

Thank you, Ming.

Thank you, Stanley. My second question is related to your operating expense. Especially, we noticed that your sales and marketing expense in the second quarter is higher. Is it because you launched more new models during the quarter? Could you give more guidance for your 2026 operating expense?

Thank you. and the development of the project and business development to change the system and the system. So from every year in the 2026, it's basically in this level.

Thank you for the question. I will still share the information according to two types of overall expenses. The first is regarding the R&D expenses. As mentioned, we will basically be staying flat with our R&D expenses, non-GAAP around 2.5 billion, and we will also make the adjustments, dynamic adjustments according to the actual cadence and the pace of our projects and the business. But for this year, it will be roughly 2.5 billion per quarter in terms of the R&D investment.

Of course, you can see that the development of the company has compared to our company. It may be compared to our company. It has a decrease in certain extent. But I think that the development of the development of the company is higher. There are two parts. One is that we are still interested in the production line. 没有去在纯电包括混动增程多条路线上去发力 所以这样的话我们的研发会更加聚焦 核心技术可以在不同品牌不同车型上复用 所以效率会更高 第二个部分也随着从去年开始的我们整个CPU的这样的一个经营机制 我们内部的这个研发的这个体系和组织的效率也不断的优化 and in terms of the R&D expenses

maybe some will compare our current expenses with our previous levels or with our competitors where definitely our expenses is relatively low but we also need to really pay attention to the utilization of such expenses and also the efficiency of our R&D activities. First of all, NIO has been staying committed to the battery electric vehicle roadmap. With that, we can be more focused on the technologies and the products related to the BEV roadmap without spreading our efforts across BEV, P-Hive, or RIF. And secondly, as we've been rolling out this CBU mechanism internally, with the CBU mechanism, we can also better measure and improve the efficiency of our R&D systems as well as our R&D organizations. So even with a relatively moderate investment into the R&D activities, we can still maintain our leadership and advancements in the technologies and also products.

Thank you very much. 这个我们乐道的今年的一些换代,大部分都集中在这样这个二季度里面,那这样的一次性的影响呢,给二季度的这个这个这个研发,这个SGNA带来大概五亿的这样的一个增长,所以这个呢在后面的两个季度呢,应该不会有这么多的这样的一个一次性的影响发生,从那最后呢从这个三四季度的一个展望来讲呢,

And regarding the SG&A expenses, if we look at the SG&A as percentage to the South Revenue in the first and the second quarter. Under the non-GAAP standard, it's around the 13% in the first half. And also in the second half, as we see a slight increase in terms of the sales expenses, it's mainly driven by some one-off expenses as we have most of our new products for this year were launched in second quarter, including our YesNight and also some face-lipped models for Envo. So that one-off impact is roughly $500 million, majorly happened in Q2, where in the second half, we don't expect to have such one-off impact in terms of the sales expenses. So in terms of the second-half outlook, in terms of the SG&A expenses as percentage to the sales revenue, under the non-GAAP standard, we expect it to be around 10% to 11%. This is also a controllable as well as an achievable target for us. Thank you, Ming.

Your next question comes from Jing Cheng with CICC.

Thank you for taking my question. As the time is limited, I have only one question. We know that our senior best president, Mr. Ren Shaoqing, has founded an embodied AI startup company in which we have made a strategic investment. So what are the long-term cooperation potentials between this new company and new, and also what long-term value can it bring to our company?

Thank you very much.

Thank you for the question. Yes, Mr. Ren Xiaoqing, the head of our Smart Driving Department, is now also setting up a new business regarding physical AI and also embodied intelligence. And Neil is supporting his business as a strategic shareholder. But in the meantime, he will still be the head of our smart driving department responsible for the overarching technology as well as the long-term tech roadmap for our products. And we also think that such arrangement is necessary and also meaningful. As right now, NIO is staying focused on our core business, but in the meantime, through this startup by Mr. Ren, we can also keep tracking of the latest developments in the physical AI and also embodied intelligence without diluting our focus, affecting our P&L, but in the meantime, such startup can also help to make full use of our resources as well as attracting external strategic shareholders and investors. So we think this is a good arrangement. And also, as we all know that the competition for the AI talent within the arena of physical AI is also quite intense. So through such startup, we can also better capture the top-notch talents in the industry. And that will also be beneficial to the long-term development of both this startup as well as for our AI-related business. And for the long term, we believe that we will have a lot of strategic collaborations and projects between you and also this AI startup.

Thank you. Thank you.

Your next question comes from Yu-King Ding with HSBC.

My question is about a volume outlook in fourth quarter and 27. given maybe strong synality and the backdrop of new motorcycle next year? We expect that the passenger vehicle market to be able to recover in Q4 this year. With that, our target for Q4 is achieving an average volume of over 40,000 units per month. And for the mid- and the long-term, with our product lineup as well as our sales and service network coverage, we expect our annual volume growth to be around 40% to 50%. And we will maintain that for the mid- and the long-term.

Thank you, Lucia. 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 our IR team through the contact information on the website. This concludes the conference call. You may now disconnect your line. Thank you.