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Hello, ladies and gentlemen. Thank you for standing by for NIO Inc. Second Quarter 2026 Earnings Conference Call. please note this call is being recorded.

I will now turn the call over to your host, Mr. Rui Chen, AVP and Head of IR corporate finance and strategic investments of the company. Please go ahead, Rui.

Good morning and good evening, everyone. Welcome to NIO's Second Quarter 2026 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 of the Board and Chief Executive Officer; and Ms. Stanley Qu, Chief Financial Officer.

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 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.

[Interpreted]

Hello, everyone, and thank you for joining NIO 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 NIO ONVO and FIREFLY brands all achieved year-over-year and quarter-over-quarter growth in both sales volume and average transaction price. More specifically, the NIO brand delivered 60,945 vehicles, leading China's passenger vehicle market with transaction prices above RMB 350,000 across all powertrain types. The ONVO 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 gross 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 gross margin remained solid at 18.5%. The gross 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-GAAP operating profit as well as positive operating cash flow and free cash flow, further increasing its cash reserves to RMB 56.7 billion. This helped 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. For the NIO brand on July 9, the flagship SUV ES9 launched and began deliveries of the 5-seat version, catering to more diverse user needs and scenarios with its 5-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 RMB 400,000 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 sale volume among passenger vehicles with transactional prices above RMB 500,000 in June and July. The continued strong performance of NIO brands' flagship models has further strengthened its leading position in the premium BEV market.

For the ONVO brand, the L90 surpassed 60,000 deliveries within its first year since launch, ranking #1 among the large battery electric SUVs priced around RMB 300,000. The L80 continued to see steady deliveries, winning broad [indiscernible] with its exceptional cargo space and the scenario-based functionality.

In Q2, leveraging the outstanding product strength of the L90 and L80 the Ammo brand became the sole leader among large SUVs priced below RMB 300,000. In addition, the upgraded L60 better meets the needs of its target users, further strengthening ONVO's sales momentum.

The FIREFLY brand has been #1 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.

In terms of Smart Driving, on June 18, the latest version of NIO World model was rolled out to over 700,000 NIO and ONVO 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, NIO users mileage with urban NOP has increased by 9.8%. The upgrade also covered all ONVO users whose knowledge with urban NOA increased by 127.8% following the upgrade. However, 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 life cycle.

On the sales and service front, so far, the company has 165 new houses, 376 new spaces, 441 ONVO 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 #1 among both premium brands and Chinese brands, maintaining its top position since the rankings were first introduced. Our high-quality services have earned a 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 7, NIO's 4,000th power swap station went by, marking the launch of its first fifth generation station. The fifth generation can support battery swaps for all models of NIO, ONVO 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 23, NIO 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 road map, 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 several important changes. First, with the rapid growth of BEV penetration, BEVs have become a mainstream powertrain in the market. Second, the industry is moving from a period of brand ambiguity towards 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. With that, I will now turn the call over to Stanley for Q2's financial details. Over to you, Stanley.

Thank you, William. Let's now review our key financial results for the second quarter of 2026. Our total revenues reached RMB 32.1 billion, up 69.1% year-over-year at 25.9% quarter-over-quarter. Vehicle sales were RMB 29.1 billion, 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 RMB 3.1 billion, 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 aftersales 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. 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 and 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 weaker sales, provision of power solutions and sales of parts, accessories and aftersales vehicle services.

Turning to OpEx. R&D expenses were RMB 2.1 billion, 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 personnel costs in research and development functions.

SG&A expenses were RMB 4.4 billion, 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 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 RMB 0.3 billion, down 92.9% year-over-year and up 12.4% quarter-over-quarter.

Excluding share-based compensation expenses, adjusted profit from operations was RMB 0.2 billion. Net loss was RMB 0.5 billion, showing a decrease of 89.4% year-over-year and increased 59% quarter-over-quarter.

Excluding share-based compensation expenses, adjusted net profit was RMB 26.1 million.

Furthermore, our positive operating cash flow grew substantially, and we achieved positive free cash flow. Our cash position strengthened further with RMB 56.7 billion in total cash as 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 unaudited second quarter financial results, please refer to our earnings press release. Now I will turn the call over to the operator to start our Q&A session. Operator?

[Operator Instructions] Your first question comes from Bin Wang with Deutsche Bank.

My question is about the order flow sustainability about your ES8 and ES9 SUV. We will cite in the premium SUV market some of your peers, competitors, although [indiscernible] on a several months. So can you expand why is that, and how NIO differentiates facing the completion in the high-end premium SUV market?

[Interpreted]

Thank you for the question. Regarding NIO flagship models, including the ES8 and ES9, they will continue to see strong demand. For the ES8 in August, we delivered around 10,099 units. And in 11 months, we have delivered more than 140,000 ES8, and in September, it's going to witness its next milestone of 150,000 deliveries, which means that in less than 1 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 not more 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.

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 3 months or nearly 4 months to pick up a new car. And if we look at the sales number of the ES9 in August and July, I think in July, we were still consuming some preorders. 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 3/4 of the ES9 users are actually from nonexisting NIO users from users outside of the new user community. This also shows that 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 ES9, we have introduced or debuted several thousands of industry first or industry-leading technologies and tech innovation is still so far a very important competitiveness and also differentiation of our products. And secondly, the product designation has precisely catered to the needs of the users in the premium segment, especially users find 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 sale 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 tapping the least for 3 times conservatively. And also in J.D. Power's 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.

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 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 new 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.

And if we further look at the numbers by the insurance association, in Q2, the average selling price of the NIO brand was RMB 406,000, 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 NIO brand was over RMB 430,000. And we believe that the scarcity of such premiumness of our brands as well as the competitiveness of our brands across all 3 brands will also become a long-term foundation for our competitiveness going into the future.

Your next question comes from Tim Sao with Morgan Stanley.

This is Tim Hsiao from Morgan Stanley. Congress on the third consecutive profitable quarter. I have 2 questions. The first one is about ONVO. Because compared to the robust growth of the NIO and the FIREFLY brands, we notice ONVO's customer conversion and auto momentum have been routinely moderated to ramp since launch. So just want to know that how is the progress in recent adjustment to customer incentives and selling strategies?

And looking forward, what rate of changes with management plan to effectively improve on those older momentums? That's my first question.

[Interpreted]

Thank you for the question. It's true that ONVO is actually in a more competitive market than NIO 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 is NIO and FIREFLY. But If we look at the ONVO's overarching performance since its launch, especially from specific segment and market, it has actually done some good progress and achievements.

In terms of the -- if we look at the average selling price of the ONVO 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, almost still achieved an average selling price of RMB 240,000 achieving also significant growth year-over-year. And in the first half of this year, in the Chinese automotive market, only 8 brands managed to achieve increase both in their sales volume as well as the average selling price where ONVO is 1 of these 8 brands. So in terms of the average selling price, ONVO is even outperforming from traditional luxury brands.

So if we perceive ONVO as a premium family-oriented brand, it is actually achieving a pretty good baseline as a -- from this brand definition perspective.

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 ONVO product. So right now, for the ONVO brand, the challenge is more about its overall brand awareness, where its current brand awareness is maybe comparable with NIO's awareness around 5 to 6 years ago. So right now, our focus is also to enlarge the brand awareness and also the popularity through also different collaborations, off-line activities and also engagement with more targeted communities.

And the second action we are taking is to keep rolling out our Sky stores where we can host NIO and FIREFLY brands under the same roof. With that, we are able to further expand our sales network and also to really introduce our ONVO brand to more users in the lower-tier cities.

And the third action is to also introducing new ONVO products so that we can also reach out to broader family user base. But in the meantime, we will still maintain ONVO'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 gross 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 ONVO to develop its awareness in that specific segment.

My second question is a quick one. Just what you know that if management can share next year's new model refresh and the key launch milestones for the NIO, ONVO and FIREFLY, the 3 brands under the group?

[Interpreted]

Thank you for the question. For the NIO brand, for next year, we will be introducing NIO products coming from the 5 and the 6 Series product lines. I believe that the market is also aware of some of our latest plans, where for the ONVO 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 additions and also technology upgrade. So for FIREFLY, it's a bit like taking the iPhone approach, where it will stay in the same product, but with new additions.

Your next question comes from Paul Gong with UBS.

My first question is regarding your vehicle gross margin outlook for the next 2 quarters? [indiscernible] it's ongoing cost inflation, well aware that the memory costs continue to go up. And I just want to listen to your thoughts, how does that impact the vehicle gross margin?

[Interpreted]

Thank you for the question. 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 RMB 14,000 per car. And also in Q2, we've taken a series of efforts to stabilize our vehicle margin under the rising cost pressure. And as previously mentioned, we've been actually using -- 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, BEV 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 into the second quarter, we expect the material cost to continue to increase by another RMB 2,000 to RMB 3,000, but we will also take a series of long-term measures to mitigate these risks. In Q3 and Q4, we hope to still stabilize our deep growth margin to at the same level as [indiscernible].

So my second question is, yes, despite of all this cost pressure, you have done significant improvement in terms of profitability over the past 1 year. My question is, what gives you, management, confidence that these improvement are sustainable rather than [indiscernible]?

[Interpreted]

Thank you for the question. To 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 NIO brand, our ES9 and ES8 are still seeing a pretty stable demand and also with significant market share in their respective segment. These 2 models, they are also making major contribution in our product mix as well as vehicle margin as both of them has 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 other decoupling and analysis of our R&D and also supply chain capabilities, putting them into the automatic granularity, identifying also opportunities for continuous cost reduction, and we will keep up this good work.

And as mentioned, the Chinese automotive industry has been under cost pressure. But even amidst all these challenges, the company has still managed to achieve high-quality growth as shared by [indiscernible] some of the efforts we've been taking to secure the long-term and sustainable growth of our business. And I would 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 RMB 14,000 on average, where -- compared from late last year, where in the second half of this year, such impact will continue to enlarge by an RMB 2,000 to RMB 3,000, which means that in the second half of this year, compared with Q4 last year, our cost structure will be burdened by another RMB 16,000 to RMB 17,000. 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.

Your next question comes from Nick Lai with JPMorgan.

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

[Interpreted]

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 RMB 6 billion to RMB 7 billion 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 site.

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 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. 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 founded by our Power Up partners.

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 RMB 16 billion earlier this year to less than RMB 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.

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.

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

[Interpreted]

Thank you for the question. This year, people actually start to see the benefits and also the advantage of our overall architecture featuring the NIO 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 use for the cat 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 road map.

And also, as mentioned earlier today, on June 18, we actually have pushed our latest NIO word 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 users, that's our third-generation platform equipped with NX-931, a 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 trips.

And regarding the business model for the smart driving service, well, right now for the new NIO users and ONVO users, we offer them a 5-year complementary subscription to our smart driving capabilities and systems. But for the used car users or when they expire on this 5-year complementary service, they will have to definitely pay for the subscription. For the used car users, they are paying RMB 380 per month for the smart driving subscription, where we now see a penetration rate of around 20% among this used 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 the business is around several thousands of millions of RMB.

Your next question comes from Ming-Hsun Lee with BofA.

This is Ming. So I also have 2 questions. So first question is related to your fifth-generation battery substation. With more expansion of your new substation and this can accommodate all of your 3 brands, could you give us more details regarding the CapEx per station and also maintenance cost compared to your previous generation swap station? Besides that, right now, you also opened to some other auto OEMs for your battery service. Could you elaborate your pricing strategy and also your unit economy model Yes. That's my first question.

[Interpreted]

Thank you for the question. Regarding the fifth generation power substation, we have adopted a flexible design where the station can accommodate all models from NIO, ONVO and 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 the -- 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 RMB 1.4 million per station. That is around RMB 100,000 cheaper than the fourth generation.

And in terms of the operations of the swap stations, we've been also making continuous improvements in terms of the actual people efficiency supporting the operations of all stations. We've also made improvements in terms of the first time the 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 of 50%. Of course, for the fifth generation, as they are new to the field, so we are still ramping up its 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.

And the third is regarding the partnership and also alliance with other OEMs regarding power swap, as several years ago, we signed up with several OEMs regarding this power swap alliance and we still have this ongoing communications and also collaborations on some project. And in the meantime, as robotaxi is becoming a very popular area where we see power swap station and power soft service in general can be a good infrastructure support for the robotaxi 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 of our -- for the use and access to our 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 has been entering into this new stage where when more people start to realize the benefits of a power swap and more OEMs are also embracing the idea of a swappable vehicles, where for the NIO power, the advantages 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.

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 launch more new models during the quarter? Could you give more guidance for your 2026 operating expense?

[Interpreted]

Thank you for the question. I will still share the information according to 2 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 RMB 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 RMB 2.5 billion per quarter in terms of the R&D investment.

And in terms of the R&D expenses, maybe some will compare our current expenses with our previous level 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 road map. With that, we can be more focused on the technologies and products related to the BEV road map without spreading our efforts across BEV [indiscernible] risk. And secondly is that 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.

And regarding the SG&A expenses, if we look at the SG&A as a percentage to the sales revenue in the first and the second quarter, under the non-GAAP standard, it's around 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 NIO products for this year were launched in second quarter, including our ES9 and also some facelift models for ONVO. So that one-off impact is roughly RMB 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.

Your next question comes from Jing Chang with CICC.

I have only one question. We know that our Senior Vice President, Mr. has founded an emboded AI start-up 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 ourcompany?

[Interpreted]

Thank you for the question. Yes, Mr. [indiscernible], the Head of our Smart Driving department is now also starting up a new business regarding physical AI and also embodied intelligence and NIO is supporting 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 tax road map for our products.

And we also think that such arrangement is necessary and also meaningful. As right now, Neo is staying focused on our core business. But in the meantime, through this start-up by Mr. Yan, 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 start-up 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 start-up, we can also better capture the cost match talent in the industry. And that will also be beneficial to the long-term development of both the start-up 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 NIO and also on this AI start-up.

Your next question comes from Yuqian Ding with HSBC.

So my question is, what's your volume outlook for the year [indiscernible] and also [indiscernible]?

I think your voice is breaking. Can you repeat your question?

Yes, sure. [indiscernible].

Yuqian, we still can't hear you.

Can you hear me now?

Yes, much better.

Okay, yes, yes. So I'll just repeat my question is about the volume outlook in fourth quarter and '27 given maybe strong [indiscernible] and the backdrop of new model cycle next year?

[Interpreted]

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 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 long term.

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 lines. Thank you.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]

Hello, ladies and gentlemen. Thank you for standing by for NIO Incorporated First Quarter 2026 Earnings Conference Call. [Operator Instructions] Today's conference call is being recorded. I will now turn the call over to your host, Mr. Ray Chen, Head of Investor Relations and Corporate Finance of the company. Please go ahead, Ray.

Good morning and good evening, everyone. Welcome to NIO's First Quarter 2026 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 of the Board and Chief Executive Officer; And Ms. Stanley Qu, Chief Financial Officer.

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 news press release, which contains a reconciliation of the unaudited non-GAAP measures to comparable GAAP measures.

With that, I will now turn the call over to our CEO, Mr. William Li. William, please go ahead.

[Interpreted] Hello, everyone, and thank you for joining NIO Inc.'s 2026 Q1 earnings call. In Q1 2026, the company delivered a total of 83,465 smart EVs, representing a year-over-year increase of 98.3%. Breaking it down by brand, NIO brand delivered 58,543 vehicles, maintaining its leadership in China's BEV segment priced above RMB 300,000. The ONVO brand delivered 13,339 vehicles, continuing to unlock its growth potential. The FIREFLY brand delivered 11,583 vehicles, ranking #1 in China's high-end small car segment.

In April, the company delivered 29,356 vehicles, up 22.8% year-over-year. Starting Q2, the 3 brands have entered an intensive product launch and delivery cycle, which is expected to support continued rapid delivery growth. We expect the total deliveries in Q2 to range between 11,000 and 11,500 units, representing year-over-year growth of 52.7% to 59.6%.

On the financial side, the company's gross margin was 19% in Q1, driven by a higher contribution from higher-margin products, Vehicle margin came in at 18.8%, improving quarter-over-quarter for the fourth consecutive quarter. Margin for other sales, mainly services and community-related businesses reached 20.6%, the highest level in the past 4 years, with both business scale and profitability achieving improvement.

In Q1, the company maintained positive non-GAAP operating profit and positive operating cash flow where cash reserves would increase to RMB 48.2 billion.

NIO has remained committed to the BEV road map while continuously strengthening its systemic innovation capabilities. Over the years, the company has built distinctive competitiveness across technology, products, services and user community operations. Supported by these capabilities, the product and overall experience of NIO, ONVO and FIREFLY have gained broad exclamation among their respective target users.

For the NIO brand, since delivery began in late September 2025, the all-new ES8 reached 100,000 delivery milestones in just 215 days, setting a new delivery record among passenger vehicles priced above RMB 400,000 in China. As of April this year, the ONVO ES8 had remained #1 in both the large SUV segment and the passenger vehicle segment priced above RMB 400,000 for 5 consecutive months, regardless of powertrain types. In early April, the 2026 ES6, EC6, ET5 and ET5T were launched and delivered, further addressing evolving user needs through enhanced product offerings. On April 9, we officially on-road the new ES9, our flagship executive SUV. The ES9 integrates multiple industry-first technologies and class-leading features, redefining the standards of executive flagship SUVs and leading segment into the BEV era. The ES9 will officially launch and begin deliveries on May 27, and we are confident that the ES9 will set a new benchmark in the flagship executive SUV market priced above RMB 500,000.

For the ONVO brand, the L90 continued its strong market momentum in Q1 2026, ranking #1 in the large SUV segment priced between RMB 200,000 and RMB 300,000. This year, ONVO achieved comprehensive upgrades in both products as well as core technologies. The 2026 L90 has already been officially launched and delivered. The upgraded L90 now features new in-house developed ES931 smart driving chip, new award model and the SOS booming vehicle operating system. On May 15, the ONVO L80, flagship large SUV with an innovative front and trunk layout was officially launched and delivered. The L80 is a breakthrough product in the large 5-seat SUV market and currently offers the largest cargo capacity among 5-seat SUVs in China. Through innovative space and the scenario-based lifestyle solutions, the L80 supports a wide range of scenarios for large 5-seat SUV users.

In addition, the NIO L60 will make its debut in late May. The updated model will feature upgrades in exterior design and smart features, further enhancing its competitiveness.

For the FIREFLY brand, the refreshed model has already started the deliveries in Q2, bringing comprehensive upgrades in powertrain performance and smart experiences. Going forward, FIREFLY will continue to introduce limited additional models to further strengthen its distinctive brand identity.

On smart driving, earlier this year, we officially rolled out a major new version of new word model, NWM powered by the advanced architecture featuring the work model and both look reinforcement learning. The new version significantly enhanced the full scenario navigate on pilot experience. Within 1 quarter of the rollout, Urban NOP milage increased by 92% quarter-over-quarter, while the proportion of smart driving usage time increased by 116%. So far, the smart driving system powered by NWM has been introduced across ONVO's new products. In June, both nio and ONVO users will receive the next major NWM upgrade, bringing noticeable improvements across driving, parking and active safety scenarios.

In terms of sales and service networks, the company now operates 168 new houses, 389 new spaces, 430 ONVO stores as well as 408 service centers and 90 delivery centers. We continue to optimize our sales and service network layout through the highly coordinated Sky Store model, expanding market coverage while strengthening local presence and increasing network density.

As of now, the company has 3,916 power swap stations worldwide, along with more than 28,000 power chargers and destination chargers. On May 10, the new ES9 successfully completed the 10,000 kilometer challenge in just 94 hours 19 minutes and 11 seconds, setting a new record among BEVs in China. This further demonstrated the reliability, efficiency and convenience of battery swap.

On May 20, the company released its 2025 environmental, social and governance report and announced its greenhouse gas emissions reduction target, aiming to reduce the carbon footprint per vehicle by 43% by 2035 from the 2023 baseline. By delivering the high-performance smart EVs and exceptional user experiences, we aim to build a sustainable and brighter future together with our users and partners.

After 11 years of long-term investment and persistence, the company has built a full stack technology capabilities around the core technologies of smart EVs. At the same time, we have gradually established a systemic innovation capability, spanning R&D, supply chain, manufacturing, quality, power services and user services. These capabilities not only enable us to continuously launch innovative products and lead industry development, but also serve as the core foundation for our continued brand development and long-term competitiveness. Today, NIO, ONVO and FIREFLY have each established clear market position with their core products steadily increasing market share in the respective segments. We are confident in achieving our business targets for the year and delivering sustainable growth beyond 2026.

Thank you for your support. With that, I will now turn the call over to Stanley for Q1 financial details. Over to you, Stanley.

Thank you, William. Let's now review our key financial results for the first quarter of 2026. Our total revenues reached RMB 25.5 billion, up 112.2% year-over-year and down 26.3% quarter-over-quarter. Vehicle sales were RMB 22.8 billion, up 129.2% year-over-year and down 27.9% quarter-over-quarter. The year-over-year growth was mainly due to increased deliveries and a higher average selling price, driven by positive product mix effects. The quarter-over-quarter decrease was mainly due to fewer deliveries.

Other sales were RMB 2.7 billion, up 31.2% year-over-year and down 9.7% quarter-over-quarter. The year-over-year growth was driven by increased sales of parts, accessories and aftersales vehicle services and provision of power solutions, along with a rise in sales of auto financing services. The quarter-over-quarter decrease was due to a decrease in revenues from technical R&D services and used car sales.

Looking at margins. Vehicle margin was 18.8% compared with 10.2% in Q1 last year and 18.1% last quarter. The year-over-year and quarter-over-quarter improvements were driven by a more favorable product mix. Other sales margin reached a record high of 20.6% in recent 4 years, reflecting the continuing profitability improvement in our user base-driven service and community-related businesses.

With the improvements in both vehicle and other sales margin, vehicle overall gross margin increased to 19% compared with 7.6% in Q1 last year and 17.5% last quarter.

Turning to OpEx. R&D expenses were RMB 1.9 billion, decreased 40.7% year-over-year and 7% quarter-over-quarter. The year-over-year decrease was mainly driven by lower personnel costs in R&D functions due to organizational optimization, reduced the design and development costs from different development stages and improved operational efficiency. The quarter-over-quarter decrease was also mainly due to lower design and development costs from different development stages and improved operational efficiencies.

SG&A expenses were RMB 3.5 billion, decreased 20.5% year-over-year and 1.1% quarter-over-quarter. The year-over-year decrease was mainly driven by lower personnel costs and related expenses in marketing and other supporting functions due to organizational optimization as well as reduced sales and marketing activities. The quarter-over-quarter SG&A expenses stayed stable.

Loss from operations was RMB 0.3 billion compared with loss from operations of RMB 6.4 billion in Q1 last year and profit from operations of RMB 0.8 billion last quarter. Excluding share-based compensation expenses, adjusted profit from operations was RMB 66.8 million. Net loss was RMB 0.3 billion compared with net loss of RMB 6.8 billion in Q1 last year and net profit of RMB 0.3 billion last quarter. Excluding share-based compensation expenses, adjusted net profit was RMB 43.5 million.

Furthermore, we generated positive operating cash flow this quarter and ended the quarter with RMB 48.2 billion 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 unaudited first quarter financial results, please refer to our earnings press release. Now I will turn the call over to the operator to start our Q&A session. Operator, please.

[Operator Instructions] The first question today comes from Bin Wang with Deutsche Bank.

Congrats for the great result. I've got 2 questions. The first 1 is about ES9. [indiscernible] launched next week. Do you share with the core for order flow during the presale period? And do you think ES9 monthly volume in the next several months with the of monthly volume guidance, and can ES9 order impact ES8 order book? That's my first question. And second question is about gross margin. Can you provide a second quarter gross margin guidance given you have a better volume and also based on of the cost increase, such as memory. So basically, what's your outlook for the gross margin in the next several quarters?

[Interpreted] Thank you for the question. Regarding your question on the ES9, we will officially launch and deliver the new ES9 on May 27. And since the prelaunch of the ES9, its technology as well as its exterior and interior design are well recognized and well received by the market and our users, we started the test drive of ES9 from May 11. And after the test drive, we also witnessed the growing momentum of the order intake on the model.

Of course, for us, we seldom disclose the specific order momentum or order intake for the new models. However, we do have confidence in its overall performance in the executive flagship SUV segment above RMB 500,000 in China. And we also believe that it is going to change the landscape of the battery electric vehicle segment above RMB 500,000. We're confident in its competitiveness.

And also since the prelaunch of Es9, we actually didn't see that the launch of the ES9 diluting we're cannibalizing the circus or even your attention to the ES8. Instead, it is generating positive impact on the impact on the attention and the order intake of the ES8. Especially after we had the prelaunch and also test drive started for the ES9, we have welcomed a lot of in-store visits and traffic. Many of them maybe didn't know about the new brand or our product and after they were in the store by experiencing and comparing between the ES9 and the ES8, some of them point that, as I mentioned and also the use cases of the ES9 maybe a better much. For the ES8, we have actually witnessed an increase in the order intake of the ES8 after the prelaunch of the ES9. One week after the ES9 launch, actually, the order intake for the ES8 increased by 30%. And the starting -- since the test started from May 1, within 1 week of the quarter -- the week-over-week, ES8 order intake increased by 30%.

And in the first 20 days of May, actually, the order intake on the ES8 has created a new history high since October, which is the ES9 launch. Last year, we actually after -- as we have been digesting the order backlog on the ES8, we have also maintained a pretty stable and a strong order intake on the ES8 without compromising the strong order intake for the ES9. So by having the strong order performance for both models, we can see the positioning of these 2 products are quite distinguished or differentiated from each other. ES9 is more of a flagship executive SUV where it is more competing with the conventional combustion engine executive flagship SUV like BMW X7 or Mercedes GLS, where for the ES8, it is more of an all-around SUV that is catering both business scenarios as well as family purposes. So these 2 products are complementing each other well, price-wise, they are well differentiated. So we are happy to see that those products are well received in their respective segment.

[Interpreted] Thank you For the question. Regarding your question on the gross margin. In Q1, we have achieved a vehicle margin of 18.8%, achieving quite good increments from both year-over-year as well as quarter over quarter. And in Q1, the increase in the vehicle margin is mainly because of the higher contribution by the higher-margin models, especially the ES8 contributing 50% of the margin where ES8 itself has over 20% vehicle margin in Q1. And also, in the meantime, although there are rising cost pressure because of the rising material costs, however, our advanced inventories on such [indiscernible] components have partially offset such pressure in Q1.

And in terms of the Q2 and the full year, as you may have noticed that there is the rising material cost pressure faced by the entire industry, including the memory chips, battery materials like lithium carbonate as well as NCM and also copper and aluminum raw materials. So starting Q2 and beyond, on average, the cost impact per unit is around RMB 10,000 -- or more than RMB 10,000. But for the full year, the company still aims to achieve a vehicle margin of around 17% to 18%.

And to achieve a Q2 and full year vehicle margin of 17% to 18%, we will be taking these several actions. The first is to further increase the product mix of products with higher prices and also higher margin contributions like the ES8 and ES9. And for other products with moderate margin, we will also maintain a stable pricing and also promotional policies. We will not compromise on the margin performance of such cars for the sake of volume contribution.

And second -- and thirdly, we will also work closely with our supply chain partners to promote on the engineering improvement, efficiency improvement as far as commercial negotiations to together mitigate the cost pressure. With that, we will target for a Q2 and full year vehicle margin of around 17% to 18%.

The next question comes from Tim Hsiao with Morgan Stanley.

This is Tim Hsiao from Morgan Stanley. Congratulations on another solid quarter. I have 2 questions. The first question is about the eco sales because we noticed ourselves of the 8 and 9 series large SUV are expected to likely more than triple year-over-year this year while the rest of the lineup is likely to see a roughly 20% year-over-year decline on your 40% to 50% full year volume guidance. So once the growth of the 8 and 9 series is fully unfolded and the group's total volume my approach like 500,000 unit target, how does NIO plan to reboost the growth of the subsequent models, for example, like a 5, 6, 7 Series, which are likely to face greater competition in the market? That's my first question.

[Interpreted] Thank you for the question. As you can see, the overall volume growth this year is mainly driven by the models with high price and also high margin. They are playing an important role in supporting both our volume growth as well as our vehicle margin improvement. For the ES8, we will maintain a stable and strong market performance. While very soon, we are going to start to deliver the ES9, and later, we will also introduce a 5-seater of the ES8 as they were all play in such a role. And for the ONVO brand, we have L90 and L80 continue to lead the market share and sell in the price segment between RMB 20,000 to RMB 300,000. So -- and also starting next year, our entire product portfolio will enter into a new phase of development where we are going to upgrade our ET5, ET5T, ES6 and EC6 also to the latest technology platform and digital architecture, where the ONVO brand next year will also have new products. So in general, we are going to maintain a pace of around 7 to 5 new or relatively new products every year.

Of course, with the launch of such new products, we don't pursue absolute increase in the volume of the cars, instead we would like to achieve a leading market share in each of their respective segments.

And we also believe that our existing product portfolio and offering can support and sustain our competition and competitiveness in the market. In the first 4 months, the total sales of the company actually topped the passenger vehicle market in Shanghai. We've achieved 8% of the market share among Shanghai's passenger vehicle market. And as we continue to expand our channels and the network coverage, as we continue to deploy power swap sortations and facilities, as the users in the lower-tier cities open up their mind for the battery electric vehicle products, we believe that our existing product lines as well as our upcoming products will help us to achieve a reasonable market share within the passenger vehicle market in China.

My second question is about the profit and OpEx because NIO has posted 2 consecutive non-GAAP profitable quarters. So do you anticipate maintaining the quarterly non-GAAP profit target throughout 2026? In the meantime, can the current OpEx parameters, i.e., SG&A ratio below 10%. And the quarterly R&D spend gains at RMB 2 billion to RMB 2.5 billion, be adequate to support robust business growth moving forward? And when is the next R&D investment up cycle expected to begin? That's my second question.

[Interpreted] Thank you for the question. For the full year 2026, our financial target is due to achieve positive non-GAAP operating profit. In terms of the OpEx guidance, for the R&D expenses, we target to maintain our non-GAAP R&D investments or expenses to be around RMB 2 billion to RMB 2.5 billion per quarter. For this level of spending, we believe that it will be enough to sustain and support our investments into the key technologies such as chips, operating systems and et cetera, to make sure that we have strong competitiveness and also technical leadership. And secondly, such investment scale will also support the launch and the rollout also of new models every year as introduced by William.

And in the meantime, as we keep the expenses flat, we are also putting efforts in improving the overall efficiency and utilization of such resources. Last year, we rolled out the CBU mechanism, where under that mechanism, we are now using less money to yield more R&D results. As mentioned, the productivity or the yield of RMB 2 billion investment as of today is equivalent to maybe the result of RMB 3.5 billion R&D investment in the past years.

And also for the entire company, we've been staying with the battery electric vehicle road map, which can make us more focused than spreading our efforts were range-extended vehicles were [indiscernible]. In that case, we can be more efficient in making our investments, which is different from some of our peers, where they have to split their efforts for different powertrain systems.

[Interpreted] And regarding the SG&A expenses, in general, we hope that the SG&A as a percentage of the revenue is around 10%, but it can be different from quarter-to-quarter. For example, in Q2, we have a quite intensive product launch and the delivery cycle, where the corresponding marketing and the launch expenses are actually higher than the previous quarter. So the absolute amount in Q2 had a surge, especially the selling expenses in Q2 surged a lot from the Q1 baseline. But in Q3 and Q4, as most of the new products will be already in the market by then than the absolute amount in the second half will also be relatively lower. So there will be also differences from quarter-to-quarter.

The next question comes from Paul Gong with UBS.

Congrats on this quarter. I have 2 questions. The first question is regarding the competition in the 9 series or largest SUV segment. I think the success of the year site since late last year has attracted competitors launching the largest EV as we see in Beijing auto show and quite of them are even price with very aggressive pricing. How do you think about the competition in this segment? And what is the moat for NIO? And how can NIO stay ahead in this segment as a sales lead champion in this high-end large SUV segment? That is my first question.

[Interpreted] Thank you for the question. It's true that the ONVO ES8 has created many records. It has achieved 100,000 delivery milestone in just 215 days, which is the fastest among all the cars priced above RMB 400,000 in China. And for 5 consecutive months, it has been the sole champion in the price segment above RMB 400,000 as well as in the large SUV segment regardless of the powertrain types. And looking at the sales of the large SUV priced above RMB 400,000, yes, it has achieved 49.7% market share. The reason for success is because itself is an embodiment of our 11 years of systematic capability and innovation development.

In terms of such systemic capabilities and innovation, it includes our in-house capabilities for full stack technologies as well as our capabilities for the innovative supply chain. The reason I would like to highlight the innovative supply chain is that on the ES9, we have applied a lot of industry-first technologies where we needed to work partly with our supply chain partners to mass produce and make this advanced technologies happen. We also have leading capabilities for the advanced manufacturing life cycle quality, which is well recognized by many authorities in the automotive industry. We also have our smart power systems, our charging and the swapping network, and also, we have established a nationwide premium and holistic car user scenarios and also holistic experience for our users. With the 6 system capabilities established in the past 11 years, we now are establishing ourselves as a premium brand and also is leading in the premium segment.

And in addition to this systemic capabilities, we also have spotted 2 findings among new users who have chosen our products. The first is that the competition landscape of the China's new energy vehicle market is now transitioning from a chaotic brand competition with a more clarified competition where the clarity has been introduced to the overall brand and the competition landscape for the new energy vehicle market in China, where among all these competitors, NIO is widely recognized as a premium brand and also well accepted by the public as a premium brand. Among many users, they have already established a consensus where NIO will be the next car Mercedes, BMW and Audi. And in Q1, the new brand has an average selling price of RMB 390,000. That is around RMB 50,000 higher than that of BMW and 50% higher than that of Audi. So these are lively examples. And in cities like Shanghai, we're around the [indiscernible] area, where in the first tier cities in China, actually, our market share has already surpassed the market share of the ICE models from all those traditional luxury brands. So in general, in the Chinese market, NIO has already established or starting to establish results as a well-recognized premium brand.

And for the ONVO brand it's average selling price is around RMB 240,000, which is also comparable with many Tier 2 luxury brands. And now ONVO is also the go-to option for many families pursuing high-quality and also premium car usage experience. And for FIREFLY, it has achieved 2/3 of the market share in the high end small car market. Its average selling price is around 50% higher than other small car competitors. But in terms of its design, safety and also build quality, it is providing our users with sufficient value and also creating sufficient user value for them. So for the entire company, the NIO brand or ONVO brand or the FIREFLY brand, we are positioning ourselves as premium in general, and this is also a consensus among the users.

And also, in addition, for the new ONVO and FIREFLY brand, we have been insisting on the original design. We have been making long-term dedication and commitment to our products, and we also have corporate missions and values where our users find themselves can really identified with [indiscernible] with all this mindset and mentality. Many users actually pursue beyond simple functions or configurations. They are more seeking for the emotion, connection and resides, whereas we also have the community to create the such emotion experience. So when it comes to competition, such emotion touch point can really create a unique competitive edge where we don't need to be overaggressive with the prices.

Not to mention that when the entire industry is under heavy cost pressure, a low price point may not generate you scale effect or economies of scale. In that case, a low price may not necessarily translate into an advantage, especially for the rising raw material costs on the memory chips, batteries, copper, aluminum, there is no economy of scales for such components, which means that a higher volume does not translate into a good margin performance of the car. In that case, for us, we will insist on our premium brand positioning and insist on providing our users with emotion experience.

Well understood. My second question is regarding the potential indirect price risk under the challenge of the raw material cost inflation. Just now Stanley mentioned the cost inflate by about RMB 10,000 or more than RMB 10,000. I think it's not only your challenge, but if you want a bigger challenge for your competitors who price the products at such a cheaper price level. Under this competition and the cost inflation challenge, do you think there is an opportunity to cut some of the incentives and the indirect [indiscernible] better pricing for the industry and for yourself?

[Interpreted] Thank you for the question. It's true that the entire industry is facing the cost of pressure, mainly driven by the raw material costs as well as the prices of the semiconductors, especially the memory chips. As mentioned by Stanley, the cost impact is over RMB 10,000 per car for our company. But our overall strategy is still to stabilize our prices while, in the meantime, we are also dialing back on some discounts and promotions. Facing the same pressure, different companies may have different coping mechanisms. And for us, it's about stabilizing the prices, while maintaining and improving our overall competitiveness on the products and services than just sacrificing on the margin for the sake of the volume.

Our strategy is to maintain a reasonable volume increase while keep improving our margins and the EBIT performance as those are our key business targets. So overall speaking, different companies have different co-mechanism and strategies. And for us, we will be insisting on our philosophy and to mitigate the impact.

And in the meantime, on the supply chain, since last year, we've been promoting some new models working with our partners. One is transparent supply chain and another is a mechanism or a principle called primary and preferred partners. In general, we work closely with our partners to identify costs and processes that are not creating user value, and we work with them to lower such costs or optimized such processes. In general, we believe that on the supply side, there should be around 5% to 10% opportunities driven by such optimization. So for this year, on the supply chain, we will be focusing on doing meticulous operations and management together with our partners to identify opportunities that can offset or mitigate the impact on the rising raw material costs.

The next question comes from Nick Lai with JPMorgan.

Okay. This is Nick from JPMorgan. Two simple questions. The first question is, can you give us a quick recap and quick update of our ADAS strategy. And you mentioned earlier at the call that our own in-house chip engine has started to be put in our car selective model for now. And I wonder how fast will our in-house chip be deployed to the rest of the model, and how this ADAS strategy is going to be make our product much more competitive compared with our competitors? And at the same time, I'm aware that our in-house chip subsidiary has raised RMB 2 billion through fundraising in the first quarter. How would that help our financing and R&D? That's the first question.

[Interpreted] Thank you for the question. For NIO's in-house developed smart driving trip X1931, it is the world's first automotive grade chip of 5-nanometer process, and it comes with the industry-leading capabilities in inference, data bandwidth, ISP performance as well as the inter-chip communications. And it was firstly mass produced on the new ET9 last March. And to date, we have already shipped more than 250 pieces -- more than 250,000 pieces of the chips to our product. So the chip solution itself is already pretty mature. And earlier, we have also introduced this chip to the ONVO's new products starting with L90, as by introducing this to the ONVO brand, we can also merge the autonomous driving or ADAS software baseline, improving the overall R&D efficiency as well as enhance their data close-loop capabilities.

And in the second half of this year, we believe that more than 80% or 85% of our cars will be equipped with our in-house developed smart driving chips. And in terms of our AD solution and AD road map, as you see that starting this year, we are moving to the architecture featuring our new road model plus the closed-loop reinforcement learning, and it has great potential for the continuous development and integrations as well as good efficiency. Because we are only using 20% of the car computing power in comparison to our competitors or our peers to achieve the same level where even better smart driving experience and performance. With this major version and upgrade, our users actually all speak highly of the smart driving experience. And later this year, we will have another 2 major upgrade. So we are quite confident with the overall AD performance as well as its growth potential.

And in terms of the business model for the ADAS, we will continue our subscription services and the business model on the ADAS as it will also become a very important revenue driver among our other sales revenue mainly based on the services and also community-related businesses. Although right now, we are offering free subscriptions to some early users or new users, but for the use of cars, they will have to pay for the ADAS subscription. So for the long term, we see the potential in that.

So in terms of our AD solution, we have already completed the entire chain from the chip to the model and architecture to the closed-loop data as well as the business model. And in terms of the [indiscernible] and the resin financing, of course, a smooth financing driven by the [indiscernible] chip business can also give us more resources and the flexibility in developing our upcoming chip products, especially chips that are more affordable.

Next question comes from Jing Chang with CICC.

Congratulations on our robust profit in the first quarter. So my first question is about ONVO. We see that L80 has opportunity launched is this month. So how do you see from the market feedback on the orders? And also, we see competition currently -- so how will the L80 overcome the new vehicle effect, which means we see some new model have quite large orders in the beginning, but later they will encounter the shop decrease. So was exact on the L80 sustainable monthly sales performance and also for the overall ONVO brand, what's our strategy to be implied to enhance the brand awareness for ONVO in total?

[Interpreted] Thank you for the question. For the ONVO L80, we believe it's a defining and also revolutionary product in the large 5-seater SUV segment. In general, the market size for the 5-seat SUV is 3x of that for the 3-row SUV segment, which means that for the L80, it is being able to tap into a greater and broader market than the L90.

And since the official launch of ONVO L80 on April 29, we actually have received a positive feedback both from the media as well as from the users who test drove the vehicles and its order intake is also meeting our expectations. Regarding the target users of the ONVO L80 actually, the car can cater to a pretty wide range of user groups, including young couples, couples with [indiscernible], families with pet where families with kids that are already going up. So for the ONVO L80, we believe that it core competitiveness is still is powered by the technology as well as its overall product performance, including how it has reimagined the space as well as all this lifestyle and scenario-based solutions. So we believe that the ONVO L80 will drive the entire large 5-seater SUV segment into the BEV era, just like how L90 and the ES8 did with the large payroll SUV segment.

And right now for the ONVO brand, the major challenges still because of its overall brand awareness, things after all, ONVO has just started its delivery for around 20 months. And we've also found done the study on the ONVO awareness. It's current awareness is basically on par with the awareness of the NIO brand in the year of 2020. To list its brand awareness, we are also taking different approaches so that more people will be able to know about the brand. For example, we have collaborated and invited some celebrities to promote our products and brands where many of these celebrities have good reach among the target users of ONVO. And we are also asking our front-line colleagues and teams to really go into the field to go door-to-door to promote our products and invite users for the test drive. It takes a lot of effort, but it is also taking effect. So overall it takes time to really establish and build the brand awareness on the ONVO. But the good thing is that once the public for the users know about the brands, we have a pretty efficient conversion from knowing about the brand all the way to the order placement.

My second question is regarding to the other sales. We have seen the gross profit margin of other sales has been -- have a significant improvement in the first quarter to above 20%, which I think is a historical high. Could you quantify the main drivers behind this margin growth? And also, is there any one-off effect and also provide us maybe some outlook on the trend this year.

[Interpreted] Thank you for the questions. Regarding other sources, mainly includes aftersales services service and maintenance, accessory e-shop, power services and also new life merchandise. And we've been witnessing significant improvement in the aftersales performance and also financial last year. And in Q1 this year, we have achieved over 20% other sales margin. And with this result, there was no one-off impact, and the key drivers of the improvement in other sales margins, mainly because, first of all, NIO, the entire company, has been committed to establishing this brand connections with our users and to deliver experience -- holistic experiences throughout the life cycle of the product that can go beyond their expectations. With that, we have a very strong user stickiness and also a strong willingness to pay for these premium services. For example, aftersales services, the accessory e-shop and the new life products have actually are popular among our users, and they also generate a good result. And secondly, we've been improving the overall efficiency of such services, especially power services for the operating CapEx where operating costs per station we've actually achieved quite significant improvement. And thirdly, we are also leveraging our energy and power services by doing off-peak and offtick charging and also great interactions and also electricity trading to be able to also generate good results.

And with that, we believe that our other sales, mainly our services and community-related businesses are also embracing an inflection point and entering into a new phase of development. And for the full year 2026, we have the target for a 20% other sales margin.

And going into a longer term, as we continue to increase our user base and also the efficiency of such services, we believe that the profitability of other sales, as mentioned, services and community-related businesses, will also continue to improve. So in the long run, in addition to the new car sales, other sales will also become a very important and a key driver for our sustainable growth.

The next question comes from Yuqian Ding with HSBC.

I just got 1 question. So regarding the second half, could you talk a bit more about the new comp plan? Other than the current new models ramp up into second half, what's the biggest expectation in segment half? Could you share the ES7's time line and position among the current big size of premium SUV pack you have?

[Interpreted] Thank you for the question. In the second half of this year, the major new product we're going to launch will be the 5-seater version of the all-new ES8. So in addition to that, our primary focus in the second half will be dedicated to selling cars and also serving our use as well.

The next question comes from Joe Yang with Bank of America.

I also have 1 question on your battery. Can you talk about what are the target number of your battery of stations and also the targeted utilization rate by end of this year? And when will the battery swap business achieve probability on a stand-alone basis?

[Interpreted] Thank you for the question. Well, our power swap stations at its peak, mainly during the holidays were busy hours on average, each station can deliver around 45 swaps per day. And on the average days, it's around 30 swaps per day. And for the short term, our focus will still be on rolling out and expanding our power swap network. And this year, our target is to build a total of more than 1,000 power swap stations. Especially starting in Q3, we will be able to roll out our fifth generation power swap substation at the scale.

In the meantime, we are continuously improving the operational efficiency of our swap stations. But for the short term, we will still need to make upfront investment and early deployment of stations. So for the short term, the profitability of the power swap network is not our primary focus. But I would like to mention that for the services and the community-related businesses, basically other sales, it has already achieved profit. And in that case, we -- and the power swap business is also included in that part of the profit, which means that we will have resources to sustain the continuous expansion of our swap station network.

There are no further questions. 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 News IR team through the contact information on the website. This concludes the conference call. You may now disconnect your line. Thank you.

That does conclude our conference for today. Thank you for participating. You may now disconnect.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]

Hello, ladies and gentlemen. Thank you for standing by for NIO Inc.'s Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] Today's conference call is being recorded.

I will now turn the call over to your host, Mr. Rui Chen, Head of Investor Relations and Corporate Finance of the company. Please go ahead, Rui.

Good morning and good evening, everyone. Welcome to NIO's Fourth Quarter and Full Year 2025 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 of the Board and the Chief Executive Officer; and Mr. Stanley Qu, Chief Financial Officer.

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 News 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.

[Interpreted] Hello, everyone. Thank you for joining NIO Inc.'s 2025 Q4 and full year earnings call. In Q4 2025, we delivered 124,807 smart EVs, achieving a year-over-year increase of 71.7%. Quarterly deliveries for all their brands reached a record high. For the full year 2025, the NIO, ONVO and FIREFLY brand worked in close synergy and delivered a total of 326,028 vehicles, up 46.9% year-over-year. This marks our return to a strong growth trajectory.

In January and February of 2026, we delivered 27,182 and 20,797 vehicles, respectively. For the first quarter, we expected total deliveries to be between 80,000 and 83,000 vehicles, representing a year-over-year increase of 90.1% to 97.2%.

Turning to the financial performance. In Q4 2025, our vehicle margin reached 18.1%. The continuous improvement in margin was mainly driven by strong sales growth, a higher mix of high-margin models and also continued vehicle cost optimization. Meanwhile, the margin of other sales reached 11.9%, supported by the expanding scale and improving profitability of our services and community-related business as our user base continues to grow. In Q4, non-GAAP operating profit reached RMB 1.25 billion, while GAAP operating profit reached RMB 810 million. On the cash flow side, we delivered positive free cash flow for 2 consecutive quarters and achieved positive operating cash flow for the full year of 2025. This quarterly profitability also further validates the competitiveness of our technology road map products and business models. It also demonstrates the continued strengthening of our operational capabilities and efficiency, providing a solid foundation for long-term sustainable development.

Since 2025, we've been serving a broader group of users through the NIO, ONVO and FIREFLY brand. The 3 brands have been well recognized by users in their respective segments. For the new brand, the All-New ES8 has shown strong market momentum since deliveries began at the end of September 2025. In just 160 days, it reached the milestone of 70,000 deliveries, setting a monthly delivery record among vehicles priced above RMB 400,000. In Q2 this year, we will introduce the new ES9 and executive flagship SUV. As a combination of NIO's 11 years of technological innovation and user experience development, the new ES9 is equipped with multiple industry-leading technologies, delivering a luxurious experience -- luxurious executive mobility experience for users. In addition, the [indiscernible] and ES6 will introduce the 2026 version in Q2. Overall, the new brand will continue strengthening the product lineup and its position in the premium fab market.

For the ONVO brand, its L90 has been very well received by large family users since its launch. Thanks to its innovative experience, outstanding safety performance and exceptional space design, the ONVO L90 became the best-selling large battery electric SUV in 2025. Next, the ONVO L80, a large 5-seat SUV with front and rare tons will be introduced in Q2. At the same time, L90 and L60 will also receive product upgrades and refreshes. With an expanding product lineup and continuous product upgrades, the ONVO brand will deliver the finest mobility experiences to more family users, driving steady sales growth.

The FIREFLY brand officially launched in 2025 has quickly established itself thanks to its earmarked positioning class-leading product competitiveness and innovative user co-creation model. In 2025, the FIREFLY ranked #1 in the high-end mall power market for 7 consecutive months. User interest in the FIREFLY continues to grow across more regions. Our long-term investments in core technologies are beginning to bear fruit. Key technologies, such as the [ woodfirst ] automotive-grade 5-nanometer chip was Smartdriving, the full domain vehicle operating system and the Skylight Intelligent chassis have all achieved a mass production. This innovation not only elevate product performance and user experience, but also deliver significant cost advantages. Together, they form a strong foundation for the company's long-term competitiveness.

In late January this year, we released a new version of new work model known as NWM. In this version, we adopted a training paradigm with complete closed-loop reinforcement learning, one of the first implementations of its kind in China. With the advanced architecture of word model and slow-loop reinforcement learning, NWM has significantly enhanced the performance of Navigate on Pilot or NOP across other means. February marked the first 4 months following the rollout of the new version. During the month, the share of driving time using smart driving increased by more than 80% compared with January. With this update, over 2,000 power substations in urban areas nonsupport Power Swap Pilot seamlessly integrating with urban NOP and offering users the industry's only fully automated recharging experience.

ONVO Smart Driving has also achieved end-to-end upgrade across Navigate on Autopilot for urban roads, parking assist and Smart safety. This year, ONVO will further upgrade the smart driving hardware and software systems across its lines, allowing more users to benefit from our full stack proprietary technologies. On the sales side, we currently operate 171 new houses and 395 new spaces, while ONVO has 420 stores. For the service network, we have 406 service centers and 75 delivery centers. In 2026, the 3 brands will continue to strengthen their presence in key markets while expanding into more lower-tier markets through Sky stores, which serve as a shared sales and service stores for all the brands.

As of now, we have 3,815 power stop stations and more than 28,000 power chargers and destination charters worldwide. On February 6, 2026, the company reached the milestone of 100 million cumulative swaps, which demonstrates that battery swapping has been widely validated by both users and the market. During the Chinese New Year holiday, our swap volume reached new highs, surpassing 177,000 swaps in a single day. Power Swap is a systematic and innovative solution to addressing the mismatched life cycles of vehicles and batteries, serving also as a form of energy storage, it is increasingly becoming an integral part of the new power system. Over time, the continued expansion of the power swap network will enhance the EV user experience and provide a unique competitive advantage for the company's long-term success.

While continuing to deepen our presence in the Chinese market, we are also steadily advancing our global strategy. So far, the FIREFLY including its right-hand drive version is available in 10 countries. In 2026, we will continue to expand overseas through the country distributor model with FIREFLY serving as a leading brand. Last month, our Smart Driving chip subsidiary, [indiscernible], or Shenji signed an agreement with its first run of equity financing. The round raised RMB 2.257 billion getting Shenji a post-money valuation of more than RMB 8 billion. Shenji's chip technology, R&D capabilities and commercialization outlook have been widely recognized by multiple leading industry investors and top market institutions. This financing will support Shenji's continued development of high-performance chip products and strengthen our long-term positioning in autonomous driving and embodied AI.

The company has now entered the third stage of its development, embarking on a new cycle of high-speed work. We will continue to make determined and sustained investments in the 12 full stack technology domains for smart EVs, ensuring our leadership in both products and technology. In 2026, we will launch 3 new models, further strengthening our product portfolio and expanding our share in the premium large vehicle segment. We will also continue investing in charging and swapping infrastructure, while improving the commercial operations of our infrastructure network. In addition, we will further strengthen our sales and service network, ensuring that our overall system remains resilient in an increasingly competitive market.

In 2026, we will continue to deepen organizational transformation. We find the CBU mechanism centered on user value creation and strengthen our company-wide business system with heightened ROI awareness and improved cost control. We remain committed to our original aspiration and user enterprise, delivering more competitive products and technology, better services and stronger business performance to honor the trust and support of our users, shareholders and investors.

Thank you, William. Let's now review our key financial results for the fourth quarter of 2025. Our total revenues reached RMB 34.7 billion, up 75.9% year-over-year and 59% quarter-over-quarter. Vehicle sales were RMB 31.6 billion, representing a strong increase of 80.9% year-over-year and [ 0.6% ] quarter-over-quarter. The year-over-year and quarter-over-quarter growth were mainly due to increased deliveries and higher average selling price driven by positive product mix effect. Other sales were RMB 3 billion, up 36.6% year-over-year and 17.5% quarter-over-quarter. The year-over-year growth was driven by increased sales of used cars, technical R&D services and sales of parts, accessories and after-sales vehicle services. While the quarter-over-quarter increase was mainly due to the increase in revenues from technical R&D services and sales of parts, accessories and after sales vehicle services.

Looking at margins. Vehicle margin was 18.1% compared with 13.1% in Q4 last year and 14.7% last quarter. The year-over-year and quarter-over-quarter improvement were driven by positive product mix effect with the ramp-up of higher-margin products. Moreover, gross margin from other sales reached a record high of 11.9% during the quarter, reflecting the continued enhancement in the profitability of our user base-driven service and community-related businesses. With the improvement in both vehicle margin and other sales margins, overall gross margin increased to 17.5% compared with 11.7% in Q4 last year, and 13.9% last quarter. With the implementation of sale business unit mechanism and the progress of organizational optimization we are seeing a sustained improvement in operational efficiency.

R&D expenses were RMB 2 billion, decreased 44.3% year-over-year and 15.3% quarter-over-quarter. The year-over-year decrease mainly driven by lower personnel costs in R&D functions due to organizational optimization and decreased design and development costs from different development stages. The quarter-over-quarter decrease was primarily driven by lower personnel costs in R&D functions due to organizational optimization. SG&A expenses were RMB 3.5 billion, decreased 27.5% year-over-year and 15.5% quarter-over-quarter. The year-over-year and quarter-over-quarter decreases were mainly driven by a decrease in personnel and related costs in marketing and other supporting functions as a result of organizational optimization as well as the decrease in sales and marketing activities.

In the fourth quarter, we achieved an important milestone, our first ever quarterly profit. Profit from operations was RMB 0.8 billion compared with loss from operations of RMB 6 billion in Q4 last year and RMB 3.5 billion last quarter. Excluding share-based compensation expenses, adjusted profit from operations was [ RMB 1.25 billion ]. Net profit was RMB 0.3 billion compared with net loss of RMB 7.1 billion in Q4 last year and RMB 3.5 billion last quarter. Excluding share-based payment compensation expenses, adjusted net profit was RMB 0.7 billion. Furthermore, we delivered positive operating cash flow and positive free cash flow this quarter. We ended this quarter with a stronger balance sheet with total cash and cash equivalents restricted cash, short-term investments and long-term time deposits amounting to RMB 45.9 billion.

That wraps up our prepared remarks. For more information and the details of our unaudited fourth quarter and full year 2025 financial results, please refer to our earnings press release. Now I will turn the call over to the operator to start our Q&A session. Operator?

[Operator Instructions] Your first question comes from Tim Hsiao with Morgan Stanley.

Tim from Morgan Stanley. Congratulations for achieving the first ever quarterly profitability I have 2 questions. The first question is about the product and the volume sales growth target. I guess, during the call, I think William just mentioned he is going to launch ES5 series and the 6 series was waving L80 in second quarter. So what's our plan for second half? Could we have a quick update on the model pipeline for second half? And separately, given the challenging auto industry backdrop, is NIO still maintaining annual volume growth target of 40% to 50% this year? That's my first question.

[Interpreted] Thank you for the question. It's true that the entire industry has encountered challenges in the first quarter of this year as a lot of industry numbers and data have already shown the market and the environment. For this year, we also believe that the size of the Chinese passenger vehicle market will also see a slight decline from last year. But within the China's passenger repo market, we believe that the penetration rate of the new energy vehicles will continue to grow. And among the new energy vehicles, battery electric vehicle will see a stronger growing momentum. Actually, last year, the increase of the new energy vehicle market as a whole is largely driven by the increase of the BaaS, the penetration rate of above increased by 26% to 33%. This is largely driven by the BaaS models. And as technology and infrastructure network continue to mature, we believe that the above market segment will maintain the strong momentum also this year.

And also more specifically for the BaaS segment, we also see a good potential within the premium segment as the perception and the awareness on the premium battery electric vehicle model has already established in that segment. The penetration will also be growing driven by that. For all the vehicles priced above RMB 300,000, we actually see an increase of above penetration of [ 38% ] year-over-year. Well, for the risk model, the penetration waiting back segment actually decreased by 4%. And the overall BaaS penetration in the premium segment also increased from only 14% in Q4 2024 to 27% in Q4 2025.

And more specifically on the large solar electric SUVs as well as a large 5-year battery electric SUVs. We also see a strong momentum last year. In September last year -- since September last year, the large battery electric SUV model has been leading the segment across all powertrain and energy types for 5 consecutive months. And in the second half of last year, the [indiscernible] sales actually increased by 350% well [indiscernible] [ decreased ] by 6%. So we believe that with this trend where [indiscernible] is actually growing within the segment, our product launch cadence is also in a perfect match with the core trend in the industry. This is also where we have the confidence for the continuous growth this year.

And also as mentioned in Q2, this -- actually on April 9, we are going to host the technological launch event for the NIO ES9, which is our flagship executive, SUV also a technological flagship and the official launch of the NIO ES9 will be in Q2 this year. And in the meantime, in Q3, we are going to introduce the large 5-seater SUV developed on the same platform as the All-New ES8. And in Q2 this year, for the ONVO brand, we are going to introduce the L80, which is a large 5-seater SUV. Together with the L90 as well as the All-New ES8 that are already in the market and also popular among the users, we will be having 5 midsized and mid- to large SUV models to complete our product lineup in the large premium model. And this is also where we believe that it will be the key drivers for our full year growth.

And also for the ET5, ET5T, ES6 and EC6, they are also leading in their respective segments. For the ONVO L60, it is also the top 3 among its among the peers in each segment. Very soon, we are also going to introduce upgrades on the L60 and we can really look forward to the refreshes of this product. And worth noting that for firefight is actually performing pretty well among the high-end smart small car segment with a very significant market share. And for the full year, we also are having confidence with the soft volume of FIREFLY since after the Spring Festival holiday, we are seeing a rebounding demand for the FIREFLY model. So for the full year, we do have confidence of achieving a year-over-year volume growth of 40% to 50%. The first 2 months of this year is normally a typical seasonal low for the entire industry. But even against this backdrop, we still achieved a year-over-year growth in our sales volume. And for the Q1 guidance, we also target for an over 90% year-over-year growth. So for the full year, we do have confidence to achieve our volume target.

Yes. My second question is about the autonomous driving because I think during the opening remarks, we mentioned after the rollout of the role model, the tie of AD usage grew 80% month-over-month in February. So we know that -- what key feedback has been received regarding user experience? Additionally, we noticed several EV peers have or would introduce a more meaningful system model upgrades this year. What would be NIO's key technological highlights and differentiators, especially in the tight Level 3, Level 4 range? That's my second question.

Thank you for the question. Actually, for us, we believe that there are 2 key parameters to showcase is the smart driving experience and functionality is the best for our users. The first is the share of the smart driving time online, the total driving time for users in the real-life driving scenarios. And the second is the number of accesses that are mitigated or avoided under the smart driving functionality.

As you've mentioned, from January to February this year after the rollout of the version, the usage of the smart driving functionality actually increased by more than 80% month-over-month. And this is based on the new world model version with limited computing investments we made last year. And this year, we are going to actually increase our investments into the computing power resources and also be able to roll out more training sessions for our new word model technology. And we are targeting 2 major releases in Q2 and Q4 this year. Over speaking, with this new version, we have already verified that our architecture, featuring work model and the reinforcement learning is actually capable of achieving good experience. And it also has a lot greater potential for the continuous capability and functionality upgrades. We also see that a huge amount of data is also helping us with the experience improvement. So over speaking, we will be having these 2 major releases.

Your next question comes from Bin Wang with Deutsche Bank.

[indiscernible] first quarter margin guidance based on your volume assumption, what shall we look at because actually facing the providing memory cost and be some of the loan material. And recently, we may actually launched [indiscernible] about RMB 10,000. So can you provide a first quarter margin guidance. And the second question is more about receivable from related parties because investors see this number keep increased every single quarter. Can you provide a forecast with the [ change ] for this receivable from the parties exactly came from your battery develop partners.

[Interpreted] Thank you for the question. Overall speaking for the vehicle gross margin in Q1, it will be maintained at a similar level as in Q4 last year. In the [indiscernible] there were seasonality factors as well as the policy impacts. But over speaking, we still have ES8 order backlogs. And also since the spring festival holidays, we see a pretty good recovery on the order momentum of the ES model. So overall speaking, the ES8 model will still be playing a major part in our total deliveries in Q1. So that part is guaranteed with the product mix largely decided by the high-margin products like the ES8, we will also be able to maintain a relatively flat vehicle gross margin in Q1 this year.

But as you've also mentioned, there are other external factors, including the rising raw material costs, rising costs for the chip -- memory chips as well as the lithium carbonate for the battery packs. Those impacts are also going to take effect starting in Q1. But as they have just get started, the current impact on our Q1 vehicle margin is also limited.

And regarding your questions on the accounts payable by the affiliated party, it's mainly the accounts payable by our battery asset management company, [indiscernible]. As in the recent months, we are seeing growth in both source volume of our products as well as the take rate of the Battery as a Service. We also see increasing account payable by the battery asset management company. But for them, they've been keeping a smooth and also diversified financing channels through that financing, equity financing or the bank back to consumer installment financing. So overstating base having a diversified and smooth financing channels financing channels. This is also we believe that we will have a good control and organize the control over the account payable by the better asset management company as well as the payment terms.

Your next question comes from Paul Gong with UBS.

My first question is continuing with raw material cost inflation. Just now, I think, Stanley has mentioned that the pressure is just beginning to be felt in Q1. And I think probably in Q2 that some more pressure could be failed. Given NIO is a position that's relatively high end and still have a relatively strong demand and new orders compared to the peers. Do you think you can pass this part of the cost inflation to the downstream to the customers? That is my first question regarding the raw material cost inflation pass-through.

[Interpreted] I will follow up on my previous answer. For this year, we do face pressures coming from the vehicle cost structure and also because of the trend on the AI and computing power as well as the tensions on the geopolitical side, we do see the rising material costs were the volatilities in the prices regarding memory chips, copper or lithium carbonate and all kinds of raw materials. So we do have pressure regarding our cost structure as well as the vehicle margin.

But for the full year, so far, we don't have a fear picture regarding the implication of all these volatilities and uncertainties. But in the meantime, we will keep working with our supply chain partners to improve the supply chain efficiency and to mitigate the negative impact of such uncertainties as much as possible. It also has introduced by William. This year, we are going to launch 3 new large models. So together, we will be having 5 large SUV models in our lineup, and they will be making major contributions to our sales and delivery volume as larger vehicle models have higher margin and they are more resilient towards this raw material volatilities and uncertainties. In that case, we -- well, we do have confidence to try to mitigate or offset the impact out by the rising raw material costs and try to maintain our vehicle gross margin within a reasonable range for full year this year.

If I may have, my second question. That is regarding the expense. We have seen that the cost control has taken quite some effects, especially from the R&D that has reduced from RMB 3 billion in Q2 into RMB 2 billion in Q4. Given Q4 is traditionally the strong season with the expense. So moving to Q1 and Q2, do you foresee further optimization on the expense side? Or do you think the $2 billion quarter is going to be the new loan?

Thank you for the question. In 2026, on a quarterly basis, we will be maintaining our R&D investment at the level of around RMB 2 billion to RMB 2.5 billion per quarter. So for the full year, the R&D expenses will be at a similar level as we spend in 2025. In the meantime, as now we have the cell business unit mechanism in place, we will use that mechanism to keep improving the R&D efficiency to eradicate the low efficiency items among our R&D activities and also to keep improving the return of all the R&D activities.

And in the meantime, in this year, based on our business performance as well as the overall return on investment analysis, we will keep a dynamic tracking and also management of our R&D expenses to make sure that we can adapt the pace and intensity of our R&D activities based on all these changing factors so that we don't compromise on the investments into key products and also technologies or the long-term competitiveness of the company.

Your next question comes from Nick Lai with JPMorgan.

Yes. I'd like to follow up a previous question on profit and also cost. Given, Will, you talked about very strong volume outlook, yes, for '26 also, we have a lot of new model coming higher, higher pricing, higher margin products from second quarter and onward, but at the same time, the cost inflation pressure taken in from second quarter as well. So I mean, putting all this together, can you help us understand how should we think about the ability maybe for second half or second quarter? Or should we expect NIO can be potentially reached a non-GAAP profit or breakeven sometime in second half or maybe in the second half? And what does that mean for our free cash flow proceeding for the full year?

[Interpreted] Thank you for the question. Regarding the sales volume, we still keep -- keep on track on the target of achieving 40% to 50% year-over-year growth in our sales volume. As we've introduced this year, we are going to launch 3 large models. That give us the confidence in the volume target. And in the meantime, regarding the vehicle gross margin, we do have pressure on the margin and also the vehicle cost structure. But as mentioned, we will be having more large models introduced this year as they will be contributing more significant margin. Like for the ES8 in Q4 last year, its vehicle gross margin was close to 25%. So overall speaking, large models are more resilient towards the price volatilities in the market. with the volume and also the vehicle margin outlook combined, we still have the target of achieving full year non-GAAP operating profit breakeven in 2026.

My second question, if it's okay. My second question is really about the Shenji [indiscernible] chip. And after recent successful fundraising [ $300 million ], can you share with us our eaters strategy in the medium term, aside from supporting internal sales. Is it fair to say that Shenji will also try to explore internal customer like other OEM or other suppliers?

[Interpreted] Thank you for the question. For Shenji, it has just completed the first rough equity financing where during the fundraising, it has also received a wide planations by the professional institutions as well as the institutions. And they all speak highly of the capabilities and R&D of the change company.

And for the ongoing R&D activities of the Shenji company, it will be developing our next-generation high-performance chips for our products. But in the meantime, they are also planning and exploring mid-end chips that are more approachable by more clients in the industry, including potential partners and clients in global taxi were embodied AI applications as we do see a good fit of our products in such areas and industries. Actually, in the meantime, we are already exploring possibilities with some external clients, including some automotive companies who have also shown interest into our trip products.

Actually, the second chip product form Shenji, which is actually chip still made of high and advanced processing but can be used by a broader client base. It's already achieved a successful tape-out and it's also preparing for the mass production. And this is a very competitive chip product.

Your next question comes from [ Jun Zhang ] with CICC.

Okay. My first question is about our upcoming model, which is ES9. So compared with [indiscernible] release last year, so could you elaborate on its new capability enhancements? And also how is our pricing position for this new vehicle?

[Interpreted] Thank you for the question. NIO ET9 is our executive flagship. It is also the most premium and advanced products in our lineup. Recently, we have also released the horizons for the new ET9, it's well received by the users. And for the ES9, definitely, it carries over advanced technologies and also features from the new ET9, but it also comes with its unique tech innovation, positioning and product type-wise these 2 products are quite different. ET9 is an executive sedan where ET9 is actually a tax flagship as well as a flagship SUV model.

My second question is about the energy replacement mass. There has been more market discussion recently. So against the -- on the background of the rapid development of fast charging. So could you elaborate on the advantages and also necessity of battery sorting especially from structured construction and also as long as our mid- and long-term charging and working construction plan.

[Interpreted] Thank you for the question. Actually, we are happy to see that more automotive companies are participating into the construction of the charging and swapping network as more players coming into the joint development of the infrastructure network, it can help accelerate the adoption of the battery electric people as well as the acceleration of the conversion from the ice cars, rigs and hypes to the bat models. So we are happy to see such trends.

But [indiscernible] and swapping the are not contradictory. We also have developed more than 280,000 power chargers and destination chargers. We are also one of the most active Chinese car companies in terms of the charging network development. For swapping, home charging and supercharging they come at different benefits and they serve different purposes for users in different use cases and scenarios. And for us, we always offer this holistic solutions featuring charging, swapping and upgradability.

And also, we see some industry peers they have announced advanced technologies in terms of the charging and the charging speed. We are also happy to see such technological innovation and development. But in the foreseeable future, no matter how fast the charging becomes, it will never outperform the feed or the experience of power swapping. And also, there are channel benefits brought by the swapping that charging will never offer. We believe that swapping is also a systematic solution to solve the problems regarding the mismatched life cycles between the vehicles and the batteries.

In the Chinese automotive industry, the warranty period for the battery pack is normally 8 years, 160,000 kilometers or at 70% state of health after use. For the vehicles, for the business and commercial purposes, normally, their duration is shorter. But for the private sectors, the vehicle can be used for up to 15 years. In that case, the battery life cycle is significantly shorter than that vehicle. But if the battery and vehicles are tightly coupled with each other after 9 or 10 years, this mismatched life cycle will become a major problem for the users and industries. And for that, we believe that power swap enables a flexible solution or an innovative solution to solve the mismatched life cycles between vehicles and batteries.

And also under our power swap system, together with our long life factory, our charging and discharging strategy as well as our life cycle monitoring and also inspection on the battery house. All this measures come as a very systematic and holistic operational approach for us to keep monitoring the safety of the battery and also maximize the longevity of our battery products. And this requires systematic thinking and systematic design. So it's one a matter of charging were swapping speed, it actually provides the industry as a magic solution.

And also for the Power Swap system, it is also a distributed energy storage system as with renewable energy and green electricity generation. The storage and consumption of such renewable energy is a big challenge. This is also why the Chinese government is now building up the new power system to be able to digest all this green energy. And the Power Swap station is also a type of a new power system as it can help with energy storage, energy consumption as well as the interaction with the power grid. In that case, we do see opportunities as well as the value the business side brought by our Power Swap system and also different from the supercharging requiring energy storage. We actually only need to charge and discharge the battery one, which can help to reduce the secondary energy loss that can contribute to an efficiency improvement or benefit of around 6%. So economic-wise, Power Swap is also more efficient and viable.

And for the charging -- for the swapping network, now so far in China, we already have installed more than 3,800 Power Swap stations. If every station comes with a full battery pack installment, it will be a total energy storage volume of around 6 to 7 gigawatt hour, which is already pretty sizable from the energy storage perspective.

So overall speaking, power swap not only provides better charging or recharging experience for our users. For the long term, it is also helping with our business development and also success. So this is also bringing us a long-term business success and it's highly defensive.

Your next question comes from Ming-Hsun Lee with Bank of America.

William, I have follow 2 questions. So my first question is related to the chip business. So I think previously, you already mentioned that the second ship will be more powerful, more competitive compared to your first chip. So could you give a little bit guidance on this chip. So in the future, where you only focus on atomic driving and assume no robot for the chips in the future or you will also develop smart cabin used chip. And also, I think you save a lot of cost because you start to adopt your chip. So could you give some guidance about the vehicle model coverage for your chip? How much percent of the cost can be saved?

[Interpreted] Thank you for the question. So the second chip product function deal will also be a 5-nanometer automotive grid chip, but it comes with a more competitive and efficient cost structure. Performance-wise, it will be on par with [ 3 or wing ]. Cost-wise, it will also be more approachable and efficient than our first generation [ 931 ] chip. So in terms of the utilization, it can be used for autonomous driving, smart driving as well as all the AI applications and embodied AI.

In terms of the average chip product, we will not do the training chip, but focusing more on the on-device inference chip and our trip product will be also qualified to be on devising [indiscernible] chip. And also, it has a lot more potential to be applied across different scenarios and products. In terms of which vehicle models will be equipped with our second chip product. So far, we cannot disclose such information, especially if it's related to our external clients but we do have some industry peers and also clients showing strong interest into this chip product.

And my second question is related to your service business. So in 4Q, your service revenue gross margin reached 11.9%. Is it mainly cost the utilization of your substation continue to increase? And looking into 2026, do you expect the gross margin of the service business will continue to improve because based on your projection?

[Interpreted] Thank you for the question. Regarding the revenues from other sales, it's mainly our service revenues as well as the revenues from community-related businesses. And in 2025, as our user base growth and the operational efficiency growth, we have also achieved the growth in our other sales revenue, more than RMB 10 billion last year, which is also a growing part in our total revenue. And for this year, as we continue to grow our user base, we also are expecting the growth in our other sales revenue and also it will continue to make a positive contribution to the group level gross margin.

And regarding the charging and the swapping business as we will continue to develop and deploy our infrastructure network, especially our Power Swap network at the pace of around 1,000 new stations every year, with all this upfront investment in the infrastructure for the near term, we will still see operational losses on the charging and swapping network side. But the profit from other sales can basically cover the losses on the power and -- on the power side. So this -- the overall business development will be actually conducted in a controlled pace.

And also, I would like to add a comment here. In 2025, we have achieved the profitability on our other sales, mainly our services and community-related businesses. And in 2026, we also believe that we will continue to enhance the profitability of this part even against the precondition that we are going to install 1,000 new Power Swap stations this year, we will still target to achieve improved profitability for this part of the business.

Your next question comes from Yuqian Ding with HSBC.

I've had 2 questions. The first is to follow up on the OpEx optimization. We talked about R&D guidance before. Could we share more color in terms of SG&A? So fourth quarter, we hit SG&A absolute value at 3.5 billion. So can we extrapolate to understand that the baseline if we multiply it by 4, that's the baseline or range we can understand 2026.

[Interpreted] Thank you for the questions. In Q4 2025, as we have seen growth both in sales volume as well as sales revenue, the percentage of SG&A to the sales revenue has also fall into a [ viable ] range. That is also driven by our CBU mechanism as well as the continuous efforts in the organizational efficiency improvement. And also, it's partially because that in Q4, we didn't introduce or launch any new models. So didn't have much expenses on the marketing and the relevant activities and events.

And for 2026, we will also continue our CBU efforts to make sure that our SG&A expenses are of the highest efficiency and good return. The absolute amount of the SG&A expenses this year will be growing, but proportionally to our sales revenue increase, we would like to control that to be winning 10% of our sales revenue.

The second question is to ask about the volume and margin breakdown by brand. We talked about our volume target, and we also talked about a reasonable margin. So could you help us to understand between like 3 portfolio brands or between the core 5 big SUV portfolio versus rest? Just give us a bit of a sense to understand the dynamics between the brand or how do we cluster our volume mix so that can support sustainable margin expansion?

[Interpreted] Thank you for the question. Regarding the sales volume and the vehicle gross margin breakdown, as we've mentioned, the market will be still highly dynamic in 2026. So at the moment, it will be very difficult for us to give a specific or precise breakdown on the volume or margin contribution model.

To give you some high-level information, for the 5 large SUV models that we've mentioned, they will be playing a major role in our sales volume. That's one. And secondly, for the FIREFLY, since after the Spring Festival holidays, we also see a quick rebound of its volume and order momentum back to the level -- back to the stable level as it has last year. So this will also be another indicator regarding the volume driver. And regarding the vehicle gross margin, as we've mentioned, for all 3 brands, they will be under cost pressure due to the external volatility reasons. But in the meantime, we will still keep improving the vehicle gross margin across all 3 brands. At the moment, we cannot give you a specific margin outlook or assumptions for each brand, but put that against a longer time spectrum, we always target to achieve 20% to 25% vehicle gross margin for the new brand, above 15% vehicle gross margin for the ONVO brand and above 10% vehicle gross margin for the FIREFLY brand. So that is our margin target for all 3 brands against a longer time spectrum. It has also been our internal target.

In addition to that, our management mindset has also made a switch since last year, where before it was purely sale volume driven. But now we are trying to find the optimal balance between sales volume, vehicle gross margin and the overall business performance. This is also driven by our CBU mechanism.

As for each vehicle model, we have established a dedicated vehicle strategy team that will be taking the overarching responsibilities for the vehicles business performance finding balance between the margin and also the volume of the product. That is a major change we have made since last year when we had the CBU in place. This is also reflected in our business performance improvement from Q4 to Q1 this year.

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

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]

Hello, ladies and gentlemen. Thank you for standing by for NIO Inc.'s Third Quarter 2025 Earnings Conference Call. [Operator Instructions].

I will now turn the call over to your host, Mr. Rui Chen, Head of Investor Relations and Corporate Finance of the company. Please go ahead, Rui.

Good morning and good evening, everyone. Welcome to NIO's Third Quarter 2025 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 of the Board and Chief Executive Officer; and Mr. Stanley Qu, Chief Financial Officer.

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 may conclude 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 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.

[Interpreted] Hello, everyone, and thank you for joining NIO's 2025 Q3 earnings call.

In Q3 2025, the company delivered 87,071 smart EVs, representing a year-over-year growth of 40.8%. During the quarter, we launched 2 large battery electric SUVs, the ONVO L90 and the NIO all-new ES8. Both models have received strong recognition from users from their comprehensive competetiveness to see solid demand. In the meantime, FIREFLY continued to see steady market growth by covering a broader range of price segments and meeting more diverse needs. The NIO, ONVO and FIREFLY brand are able to drive significant growth in deliveries.

In October, the company delivered 40,397 smart EVs, up 92.6% year-over-year, marking 3 consecutive months of record high delivery. For Q4, we expect total deliveries to be in the range of 120,000 to 125,000, a year-over-year increase of 60.1% to 72%, achieving a new quarterly high.

On the financial front, thanks to the ongoing cost optimization. In Q3, the vehicle gross margin improved to 14.7%, and the gross margin of other sales was 7.8%, resulting in an overall gross margin of 13.9%, the highest in nearly 3 years. This reflects the company's strengthened product and service profitability.

Operational efficiency in R&D, sales and general and administration continued to improve. Non-GAAP operating loss was narrowed by 30% quarter-over-quarter. In Q3, the company's operating cash flow and free cash flow both turned positive.

NIO remains committed to a battery electric vehicle road map, featuring chargeable, swappable and upgradable batteries, leveraging the company's full stack R&D capabilities in 12 key pack areas. The 3 brands are able to precisely meet users' needs across multiple market segments and the competitiveness of our NIO products under all 3 brands have been well received.

The NIO brand recently introduced 3 color themes for the ET9 Horizon Edition. The Horizon edition is a special collection reserved for NIO most prominent flagship models. The distinctive design, advanced technology, executive excellence and exclusive services makes the ET9 Horizon edition a standout in the market. The all-new ES8 [indiscernible] flagship SUV was launched and started delivery at NIO Day in September. Leveraging the unrivaled space and driving experiences made possible by all electric technology. The all-new ES8 has remained a top seller in the premium large 3-row SUV segment, surpassing 10,000 deliveries within just 41 days, the fastest were above price above RMB 400,000.

In November, the ES6, another all around SUV in NIO's lineup celebrated its 300,000 unit delivery milestone topping the south chart of China's fabs models priced over RMB 300,000.

Within the ONVO brand, the L90 delivered over 33,000 units in 3 months since its launch in late July, leading the large battery electric SUV segment for 3 consecutive months. The L60 also delivered strong performance, maintaining a top 2 position in the battery electric SUV segment with MSRP above RMB 200,000 during the first 3 quarters. With exceptional products, experiences and word-of-mouth, the ONVO brand increasingly becomes the preferred choice for families.

Since deliver began, FIREFLY has led the high-end small EV market in sales volume, establishing itself as a benchmark in the market. With creative launches of special edition, it continues to strengthen its appeal among users who value quality and individuality. This dynamic small car is already making its way into global markets and will expand into more countries and regions across Europe and Asia.

In Smart Driving, the NIO world model, NWM is the first word model that not only understand and predict the real world, but also operates with a close-loop training system. Actually, the industry trend is increasingly shifting towards a word model road map. Next, we will gradually roll out upgrades on NWM for vehicles equipped with NIO's NX-931 and NVIDIA's [indiscernible] smart driving chip, further enhancing urban and highway [indiscernible] plus, parking and smart safety performance. The upgrades will also enable execution of OpenSat command.

For the ONVO's Smart Driving, the [indiscernible] scheduled for release at year-end will upgrade its model-based end-to-end solution for urban and highway NOA as well as parking, delivering a more seamless driving experience.

Our sales and service network currently includes 172 NIO houses, 395 NIO spaces, 422 ONVO stores as well as 405 service centers and 70 delivery centers. Our global charging and swapping network now operates 3,641 power swap stations, providing users with more than 92 million swaps. Besides, NIO has built over 27,000 power chargers and destination chargers.

On September 17, NIO completed a total of USD 1.16 billion in equity financing on both the U.S. and Hong Kong Stock Exchanges, further strengthening its balance sheet and providing ample resources with long-term commitment to R&D and user services. On November 23, the 2025 new formula student electric China successfully concluded in [indiscernible]. NIO has been supporting this competition since [ 2015 ], helping culture that tens of thousands of young professionals for the industry.

Today also marks the company's 11th anniversary. Over the past 11 years, we have remained committed to in-house R&D in core Smart EV technologies, continued investing in charging and swapping infrastructure, build a multi-brand sales and service system and created a vibrant community for over 900,000 users to share joy and grow together. These advantages have been increasingly recognized by our users. This year, our NIO products across 3 brands have performed strongly in their respective market segments, marking the beginning of a new phase of rapid growth. At the same time, through the cell business unit mechanism, we have comprehensively optimized our organization and enhanced operational efficiency, consistently improving our business results.

[indiscernible] and growing beyond. Looking ahead, we will continue to provide more competitive technology, products and services to deliver better user experience and greater user value. As the company evolves into a user enterprise leading in technology and experience, we aim to shape a sustainable and brighter future with more users.

Thank you for your support. With that, I will now turn the call over to Stanley for Q3's financial details. Over to you, Stanley.

Thank you, William. Let's now review our key financial results for the third quarter of 2025. Our total revenues reached RMB 21.8 billion increased a 60.7% year-over-year and 14.7% quarter-over-quarter. Vehicle sales were RMB 19.2 billion, up 15% year-over-year and 19% quarter-over-quarter. The year-over-year growth was mainly due to higher deliveries, partially offset by a lower average selling price from product mix changes.

The quarter-over-quarter increase was mainly from higher deliveries. Other sales were RMB 2.6 billion, up 31.2% year-over-year and down 9.8% quarter-over-quarter. The year-over-year growth was driven by increased sales of used cars, technical R&D services and sales of parts, accessories and after-sales vehicle services, while the quarter-over-quarter decrease was mainly due to the decrease in revenues from used cars, technical R&D services, partially offset by the increase in parts, accessories and aftersales vehicle services and provision of Power Solutions.

Looking at margins. Vehicle margin was 14.7% compared with 13.1% in the Q3 last year, and 10.3% last quarter. The year-over-year and quarter-over-quarter increase were mainly due to the decreased material costs per unit primarily driven by our comprehensive cost reduction efforts. Overall gross margin was 13.9% versus 10.7% in Q3 last year at 10% last quarter. The year-over-year increase mainly reflected higher vehicle margin and better profitability in sales of parts, accessories and after sales vehicle services driven by cost reduction and efficiency improvements. The quarter-over-quarter increase was mainly attributable to higher vehicle margin.

Turning to OpEx. R&D expenses were RMB 2.4 billion, decreased 28% year-over-year and 20.5% quarter-over-quarter. The decreases year-over-year and quarter-over-quarter were mainly driven by lower personnel costs in R&D functions due to organizational optimization and decreased design and development costs from different development stages.

SG&A expenses were RMB 4.2 billion, up 1.8% year-over-year and 5.5% quarter-over-quarter. The year-over-year SG&A expenses stayed stable. The quarter-over-quarter increase was mainly driven by the increase in sales and marketing activities associated with new product launches. Loss from operations was RMB 3.5 billion, down 32.8% year-over-year and 28.3% quarter-over-quarter. Excluding share-based compensation expenses and organizational optimization charges, adjusted loss from operations was RMB 2.8 billion, representing a decrease of 39.5% year-over-year and 31.3% quarter-over-quarter.

Net loss was RMB 3.5 billion, showing a decrease of 31.2% year-over-year and a decrease of 30.3% quarter-over-quarter. Excluding share-based compensation expenses and organizational optimization charges, adjusted net loss was RMB 2.7 billion, representing a decrease of 38% year-over-year and 33.7% quarter-over-quarter. Furthermore, we generated positive operating cash flow and positive free cash flow this quarter, together with the USD 1.16 billion equity offering in September. We ended the quarter with RMB 36.7 billion in total cash and cash equivalents, restricted cash, short-term investments and long-term time deposits, laying a solid foundation for our future growth.

That wraps up our prepared remarks for more information and the details of our unaudited third quarter 2025 financial results, please refer to our earnings press release. Now I will turn the call over to the operator to start our Q&A session. Operator?

[Operator Instructions] Our first question comes from the line of Tim Hsiao from Morgan Stanley.

This is Tim from Morgan Stanley. So I have 2 questions. So the first question is about the breakeven target because we noticed that NIO's updated fourth quarter delivery guidance of 120,000 to 125,000 came in like around 20% lower than our previous target of 150,000. So just wondering that with the evolving [indiscernible] adversely affect the company's breakeven target for fourth quarter. And considering the sub-seasonal demand and positive uncertainty, when could the company achieve previous monthly [indiscernible] of 50,000? That's my first question.

[Interpreted] Thank you for the question. Actually, for the company, we still have the confidence in achieving quarterly breaking even in Q4, and this is still our financial target towards the end of the year. But in the meantime, we did see the impact coming from the phaseout and determination of the trading and replacement subsidies in the mid of October. But this is actually the challenge faced by the entire industry. In that case, in Q4 for the entire industry, we may not see the year-end sales spike that we normally expect towards the end of the year. As you are closely tracking the market and all the numbers, probably you have also foresee that potential change towards the end of the year.

And in the meantime, as next year, the purchase tax exemptions on the NIO energy vehicles will be further reduced for the new products like the ES8 with order backlog that will continue towards the next year, car companies, including NIO provide the guarantee for the purchasing tax exemptions to users waiting up for their cars next year. Yet, no car company is going to provide the guarantee for the trading and replacement subsidy. In that case, the overall market demand has been affected because of the cancellation of the trading subsidy, especially for our company, our ONVO L60 and L90 are majorly affected by this cancellation as they are of relatively low-priced segment and are more sensitive to such changes, yet we still have confidence in achieving Q4 breakeven target.

This is mainly because we do see a strong demand for our high-margin products like the all-new ES8, we still have order backlog and also new order intake for that product. So overall speaking, the order intake on the ONVo has been affected because of the cancellation of the trading subsidy, yet the overall impact on the gross profit is limited. In that case, we do have the confidence for the financial targets.

In the meantime, in terms of the vehicle gross margin, in Q3, we have achieved a legal gross margin of 14.7% better than we expected. In the meantime, we are also working with our supply chain partners on the continuous cost reduction and also commercial negotiation efforts towards Q4. With that, we foresee the vehicle gross margin in Q4 to be around 18%. And for the ES8 in Q4, we also expect significant growth in sales and delivery volume with a very lucrative margin of over 20%. Then the overall gross profit for the entire company will be significantly improved from Q3.

In the meantime, we also see good financial performance of our non-car sales business, and we also expect such momentum to continue into Q4. So we see both -- we see improvement both in the sales revenue contributed by the non-eco business as well as the gross margin improvement of that part. With that, the gross profit [indiscernible] vehicle gross profit or the non-vehicle gross profit will also see improvement from Q3 to Q4.

And in terms of the expense and also cost control, since this year, we've been -- we've been taking a series of actions in improving our operational efficiency and also our expenses utilization. And we already see some good results from the Q3 financials. And we will also continue such efforts in Q4 in improving the South -- SG&A expenses as well as the R&D expenses and their efficiency. Especially in Q4, we don't expect any major high-profile marketing or campaigns. In that case, we will be controlling our expenses in Q4 with our SG&A as well as the R&D.

So I'll sum up, our sales volume was affected by the phaseout of the trading and replacement subsidy, yet the gross profit is not majorly affected. In the meantime, we will continue our efforts in improving the efficiency and utilization of our investments and expenses. In that case, we expect also improved business results from Q4 and also have the confidence in achieving the quarterly breakeven target. Thank you, Tim.

My second question is about our volume targets together with the new model schedule because I think back to previous quarters, the management mentioned that we target like 50,000 market run rate in fourth quarter. So if we are not going to achieve that, when can we achieve 50,000 market sales? And considering all the macro uncertainties, would NIO need to consider moving up the launch schedule of the new models to first quarter or earlier to bolster the sales momentum into next year? That's my second question.

[Interpreted] Thank you for the question. As also previously mentioned in my remarks, the guidance we provide for Q4 is 120,000 to 125,000 units. In terms of the adjustment on the guidance, as also explained, it's mainly because of the impact on the phase out of the trading and replacement subsidy. With that, we will not be able to see the year-end sales spike driven by the seasonality towards the end of the year, especially this will affect the sales of our cars that have already experienced their new car high stage. But this is also the challenge faced by the entire industry.

Based on our current product lineup and also launch cadence, we do expect that sometime next year, in the first half of next year, we will achieve 50,000 monthly delivery. This is based on the consideration that we will be launching 3 large models next year and also based on the continuous improvement in our sales capacity and also our sales and marketing efficiency. So we do see opportunity of achieving more than 50,000 units per month, somewhere first half of next year. And in the meantime, we will also not just randomly change our new car launch cadence [indiscernible] simply because of a short-term or temporary policy changes will impact. We will still keep our original launch cadence that is to launch 2 new models in Q2 next year and 1 new model Q3 next year.

Looking forward to the first breakeven quarter and more to come.

Your next question comes from Paul Gong with UBS.

My first question is regarding the 2026 outlook, given there would be 5% of the purchase tax being levied on the EVs, how should we think about the company's preparation for such policy change? Should we compensate for the customers for these amounts and adjust it along the supply chain and internal cost control? Or do you expect the consumers take majority of the [indiscernible]. This is my first question.

[Interpreted] Thank you for the question. As next year, the purchasing tax on the new energy vehicles will be halved. Actually, the impact on us is less major in comparison to other new energy vehicle models and also companies as 80%, 90% of our users choose to buy the car while subscribing to the battery. In that case, the price of the battery is excluded from the tax base. In that case, our tax exemption is still more advantages than other companies and also non-swappable models. And in the meantime, for the popular products like the all-new ES8 with a very long waiting time for the deliveries and pick up, we are also the first acquired company to announce the purchasing tax guarantee for our users who have to pick up their cars next year. We have made this purchasing tax guarantee already at the launch of the year.

For other products and models as their waiting time is not as long as ES8, so far, we don't have the guarantee policy for other models. As for the specific measures that we are going to take to -- in the face of the purchasing tax changes next year, while it highly depends on the dynamics of the market, the landscape of the competition and also the practices of other peers. So we will keep flexibility in our measures and also [indiscernible] but currently, we don't have a very specific plan.

And in the meantime, we also see that the entire industry, including the public and users are gradually digesting the phaseout of the purchase impact policies on the new energy vehicles, especially right now, if we look at the smart EV industry in China, it is now less policy-driven as the actual user experience and also the cost advantage of battery electric vehicles are more evident and also becoming more attractive to the users. In the first 10 months of this year, the sales volume growth of the [ bat ] actually increased significantly. This also gave us the confidence in continuing such momentum. So there will be impact from the purchasing tax phase out, but will be very limited.

My second question is regarding the expense control. And we have already seen quite some cost reduction, especially from the R&D in Q3. And per your guidance, Q4 should see further efficiency improvement. Heading into 2026, should we expect a lower cost structure on the expense side to stay at constant and new normal, i.e., should we expect like low to [indiscernible] for the R&D per quarter and around RMB 4 billion or even lower than RMB 4 billion on the SG&A per quarter?

[Interpreted] Thank you for the question. As mentioned, in Q3, our R&D expenses is around RMB 2 billion in the non-GAAP basis. And also for Q4 and the next year, we expect our quarterly R&D expenses to be flat, also around RMB 2 billion per quarter. And so far, we don't have any plan to dial back on the R&D expenses. But in the meantime, we will focus more on improving the efficiency of our R&D activities, especially leveraging our sales business unit mechanism. We will make full use of the output of this RMB 2 billion investment every quarter.

Inside the company for the project initiation and approval, we have established the ROI evaluation mechanism. We also have the closed loop with the project review and also improvement. By continuing such efforts, we believe that at RMB 2 billion per quarter in R&D, we will be maintaining our existing product development as well as the key technology development without compromising on the competitiveness of the entire company.

And in terms of the SG&A expenses and it's percentage to the sales revenue, as in Q4, based on the sales volume guidance, we have lowered our volume from 50,000 units per month to -- we have lowered from that base. In that case, originally, our target is to achieve 10% ratio between SG&A and the sales revenue, and now it's around 12%. And in Q4, we will also be keeping that level. But this is against the overall background of achieving the quarterly breaking even in Q4. And in terms of the absolute amount, that's around RMB 4 billion per quarter, as you mentioned. And the next year, we will focus on improving our efficiency in sales and also overall activities. Overall, we believe that 10% between SG&A to the total sales revenue should be a reasonable target for us to achieve.

Looking forward for more efficient operations going forward.

Your next question comes from Nick Lai with JPMorgan.

This is Nick from JPMorgan. My first question is really on the possibility into 2026 based on William's comment earlier, second quarter and next year, we have 3 new models and [indiscernible] hitting 50,000 units. And Stanley also mentioned that the expense ratio will essentially be contained. So with all this comment, is it fair to say that second quarter 2025 5 breakeven then next year for the full year [indiscernible] next year -- profitability should also be very strong. That's my first question. How should we think about probability in 2026?

[Interpreted] Thank you for the question. Actually, for the full year, our business target is to achieve profit for the full year 2026 on a non-GAAP basis. And we do see confidence in achieving this profitability target for next year, non-GAAP. As we basically look at this from both market trend perspective as well as the relative competitiveness of our products and services. Here are some insights into the market and the trends over the past 1 year or so. We will be really looking at the penetration rate of the battery electric vehicle in the premium segment and also more specifically in the large payroll SUV market.

In Q3, the sales volume of the tax increased by 26% quarter-over-quarter while for REEV and [indiscernible], the sales volume only increased by 12% and 7%, well actually decreased by 12% and 7% quarter-over-quarter. And if we look at the entire new energy vehicle market, penetration rate has reached 55% in Q3. And this is majorly powered by the growth in the battery electric vehicle. And in the first or third quarter, the sales volume of BAV has increased by 33%, while for REEV it's only 3%. And more specifically, in October, the BEV sales volume increased by 13%, while for the REEV, it decreased by 13%.

So this is also showing how well received and adopted the BEV model is. And more specifically on the premium segment, priced above RMB 300,000, this is where our new brand and our products are in. For the BEV, it's still a -- it used to be at a relatively low penetration rate, but we do see a trend of improving that penetration. This also gives a huge opportunity. We're enlarging our penetration and market share in that segment. For this year, especially we see the trend where the premium battery electric vehicle products are more and more received by the users. We have already seen the awareness and also the upside with such products. And also this has powered the increase in the penetration rate of this product. For full year last year, the penetration rate of the battery electric vehicle in the premium segment was only 12%. But in Q3 this year, it's already 18%. And in the first 3 quarters, the penetration rate of BEV has increased by 33%, yet for the range extended vehicles, it actually decreased by 10%.

And more specifically, for the large payroll SUV segment, the sales volume of BEV took the first place for the first time in September and it continued such momentum in October. In October, we see the total volume of BEV registration was around 39,000 units. Well for REEV, that was only 24,000 units.

Regarding the sales volume and outlook for next year, as for the [indiscernible] and also the NIO all-new ES8 next year, we will still continue the BEV around these 2 products relatively new to the market, plus we are going to introduce another 3 new large models. So we will be having 5 new large models available to the market next year from the NIO and ONVO brand. And if we look at the mid to large and also the large SUV segments where our new models will be targeting, in Q3, the sales volume of BEV model increased by 146%, well for REEV, it's only 19%. But as mentioned, the overall penetration rate of BEV among the premium large vehicle models, it's still relatively low, which means that we do have huge opportunities and potential in this segment.

So overall speaking, our product launch cadence is in line with the market shift and also the trend, especially considering our large models are also competitive in both products as well as the charging and swapping experience.

And also for these 5 large models, they will also contribute to the major sales volume among all of our products. As they are a high-margin product, they will also contribute more significantly to the vehicle gross margin. With that, next year, we expect the vehicle gross margin to be around 20%. That is the further improvement on top of our existing gross margin for Q3 and also outlook for Q4. But also, this result will be dependent also on the continuous cost optimization efforts together with our supply chain partners.

And in terms of the expenses, as we have rolled out this cell business unit mechanism, we have tightened our control over expenses. We already see some good results, and we will continue such efforts next year in controlling the R&D and also SG&A expenses. And also for our large vehicle models, based on its strong market performance and demand, it already proved that with the right product designation and also with our unique advantages in battery swap, we do can capture a decent market share in that segment. And in the meantime, we also see a positive trend and also huge potential for the battery electric vehicles to take up a higher market share and also penetration among large models and also premium models.

And also, thirdly, we have confidence in achieving the product gross margin of 20% plus our continuous efforts on the cost and expenses control. With all that combined, we think that achieving full year profitable -- achieving full year profitability on a non-GAAP basis where the year of 2026 is a reasonable target for the team.

[indiscernible] exciting outcome for next year. My second question is more about the choice between [indiscernible] media. Can you remind us what is our long-term strategy between insourcing and outsourcing? And what is the important [indiscernible] between these 2 strategies?

[Interpreted] Thank you for the question. Our NX9031 is the first smart driving chip made also 5-nanometer process and its [indiscernible] mass production application on the car and also full-set operations were all earlier than the competitiveness of the similar performance in the industry. And we also see how this in-house developed chip is contributing to both performance improvement as well as the cost structure optimization. So for the long term, we will continue our investments and also efforts in the trip-related technologies.

And in the meantime, maybe you have also noticed that recently, we have announced a partnership where we are going to share our trip solution and the technologies to more industry players, both from the automotive industry as well as from the nonautomotive industry as we do see a good potential of applying this high computing power within chip on different types of devices, for example, on robots. So we will work with our tax customers together to explore more use cases and also application scenarios of our chip.

Your next question comes from Bin Wang from Deutsche Bank.

My first question is about the margin in the third quarter. It clearly is a big margin dropped by 4.4% by just explain because of cost [indiscernible] just enough. Is that because of the mix because LRIT has been volume contribution more than 20,000 units. Can you break down about the margin driver? How much came from the margin from the overall LID, how much from the cost reduction -- really construction was the key item you actually going to cost the job in the 3 quarter?

[Interpreted] Thank you for the question. As you've mentioned, our vehicle gross margin result in Q3 and the improvement from the previous quarter is majorly driven by 2 factors: The first is the cost reduction contributed by the supply chain, driven by the increase in our sales volume. And the second factor is the south and the delivery of the L90, which is a high-margin product that we have started to deliver from Q3 in comparison to Q2, we have delivered more than 20,000 L90 contributing better margin performance than the L60 in the previous quarters. These are 2 major drivers of the gross margin improvement in Q3. As for the specific breakdowns, I will also share more information offline with you.

But here, I can share with you some of the legal margin performance model by model. For the NIO ES8, as mentioned by William, is the vehicle margin is 20%. Of course, we didn't start the delivery of ES8 onto late Q3, so its actual contribution in the volume side is relatively small. And for the ET5, ET5T the vehicle gross margin is between 15% to 20%. And for ES6 and EC6, the vehicle gross margin is over 20% and even reaching 25% as these are already products being in the market for a while, we have already were of the new car bus of these models. And for the L90s vehicle margin is around 15% to 20%.

So while speaking for the new models plus the ONVO L90 do have a pretty good vehicle margin performance.

My second question about your related to the joint venture with [indiscernible], this may be major shareholder with 36.4% stake in the company. So my question is, number one, why are you choosing partners, [indiscernible] from Chongqing. Why it's not somebody else? Secondly, what's the first model about this joint venture? Is it just a sales company. And actually, you really maybe [indiscernible] mentioned to make a chip balances. Meanwhile, do you actually get any license fee in already from this joint venture because this seems to be [indiscernible] chips?

[Interpreted] Well, thank you for the question. Yes, Sun Media has covered the establishment of this chip joint venture. And also, we are leveraging our partners of this joint venture to sell our chip and also our IC design capabilities to other clients and also potential users. But this is not an exclusive partnership. We still have the possibility and also the opportunities to sell our chip solution and product to other partners and companies from our side. So that's one part of the way to sell that solution. We can also leverage our partner's resources to provide our chip solution to other car companies or other clients and they will be acting as a Tier 1, providing such a solution.

In the meantime, as mentioned, we also see opportunities of applying such chip in the non-car -- nonautomotive industry. So that is also a pretty common practice for the car companies to share their technologies across different industries. And for our partners, they do have mature experience and also skills in the industry -- in the chip design industry. They also have their own client and also network connections. And also they have some chip products that can be complemented to our chip across different scenarios. So while speaking, we believe that this is a win-win partnership.

Your next question comes from Jeff with Citi.

This is Jeff from Citi. My first question is on the 4Q ASP. So it looked like the RMB 34 billion revenue guidance should match with vehicle ASP up 12% Q-on-Q at RMB 246,000. So if the GP margin reached 18%, that's around RMB 6 billion gross profit, right? So this is my first question. And my second question is the first quarter because we recognize the 4Q guidance, such as revenue up 56% Q-on-Q, right? And the GP margin reached 18%. But having said that, entering into first quarter next year, our volume is not going to drop back to the third quarter level, right? And secondly, look like our high-margin products like Q-on-Q volume into the first quarter is going to be stable. So therefore, the product mix should further improve into 1Q on a Q-on-Q basis.

So my second question is would the first quarter vehicle margin also stayed closer to the 18% level because the higher-margin products contribute more to the mix?

[Interpreted] Thank you for the question. Regarding the average selling price, it will increase in Q4. This is mainly driven by the sale of the high-margin products of ES8. As for the full year, our volume guidance for ES8 is around 40,000 units, and most of these sales will be happening in Q4. So it is also contributing to the improvement of the average selling price from Q3 to Q4.

And regarding your second question on the gross margin outlook for Q1 next year. Well normally, Q1 is the low season of the automotive industry. So overall speaking, the source volume in Q1 will be -- won't be as good or as high as we normally expect for Q3 and Q4 in the previous years.

As also mentioned, in Q4 this year, we may not see the common sales spikes fueled by the seasonality. In that case, even if we are going to encounter the low season Q1 next year, the actual impact was reduced or decreased from Q4 this year to Q1 next year won't be that significant in comparison to the previous years.

Now to mention that we also have the ES8 order backlog that were lost on to next year. This will also help to offset the seasonality impact in Q1 next year. So overall speaking, our operations and also volume forecast for Q1 next year will not be as good as in Q4 this year, but will also not be as low as in Q1 this year. So overall speaking, the vehicle gross margin falls into the same trend. It will be lower than the margin outlook we have for Q4 this year, but will be better than Q1 last year.

Your next question comes from Ming-Hsun Lee with Bank of America.

My first question is regarding your overseas plan because I think in the past few years, you have built several sales channel in Europe. And could you give us more of your strategy for overseas expansion for next few years. That's my first question.

[Interpreted] Thank you for the question. We entered into Europe in 2021 and from '21 to '24 in the past several years, we've been doing direct to customers or direct to users, the direct selling model for the European market. Yet in the meantime, with all the external factors, such as the tariffs in EU, we also started to realize that for a broader market entrance, we do need to rely on and leverage more on the partner support and resources. That's why starting this year, we have started to look for local partners for our market entry. Right now, we already have identified high-quality partners in more than 10 countries and regions. And the FIREFLY will be the first brand where we introduced to the overseas markets, leveraging our partners' resources and the network. The product will become available not only in Europe, Asia, but also in Middle East and also South America.

So overall speaking, for the global market expansion, we are switching our business model from the direct selling business model to a more partnership base and also local partners supported business model. And also for the FIREFLY and its products, it's actually a very good product suitable for broader markets and also its European version and the right-hand drive version already developed, ready for the global market entry. So we do have confidence in the global expansion of the FIREFLY product. And in the meantime, we are also developing the other products for the global market. It is also a brand with a reasonable price range and product lineup for the global market expansion.

As for the NIO brand, it targets the premium segment, it does take patience and time to establish brand awareness on the new product. In that case, we are also more patient and also more long term for the global market expansion of the NIO brand. So overall speaking, in China, we started with the NIO brand, the premium one and then we have the ONVO brand and the FIREFLY. But for the global market expansion, we will take the opposite way where we will start with FIREFLY, and then when ONVO has the product ready for the global markets, we will then push out ONVO and then NIO.

Thank you, William. My second question is regarding the expansion of more mass market opportunity. So since the ONVO is very successful in L90. And also recently, your L60 volume sales also continue to grow. So in the future, do you expect to launch more products under the ONVO brand and to have more business opportunity for the segment at the RMB 200,000 or even below?

[Interpreted] Thank you for the question. For the ONVO brand, it is defined as a family-oriented brand for the mass market. So just like Toyota and the Volkswagen, for the long term, we do need to create a wide and broad product bandwidth to cater to more needs and also to cover more press and market segments. So for the long term, for the ONVO brand, our price bandwidth will be ranging from RMB 100,000 to RMB 300,000. Within that range, we are going to offer more diverse products and also options for our users to choose from. We started with L60 priced around RMB 200,000. And for the L90, the fully loaded one has a price point of around or close to RMB 300,000. And the next year for the L80, it will also be between RMB 200,000 to RMB 300,000. So that is already a press segment captured by the existing 3 projects.

And in the meantime, we are also developing a new product platform where we are targeting the price range below RMB 200,000. We believe that with this diversified product and price lineup plus more mature power swap network, we are able to achieve a reasonable market share in the price range from RMB 100,000 to RMB 300,000. This is also the single largest priced segment and the market in China's passenger vehicle market with a total volume of RMB 15 million. In such a large market, there is no reason for us to not launch enough products to capture a sufficient market share.

Your next question comes from Jing Chang with CICC.

I have only one question -- a follow-up question regards to the R&D expense. We have already seen our R&D expense in third quarter further decreased a lot to our previously guided level. So -- but the industry has increased investment in intelligence and also AI-related other area, how do we allocate our limited R&D expense and how we balance the sharper R&D efficiency and also long-term R&D goals?

[Interpreted] Thank you for the question. Actually, this year, our major focus in the R&D activities is to improve the efficiency and also to identify the priority of different R&D activities and the projects. In that regard, the CBU mechanism has played a very important role in helping to make full use of the R&D investments and expenses. And in the meantime, we will also make sure that we will not lose our long-term competitiveness as that is a baseline that we will not cross.

So with the CBU, we actually are pleased to see that even if we are dialing back on the R&D expenses in the recent quarters, yet we still maintained the R&D capabilities and competitiveness in the full-stack capabilities for the smart EV. So we are also confident to control -- to continue that competitiveness. And also in the past several years, we've made major investments in developing the fundamental technologies for the core EV products, including our chips, operating systems, intelligent chassis and also 900 volts high-voltage architecture. As the foundation is already laid for the future products and the technology platforms, the follow-up iterations won't be as costly as developing the foundation and also the fundamental technology as the future iterations will also get more efficient in utilizing limited R&D resources.

And also regarding the AI technology and the applications like the Smart Driving and also our AI companion, Know Me, as well as the internal management and efficiency tools, we will continue our R&D intensity and also efforts, but we'll achieve that in a more efficient way. And in terms of using algorithms and the data, we actually have identified some good practices and approaches that can be more efficient than simply putting up investment or resources for the sake of achieving a high computing power or data performance. So we have identified some approaches with higher return on the investment. And actually, in the AI industry, the success of [indiscernible] has also proven that you don't need to make costly investments into developing a good large language model performance. So it's the same practice for us. Not to mention that we can also leverage our collective artificial intelligence equipped on all the vehicles and also our data [indiscernible] with that to achieve the same level of computing performance, we actually don't need to use that much computing power as our competitors or other peers are doing.

So overall speaking, in terms of the R&D, we have being putting more focus on the return on investment evaluation as well as doing a better priority for our R&D activities.

Your next question comes from the line of Yuqian Ding with HSBC.

I've got 2 questions. First one is, could you share the cost benefit when we hit the volume threshold, the current run rate is RMB 0.5 million now, and it's only going to get higher next year. What benefit can we get, let's say, battery and other critical components that have high weight in the BOM structure?

[Interpreted] Thank you for the question. As mentioned, when the sales volume reached a certain level of scale, we will actually see how the economy of scale is contributing to the improvement in the financial performance, and it's mainly contributed where it's mainly from 2 perspectives. The first is regarding stronger bargaining power along the supply chain. This can also help improve the vehicle cost structure as you already see in our Q3 and Q4 vehicle margin guidance. And for the next year, we don't have a clear picture regarding how much it will be contributed by the economy of scale from the supply side. Yet as mentioned by William, our gross margin target for next year is 20%. That will actually partially be driven by the -- by the economy of scale on the supply side.

And the second is regarding the improvement in the manufacturing efficiency and also cost optimization driven by the manufacturing. As we improve our sales volumes, the overall amortized manufacturing cost per unit will be gradually optimized. That will also contribute to the improvement in the cost structure of our products.

Thank you, Stanley. The second question is regarding next year's new model, could you help us to put in context the potential higher scale and also the mix impact? We talked about the bigger vehicle has a better margin. But we also talked about ONVO L90 to 15% to 20%. So L80 will be below 90% in terms of the pricing, presumably, Will there be dilution or joint ONVO scale outweigh that?

[Interpreted] Thank you for the question. As mentioned, the 3 new large SUV models that we're going to introduce next year, they are all positioned at the higher end of the price spectrum of their respective segment. We haven't finalized the prices for these new models yet. Yes, we already expect more significant margin contribution by these 3 models. Not to mention that these 3 large models, they are further synergized with the current ES8 and L90's from the cost structure. So this year and the next year for the cost structure -- for the cost optimization and cost saving opportunities that we've identified on the ES8 and L90 can also be carried over to this 3 new models.

So with 5 large models combined, we expect them to contribute to good product -- good product performance as well as on the margin levels over seeking achieving 20% of equal margin.

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

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

Hello, ladies and gentlemen. Thank you for standing by for NIO Inc. Second Quarter 2025 Earnings Conference Call. [Operator Instructions] Today's conference call is being recorded.

I will now turn the call over to your host, Mr. Rui Chen, Head of Investor Relations and Corporate Finance of the company. Please go ahead, Rui.

Good morning and good evening, everyone. Welcome to NIO's Second Quarter 2025 Earnings Conference Call.

The company's financial and operating results were published in a press release earlier today and are posted under the company's IR website.

On today's call, we have Mr. William Li, Founder, Chairman of the Board and CEO; and Mr. Stanley Qu, CFO.

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.

[Interpreted] Hello, everyone. Thank you for joining NIO's 2025 Q2 earnings call. In Q2, the company delivered 72,056 smart EVs, up 25.6% year-over-year. The NIO brand refreshed 4 products to model year 2025, further enhancing its product competitiveness with improved organizational efficiency and growing brand awareness. The ONVO brand is gaining momentum in the mainstream family market. And thanks to the clear product positioning and deep market insights into the high-end small car market, the FIREFLY has been well received by the target audience.

The company delivered 21,017 vehicles in July and 31,305 in August. The launch of the ONVO L90 in late July and the prelaunch of the all-new ES8 in late August drove strong market demand, boosted user confidence and listed overall sales. We expect total deliveries in Q3 to range from 87,000 to 91,000, representing a new high of 40.7% to 47.1% growth year-over-year.

On the financial side, vehicle gross margin remained stable, while other sales saw significant margin improvements. Moreover, the implementation of the Cell Business Unit mechanism has begun to yield tangible cost reductions and efficiency gains. In Q2, the non-GAAP operating loss narrowed more than 30% quarter-over-quarter.

Since the start of deliveries in Q2, NIO ET9 has performed strongly in the executive flagship sedan market. Building on continuous R&D investment, NIO was the first to bring the in-house developed smart driving chip and full domain vehicle operating system on production models such as ET9 as well as the 2025 ET5, ET5T, ES6 and EC6.

In late June, we rolled out the new WorldModel across all NIO vehicles equipped with our proprietary smart driving ship. Within just 5 months, this in-house developed chip enabled the mass release of functions and the seamless migration of core models and applications across 5 vehicle models, representing China's and also the industry's first full function delivery on a self-developed flagship smart driving chip.

On August 21, NIO hosted the product and the technology launch of its core strategic model, the all new ES8, as an all-around flagship SUV designed for the success of business, family and individuals. The third generation ES8 is an epitome of NIO's tech innovation. The all-new ES8 features original and distinctive design language, class-leading cabin and storage space, premium features and comfort experience, flagship safety as well as smart driving and cabin experience ahead of its time. It is the most competitive model in the premium large 3-row SUV segment, receiving significant attention and recognition from both media and users.

Preorders have started with test drives starting in mid-September followed by the official launch at NIO Day in mid-September and deliveries afterwards.

On July 31, the ONVO L90, a game-changing product among large 3-row family SUVs, was launched. With ingenious space and comfort design, all-around smart safety, competitive pricing and comprehensive charging and swapping services, the L90 redefines the large 3-row SUV experience, making it a good fit for large families.

The ONVO L90's sales performance exceeds our expectations. In its first full delivery month, its deliveries reached a historic high of 10,575. We are working closely with our supply chain partners to further ramp up production capacity and keep pace with the strong market demand.

L90's strong market performance has also boosted ONVO's brand awareness and the demand for the L60. In August, the L60's order intake also hit a new high this year.

As for FIREFLY, since delivery has begun, over 10,000 FIREFLYs have been delivered within just 3 months. It's already the best-selling model in the high-end small BEV markets. Its novel design, flagship level safety and agile driving dynamics have been well received. Notably, in recent C-IASI test, FIREFLY, together with the ONVO L60, achieved the highest safety rating ever. We are pleased to see the growing brand awareness is driving growing demand for FIREFLY.

In terms of product quality, in June, ET5 and ET5T ranked segment first in J.D. Power's NEV-IQS study where the EC6 and ES6 ranked top 2 in the premium BEV segment in J.D. Power's NEV-APEAL study. With outstanding product quality, NIO has been the segment leader in J.D. Power's Quality study for 7 consecutive years in 2019.

As of now, the company operates 176 NIO Houses and 416 NIO Spaces as well as 414 ONVO stores.

On the service side, the company has 388 service centers and 68 delivery centers. Our sales and service network now operates efficiently and cohesively across all 3 brands, earning recognition from our users.

Regarding charging and swapping, the company has 3,542 Power Swap stations worldwide, including over 1,000 stations on highways in China, and has provided over 84 million swaps to users. By July this year, the battery swap network had thoroughly covered the highways between major cities in China, connecting 550 cities with 3-minute swaps and eliminating users' range anxieties on long trips.

In August, we completed the Power Swap route along China's iconic G318 Sichuan-Tibet highway. NIO and ONVO users now can drive their cars and swap all the way to the base camp of Mount Qomolangma. Besides, the company has built over 27,000 superchargers and destination chargers. So far, NIO is the car company with the most chargers in China.

In Q2, NIO has entered a new cycle where its continuous investment in technology, innovation, infrastructure and the multi-brand strategy in the past decade began to translate into market competitiveness. The strong sales momentum of the NIO's all-new ES8 and ONVO L90 proves that our decade-long commitment to the BEV road map with chargeable, swappable and upgradable technologies can create user value beyond expectations, increasingly recognized and embraced by a growing base of users. We believe the all-new ES8 and L90 will drive the transition of the large 3-row SUV market towards full electrification and boost the sales growth across other models.

At the same time, with NIO's continued efforts in the charging and swapping infrastructure, its Power Swap network now covers major highways and expands into more counties in China. As the network effect of Power Swap is becoming more evident, over time more users will experience and understand the unique benefits of the NIO's Power Swap.

Built on the company's 12 full stack technological capabilities and the nationwide charging and swapping network, the 3 brands are reaching a broader user base. Starting in Q3, the multi-brand strategy will drive our sales growth and capture greater market shares across various segments, helping to advance our mission of shaping a sustainable and brighter future.

Since the beginning of this year, the company has focused on systematically enhancing operational efficiency and execution, leading to significant improvement in both R&D as well as sales and service. With rising sales, improving gross margin and a more efficient cost control, we expect to see a substantial improvement in the company's financial performance, paving the way for the next phase of rapid growth.

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

Thank you, William. Let's now review our key financial results for the second quarter of 2025. Our total revenues reached RMB 19 billion increase of 9% year-over-year and 57.9% quarter-over-quarter.

Vehicle sales were RMB 16.1 billion, up 2.9% year-over-year and 62.3% quarter-over-quarter. The year-over-year growth was mainly due to higher deliveries, partially offset by a lower average selling price from product mix changes. The quarter-over-quarter increase was mainly from higher deliveries.

Other sales were RMB 2.9 billion, grew by 62.6% year-over-year and 37.1% quarter-over-quarter. The annual growth was driven by increased sales of used cars, technical R&D services, sales of parts and aftersales vehicle services at power solutions while the quarter-over-quarter increase was mainly due to the increase in revenues from used cars, technical R&D services, parts, accessories and aftersales vehicle services.

Looking at margins. Vehicle margin was 10.3% compared with 12.2% in the Q2 last year and 10.2% last quarter. The year-over-year decline was mainly due to changes in product mix, partially offset by lower material cost per unit while quarter-over-quarter vehicle margin remained stable.

Overall gross margin was 10% and versus 9.7% in Q2 last year and 7.6% last quarter. The year-over-year gross margin stayed stable and the quarter-over-quarter increase was mainly attributable to positive mix effect driven by the increase in revenue from used cars and technical R&D services.

Turning to OpEx. R&D expenses were RMB 3 billion, decreased 6.6% year-over-year and 5.5% quarter-over-quarter. The decrease year-over-year and quarter-over-quarter was mainly driven by lower design and development costs from different development stages with the year-over-year also reflecting reduced depreciation and amortization expenses.

SG&A expenses were RMB 4 billion, up 5.5% year-over-year and down 9.9% quarter-over-quarter. The year-over-year increase was mainly driven by higher personnel costs, rental and related expenses associated with the expansion of sales and service network, partially offset by decreased sales and marketing activities. The quarter-over-quarter decrease was mainly due to the decrease in personnel costs and marketing and promotional expenses, primarily driven by the company's comprehensive organizational optimization efforts in marketing and other supporting functions.

Loss from operations was RMB 4.9 billion, down 5.8% year-over-year and 23.5% quarter-over-quarter. Excluding share-based compensation expenses and organizational optimization charges, adjusted loss from operation was RMB 4 billion, representing a decrease of 14% year-over-year and 32.1% quarter-over-quarter.

Net loss was RMB 5 billion, showing a decrease of 1% year-over-year and a decrease of 22% quarter-over-quarter. Excluding share-based compensation expenses and organizational optimization charges, adjusted net loss was RMB 4.1 billion, representing a decrease of 9% year-over-year and 34.3% quarter-over-quarter.

That wraps up our prepared remarks. For more information and details of our unaudited second quarter 2025 financial results, please refer to our earnings press release.

Now I will turn the call over to the operator to start our Q&A session. Thank you.

[Operator Instructions] Your first question comes from Jeff Chung from Citi.

This is Jeff from Citi. Congratulate with the good results. My first question is about ES8 and L90's capacity ramp-up pace and the delivery target for the rest of the year. And due to the strong order backlog, can we expect the December single month run rate for the group to hit 55,000 units or above? This is my first question.

[Interpreted] Thank you for the question. It's true that with the launch of the ONVO L90 and also the NIO all-new ES8, we actually see a stronger market demand, higher than what we've expected before the launch. In that case, we've been working closely with our supply chain partners to improve and enhance the production capacity throughout the value chain and also the supply chain.

Our target is that in October, the full supply chain capacity for the ONVO L90 can achieve and reach 15,000 units a month. And for the ES8, as the ramp-up of production takes slightly longer, we hope that the full supply chain capacity can achieve 150,000 units in December.

With that, by looking at both the demand and the supply availabilities and capacity, our Q4 target is to achieve an average of 50,000 units deliveries per month for all 3 brands, which means that in Q4, our quarterly delivery target combining all 3 brands is 150,000 units.

So my second question is about the gross profit margin and whether fourth quarter can break even at the bottom line level. So if we look at the second quarter, our revenue of 38%, but our gross profit up more than 100% Q-on-Q. So could you give us more color on the second half vehicle GP margin trend and the non-vehicle GP margin trend? And also to be specific, how do you see the L90 and the ES8 GP margin independently?

[Interpreted] Thank you for the question. I would like to walk you through our Q2 product margin. In terms of the vehicle margin in the second quarter of this year, it was 10.3%. As in the second quarter, we have conducted the model year upgrade on the ET5, ET5T, EC6, ES6. As the product upgrades happened in the mid and late May, in that case, among the 72,000 units we've delivered in Q2, only around 20% was contributed by the model year '25 products. In that case, the actual margin improvement contributed by these 4 models is not that significant in comparison to Q1. And then in the third quarter, as we have the full quarter deliveries for the model year '25 products as well as the start of deliveries of the L90, which will further help improve the vehicle gross margin.

And then in Q4, as William mentioned, starting late September, we are going to start the deliveries of the ES8. We expect the vehicle margin to further grow. So Q4 also represents the first full quarter for the deliveries of both L90 the ES8. With that, we expect the vehicle margin to be around 16% to 17% for the entire group to be able to achieve breakeven.

Based on the decade-long battery -- BEV tech innovation, the in-house development of core parts and components as well as the continuous efforts in the cost control and the savings on the supply side as well as the product cost structure, we achieved not only competitive product performance for the L90 and all-new ES8, but also a very competitive cost structure and pricing point. With that, in Q4, our gross margin target for the L90 and ES8 is 20%.

In terms of the gross margin of other sales, it's 8.2% in Q2, and it's mainly contributed by 2 factors. The first is regarding the revenues contributed by our existing users, including via our aftermarket services, our auto financing business as well as the narrowed loss on the power services. And the second factor is regarding the margin contributed by our technological service provided to our partners. With these 2 combined, we've achieved a good and positive gross margin on other sales in Q2.

And in terms of the revenues or margin contributed by the technological services we provide to the partners as it is highly dependent on the product and the project stage, the actual revenues contributed may not be consistent from quarter-to-quarter. In that case, excluding that part, our expectation for the gross margin on other sales is to be breakeven or slightly -- with a slight loss quarter-over-quarter.

Your next question comes from Bin Wang from Deutsche Bank.

I just want to ask for more detail about the number for quarter breakeven. Number one is what's your R&D expense for number 3 and number 4 quarter. I think you actually guide close to RMB 2 billion in the number 4 quarter. Do you still maintain the same guidance for the number 4 quarter?

And secondly, is the same for SG&A?

And lastly, what's the breakeven means? Do you break even in the OP level or that profit level? It's GAAP or non-GAAP?

[Interpreted] Thank you for the question. Regarding the break-even target, our quarterly break-even target is based on the non-GAAP basis.

And regarding the R&D and SG&A guidance, starting Q2 this year, we have conducted a series of measures, combining our CBU mechanism to control our R&D expenses. Our principle is that without compromising on the major and core R&D activities and also product planning, we will keep improving the R&D efficiency, which means that without compromising or affecting our major product planning and R&D, we will push for higher efficiencies in the R&D activities. With that, our target for the Q3 and the Q4 R&D expenses on a non-GAAP basis will be RMB 2 billion per quarter.

And in terms of the SG&A expenses, also based on our CBU mechanism, we've conducted measures to improve the overall SG&A efficiency. In the second quarter, our sales volume is at the magnitude of around 70,000 units. So the SG&A ratio to the sales revenue still accounts for a relatively high percentage. But as in Q3 and Q4, we grow our sales volume and also sales revenue, we expect the percentage of SG&A in the sales revenue to actually coming down to a more reasonable range.

But as in Q3, we are planning several new product launches. There will also be corresponding marketing and go-to-market expenses. In that case, in Q3, we are still not able to achieve a breakeven on the SG&A expenses. But in Q4, the non-GAAP target for the SG&A expenses will be within 10% of the sales revenue.

Your next question comes from Tim Hsiao from Morgan Stanley.

This is Tim Hsiao from Morgan Stanley. So I have 2 questions. The first one is about new model pipeline. Given the robust demand for L90 and ES8 that occupied our capacity. Will the company adjust the launch schedule for the upcoming models?

And we noticed that the NIO Days has notably moved forward to late September. Could management team also share more insight into the updated market pipeline in the following quarters? That's my first question.

[Interpreted] Thank you for the question. It's true that at the moment, we actually prioritize the production of the L90 and also the all-new ES8 from the production capacity perspective. For the ONVO brand, we even have to really give way to the L90 productions and compromising on the production of L60. So that you will find that our L60 users are also waiting up to pick up their cars.

So right now, we actually have 4 models with order backlogs accumulated and users will need to wait for the new car pickup, including L90, all-new ES8, L60 and also FIREFLY.

And regarding the production capacity for the ONVO product, starting October, we expect the capacity to come back to a normal range, mainly supported and fueled by the production capacity of the battery. As in the past several months, we've been working closely with our battery partners to ramp up the production capacity. With that, in Q4, for the ONVO brand, we expect the full supply chain production capacity to be around 25,000 units a month.

And regarding the new brand, for the launch of the all-new ES8, we also have challenges regarding the supply of the brand new 102-kilowatt hour battery. As the demand of the ES8 is actually stronger than we expected, then we -- at the beginning, we underestimated the demand for the ES8 and also the volume assumption for the battery packs. We've been working closely also with the battery suppliers and partners to secure the supply of this new battery pack. With that, in Q4, we expect the full supply chain capacity for the new brand can also achieve a 25,000 units monthly capacity.

And regarding FIREFLY, we also steadily increased its production and supply capacity. And in Q4, we expect the production capacity to ramp up to 6,000 units a month at its peak. So it means that in Q4, the combined production capacity of all 3 brands will be as high as 56,000 units a month to be able to support our demand.

As we have already dedicated our full capacity to the production of the existing models in the market, so for this year we will not have any new models launched or delivered to the market. Previously, we've mentioned that we plan to also launched the L80 of the ONVO brand. But as now we have run out of all the capacities available, we actually have to decide to delay the deliveries of this new model. But in terms of the launch or the go-to-market cadence for the L80, that's to be decided.

In addition to the ONVO L80, next year, in the coming quarters, we also have another 2 new models coming under the new brand to -- also 2 large SUVs, one is the ES9 as many of the users and the public already know about this and also ES7, a large 5-seater SUV model.

As for the NIO Day this year, as it is happening in September, the protagonist of this event will be definitely the all-new ES8.

My second question is about the pricing strategy and also just a quick follow-up on the margin side. Because we noticed that both the L90 and the new ES8 have launched with aggressive pricing strategies. So I just want to know that will this pricing strategy be extended to all the upcoming models under both brands? And if that's case, how should we think about new gross profit margin trajectory into next year? What would be a more sustainable and ideal vehicle margin level once all the new models are upgraded next year? That's my second question.

[Interpreted] Thank you for the question. For the entire company, as we've also previously mentioned, for the long term, our group level product margin is actually 20%. That's our target. More specifically on the gross margin by brand, for the new brand, our target is to achieve a 20% vehicle gross margin and even target a higher margin of 25%. And for ONVO, no lower than 15% for the long term, and for FIREFLY around 10%. For the ES8 and the L90 newly launched this year as well as the new models coming up next year, we also have this -- will also contribute to this target as the product definition and design stage we have already prepared for an aggressive pricing strategy and our cost structure can also support such strategy to be able to achieve more competitive pricing of our products without compromising on the product competitiveness itself. This is actually driven and enabled by our decade-long tech innovation, technology accumulation, in-house developed parts and systems and also stringent cost control.

Your next question comes from Jing Chang from CICC.

My first question is still about our L90 and also ES8. So we have already seen that these 2 new models have already demonstrated our enhanced product capability and also very competitive pricing still with a very solid gross profit margin. So besides, previously Stanley has already told us of the technology and also the platform upgrades. Could you share more about the underlying successful experience about these 2 new models such as our changes on maybe supply chain, maybe dealers networks. This is my first question.

[Interpreted] Thank you for the question. Regarding the overall product competitiveness on the third generation, it is actually getting stronger and better. And this also allows for a more competitive -- product competitiveness as well as the cost structure. And as we've mentioned, this is enabled by our continuous tech innovation, let's say, the 900-volt high-voltage architecture. This platform actually allows for more integrated and lightweight design not only in the powertrain system as well as the high-voltage architecture throughout the vehicle to be able to achieve high performance and lightweight design. Such lightweight design also allows for improved cost structure and also experience competitiveness.

For example, on the ES8 and also L90, we've achieved a huge front and also trunk space. Such huge storage space is also enabled by the high integration level of our architecture and systems. And another example is regarding the smart technologies, the digital architecture. On the third generation, we adopted the innovative digital architecture with the central computing cluster plus the zonal controllers. This can help achieve a better cost as well as the [ mass ] performance and management.

Let me take e-fuse as an example. Previously, on other older models, there are physical fuse boxes, which is as heavy as 10 kilos per car and it can take up 8 meters of the space. But with e-fuse, we are able to integrate them into the master board that can actually manage the power supplies throughout the vehicle at a very detailed and precise level, but still contributing to the mass reduction and cost improvement. So this improvement in both cost structure as well as user experiences are enabled by the tech innovation.

Another example is regarding our proprietary smart driving chip. Of course, we've made the major upfront investment in the chip development, but the performance of our in-house developed smart driving chip NX9031, can achieve the performance that is on par with 4 flagship chips in the industry. So R&D-wise, we made investment upfront, yet from cost-wise, this smart driving chip can also achieve savings.

Another thing is regarding the technology road map, mainly the chargeable, swappable and upgradable technologies for our products. With this, we are able to select the most suitable and optimal battery pack, including its capacity and size for our users. For example, for some of our peers and competitors, they actually need to strike a balance between the battery costs and also the battery range, then they choose the LFP as a chemical system and they make a battery pack of around 90- or 100-kilowatt-hour capacity. But with that, the battery pack is actually very big and heavy.

If you look at our battery packs for the ONVO L90, we put a 85-kilowatt-hour battery inside and for the ES8 102-kilowatt-hour battery inside. They can achieve the driving range and performance on par with those peers. But in terms of the mass, the 85 one is only around 400 kilos and the 102-kilowatt-hour battery pack is only around 500 kilos. So it is actually around 200 kilos lighter than many of our peer solutions. This is also another mass and cost optimization enabled by our chargeable, swappable and upgradable tech solution.

And in terms of a competitive product in both cost as well as the user experience, I think 3 things will define the competitiveness of a product, the first is regarding the technology road map, the second is regarding the product planning and the third is regarding the product definition itself. And our past practice and experiences prove that our technology road map, including our multi-brand strategy, our chargeable, swappable, upgradeable solutions, our 12 full stack tech capabilities developed in-house as well as our product planning are, in general, in the right direction. Yet when it comes to the product definition, we did have some lessons learned from the previous generations and platforms.

With that, on the third generation with our all-new ES8 and L90, we not only draw the best practices from the industry and peers but also make corrections from within to be able to achieve a better product performance and success with the ES8 and L90. As it is actually enjoying the effort of our competitive technology road map, reasonable product planning as well as more precise product definition and market insights that can fit for the users' needs in the Chinese market.

And in terms of the supply chain, this is also playing a very important role in achieving the long-term competitiveness of our product cost structure by establishing a win-win cooperation with our partners. And in the past 1 or 2 years, we've also made adjustments to our supply chain and partner strategy. In general, we look for the partners who believe in the road map, technology decisions of the company as well as believe in the long-term potentials of the company. And we work closely with these partners to jointly define the cost targets and all types of targets.

So for the existing products and also the coming platforms, we will also adopt this principle in our nomination and sourcing strategy to be able to work with our partners closely.

Your next question comes from Ming-Hsun Lee from Bank of America.

Congrats for the good results. I also have 2 questions. So my first question, could you confirm your new model pipeline for 2026? Can I confirm there will be at least 5 new cars, which include ES6, ES7, ES9, L80 and also the second model under the FIREFLY brand?

[Interpreted] Regarding our product strategy for 2026, as we've mentioned, we will focus on 3 large SUV models for the ONVO and also the NIO brand.

Regarding the ET5, ET5T, ES6 and EC6 as this year, we have just upgraded these 4 models to the model year 2025. For next year, we don't have major plans to upgrade these 4 models.

As on the model year 2025, we've already upgraded interior, exterior, the smart system is also upgraded to the latest Cedar S platform with both upgrade in the smart driving chip as well as the operating system. And recently, we have also announced to make the 100-kilowatt-hour battery as a standard configuration on these 4 models.

We believe that with all these changes, the competitiveness of these 4 models will continue to be strong in the coming quarters. Of course, it doesn't mean that we will make 0 changes to these models. We will still roll out some product calendars as this year -- earlier this year, we have released as a Champion Edition for the 5 and 6 series. And in the coming year, we will also have such special versions and additions for these models.

And also for the FIREFLY brand, we don't have a plan for the second model next year.

And my second question is regarding to the operating expense control. So in 2026, what level do you expect for your R&D expense per quarter? Do you think you can maintain around RMB 2 billion non-GAAP R&D expense per quarter? And also, could you guide your latest CapEx plan for 2025 and '26?

[Interpreted] Regarding the R&D expenses, starting this year, we've made major efforts based on CBU mechanism improving our R&D efficiencies and the overall ROI of our R&D activities and investment.

For the next year, our quarterly R&D expense non-GAAP will be around RMB 2 billion to RMB 2.5 billion per quarter. That is a reasonable range for us to also maintain our long-term competitiveness from the technology perspective. The major variabilities come from the new model development as we believe that the investment for the foundational level R&D activities and technologies are mostly finished.

And also regarding the CapEx, as we haven't started the operational target discussion and setting for the next year, I may not have a very clear or precise outlook regarding the CapEx for 2026. But I can share with you 2 principles we have.

The first is regarding the power swap network. In general, we still hope to leverage as much as possible the partners' resources for the Power Swap network construction. And regarding the R&D CapEx and it's -- regarding the CapEx on the product, it's mainly dependent on the overall R&D cadence and also go-to-market strategies of the new models.

Overall speaking, for next year, we hope the CapEx can be similar to the level of this year, or if possible, achieve even better results next year. But as I've emphasized, it's highly dependent on the overall launch cadence and also R&D cadence of the new model.

Your next question comes from Paul Gong from UBS.

My first question is regarding the impact of the 100-kilowatt-hours of the battery that you're going to adopt across new brands. Can you share with us the financial impacts of this strategy? Definitely, we can see that the competitiveness of the vehicles are getting enhanced because of this 100 kilowatt-hours of the battery. But what would be the incremental cost on your front? This is my first question.

[Interpreted] Thank you for the question. When we announced the policy changes on the 100-kilowatt-hour battery pack, we've already introduced the potential impact or implications on the financials of the product as when we launched the model year 5 and -- model year 2025 product, we offered a series of special offers and discounts to our users together with the products. And this time, when we make the 100-kilowatt-hour battery as standard configuration of the 5 and 6 series, we actually withdraw many of these offers we provided at the launch of the product. And in exchange, we offer the 100-kilowatt-hour battery as a standard configuration.

So from a transactional perspective, there is no major change. From the user's perspective as well as from the vehicle margin perspective, there is also no major impact.

And another impact is more on the sales and the upper funnel of our sales leads for the 5 and 6 series. After announcing the change on the 100-kilowatt-hour battery, we actually observed increases in the upper funnel incoming leads. Of course, this is a newly launched policy. In terms of the long-term implications, we will still need some time to observe, but overall impact is more positive than negative.

Okay. So my second question is regarding the impact of switching to your self-developed chips. Just now, I think William mentioned that it is saving cost and it is also depending on the volume because of the fixed cost versus the volume. So can you give us some color that so, for example, if you are delivering 20,000 per month with a new self-developed chip, what would be the cost saving on a per-car basis? If this volume is coming to 50,000 per month, what would be the positive impact from the cost saving angle due to the switching of the self-developed chips? Just want to have the better estimate and sensitivity on that.

[Interpreted] Thank you for the question. Regarding the chip R&D expenses and investment, as we actually recognize that in our immediate financials and the P&L, so it's -- actual cost savings per unit is not really closely tied in the actual volume we saw -- or actual number of pieces we saw.

In terms of the production of these chips, we purchase the wafers directly from our chip manufacturing partners. So in that case, the cost saving per unit through the in-house developed chip is not tied into the delivery volumes we achieved.

But in comparison to the chip solution we used on the second-generation products, achieving the same level of computing performance, the cost is actually more advantageous and competitive with our own solution. And even on the third generation, in comparison to the industry flagship smart driving chips, we still have a cost advantage and competitiveness with our in-house solution. But here, I will not elaborate on the specific savings achieved per piece.

Your next question comes from Yuqian Ding from HSBC.

The first question would be more exploration on the pricing side. So ES8, L90, attractive pricing, good volume traction. So how does management would evaluate the potential internal cannibalization to the existing portfolio, such as the ES6 or L60, and the potential splash impact into next year's new model pipeline?

[Interpreted] As we've mentioned, the pricing of -- the pricing strategy for a product is highly dependent on the market competition, the cost structure of the product as well as the volume and the pricing sensitivity of the product in the segment.

For the L90, as we've mentioned, with its launch actually, it has helped boosted the sales volume of L60. Right now, even for the L60 users, they will have to wait for the new cars deliveries and pickup. Actually, in August, we even achieved a new high for the order intake of L60 for this year. So the overall impact from L90 on L60 is positive.

And regarding the new ES8, as we've also mentioned, we have now made the 100-kilowatt-hour battery a standard configuration on the 5 and 6 series. So the attractive pricing of ES8 is helping boost the brand awareness of the new brand, which can also introduce more attention to the 5 and 6 series. So with this logical and clear pricing system setup for the brand, we believe that the overall impact will also be positive on the new brand.

Maybe at the beginning, our fellow will struggle with how to allocate their focuses and time across different products. But for the long term, we believe that the impact of these 2 models and the new models will be positive across the brands and the products.

And also, as we see a strong demand for the all-new ES8 and L90, we have also observed the successful product or great product, great -- large 3-row battery electric SUV models launched not only by NIO, but also by our competitors who used to have only REEV products in the market.

So with all this large 3-row SUVs coming into the market, we also observed a market trend. In the first half of this year, the growth rate of BEV segment increased by 39% year-over-year and for REEV, that's only 14%. If we consider about the sales volume in July and August, for the BEV and REEV, respectively, I believe that the growth rate of the BEV will be even faster than that of REEV. In that case, we are observing growing competitiveness of the products in the mid- and mid-large battery electric SUV segment as this is more well received and also evident to the public.

This is why we say that the golden era of the large 3-row battery electric SUV is arriving. As with more mature user mindset and also stronger competitiveness of the product, the market is shifting towards that direction. This will also help the long-term competitiveness and the popularity of our existing SUV models, including ES6 and L60.

Yes. Got it. The second question is a little bit more exploration on the OpEx side. You touched upon the innovation redesign and R&D commitment. So could you give us a little bit more quantification and breakdown in terms of the OpEx cut target, if there is any? Or just break down the cost optimization initiatives in a little bit more detail.

[Interpreted] Thank you for the question. As we've introduced towards the Q4 non-GAAP break-even target, our overall principle is that for the R&D expenses, without compromising on the major R&D activities and also long-term competitiveness, we would like to control the quarterly R&D expenses to be within RMB 2 billion for this year. And for SG&A ratio to the sales revenue, around 10% this year. That's our target for this year towards the quarterly breakeven.

And for the long term, as we've also mentioned, for the year of 2026, our R&D expenses will be around RMB 2 billion to RMB 2.5 billion per quarter depending on the product go-to-market and also development cadence. And as for the SG&A expenses, we would like to continue to achieve higher efficiency and utilization of expenses. That's the overall principle.

Your next question comes from Tina Hou from Goldman Sachs.

Just a very quick one. So in the longer term, how should we think about the stabilized sales volume of L90 as well as ES8 on a like average monthly basis?

[Interpreted] Thank you for the question. For the automotive industry -- thank you for the question. As the automotive industry here in China is highly competitive and if you look at the sales trend of the smart electric vehicles, you seldom see any new model that can capture a very stable market share and a very major trend or popularity in the market for a very long time. In that case, it's also difficult for us to really share with you a clear outlook regarding what's the stabilized sales volume of the ES8 and L90 will be for the long term. But definitely, we set ourselves a higher target, and we will also try the best.

Starting this year, for the NIO and ONVO brand, we also started to build up the team capabilities by implementing a completely new sales and marketing paradigm. We hope that through this new sales and marketing paradigm, it can actually help us to maintain and capture the market share of our new models as long as possible to prolong their impact and the influence in the market and also to stabilize their reasonable and satisfying sales volume in the market against the fierce competition as long as possible.

But as we have just implemented this paradigm and it will also take time for us to understand if it is truly helping us with the stabilization of these 2 great models, ES8 and L90, but overall, we hope that this can achieve a good result that is satisfying to the market, investors and also our users.

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 any further questions, please feel free to contact NIO's Investor Relations team through the contact information on the website. This concludes the conference call. You may now disconnect your line. Thank you.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]