Nio (NIO) Q1 2023 Earnings Call Transcript

Nio (NIO -0.48%)
Q1 2023 Earnings Call
Jun 09, 2023, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Hello, ladies and gentlemen, thank you for standing by and welcome to the NIO, Inc. first-quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. Today's conference call is being recorded.

I'll now like to hand the conference over to your host, Ms. Eve Tang from Capital Market. Please go ahead.

Eve Tang -- Capital Markets

Good morning and good evening, everyone. Welcome to NIO's first-quarter 2023 earnings conference call. The company's financial and operating results were published in the press release earlier today and are posted at the company's website. On today's call, we have Mr.

William Li, founder, chairman of the board and chief executive officer; Mr. Steven Feng, chief financial officer; Mr. Stanley Qu, senior VP of finance; and Ms. Jade Wei, VP of capital markets.

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.

William Li -- Founder, Chairman, and Chief Executive Officer

Hello, everyone, thank you for joining NIO's 2023 first-quarter earnings call. In the first quarter of 2023, NIO delivered a total of 31,041 smart electric vehicles, up 20.5% year over year. In April and May NIO, delivered 6,658 and 6,155 vehicles, respectively. We expect the total deliveries in the second quarter of this year to be between 23,000 and 25,000 units.

As we ramp up the production of the all-new ES6 and other new models, we're confident in continuously driving up our delivery volume. Next, I would like to share with you the recent highlights of our products, R&D, and operations. On May 24, we launched the all-new ES6, an all-around midsize smart electric SUV, and started its delivery the next day. The product quality of the all-new ES6 has been widely acclaimed by the first batch of users.

In May, we also started the user delivery of the 2023 new ET7 and the flagship coupe SUV EC7. Coming with more than 15 new features and enhancements, the 2023 Neo ET7 continues to lead the change in the premium smart electric mid to large sedan market. As a flagship coupe SUV, EC7 inherits NIO's high-performance DNA and boasts ultimate riding and handling experience. NIO's product quality and safety, also recognized by authoritative institutions.

On April 24th, NIO's ET5 was rated good, the highest safety level by China Insurance Automobile Safety Index or CIASI in J.D. Power's 2023 China New Energy Vehicle Initial Quality Study released on June 1st, NIO's ES6 won first place in the premium BEV segment for the fourth consecutive year. Also, in J.D. Power's 2023 NEV IQ Study which evaluates new energy vehicles' performance, execution, and layout.

NIO ET7 ranked No. 1 among premium BEVs. We plan to launch the NIO ET5 Touring on June 15th and start the delivery in the same month. As the world's first smart electric tour, the ET5 Touring is designed to cover diversified scenarios for both individual and family users, significantly improving our competitiveness in the premium family vehicle market.

Besides NIO's flagship SUV, the all-new ES8 will also commence delivery in the near term. The new EC6, our second-generation midsized smart coupe SUV will be launched and delivered in the third quarter. As we proceed with the product -- the platform transition, NIO's complete NT 2.0 lineup featuring eight different products will form a combined force to better cater to the diverse needs in the premium smart EV market and provide users with more experiences beyond expectations. In June, NIO"s smart system, Banyan, will be upgraded to version 2.0.

This release includes over 120 new features and enhancements. By connecting news products, services, and the community in a more seamless way, Banyan 2.0 will deliver a one-of-a-kind digital experience. It's particularly worth mentioning that Banyan 2.0 provides a new feature that is automatic planning of charging and swapping routes. Enabled by new power cloud and a comprehensive power infrastructure, it can let users plan for charging and swapping along the navigation route for long-distance trips with just one tap.

In terms of intelligent driving, NIO has released Navigate on Pilot Plus Beta, or NOP Plus beta, to all NT 2.0 users. Based on in-house-developed new intelligent driving technologies and closed-loop data management, NOP plus beta has made significant improvements in making users' journeys more reassuring, comfortable, and efficient. In Banyan 2.0, NOP Plus will be using new proprietary BEV model and occupancy network for perception and a large language model trained with a large-scale data set for planning and control. The experience of NOP Plus will be further enhanced.

In the meantime, we have started to test our Power Swap pilot for highway at scale and will make it available for 40 Power Swap stations on highways starting from the third quarter this year. This feature will be gradually rolled out to more Power Swap stations with users -- with which users can enjoy more simulation, Navigate on Pilot experience from point A to point B on highways. With respect to the sales and service network, we now have 365 new houses and new spaces in 136 cities and 359 new service centers and new delivery centers in 196 cities. In terms of the charging and swapping network, on April 13th, the first batch of a new Power Swap station 3.0 started operation.

The Power Swap station 3.0 features the synchronization of three operating positions, making it faster than the previous generation with higher service capacity and more intelligent experiences. So far, NIO has installed a 1,474 Power Swap stations worldwide, including 119 third-generation Power Swap stations, and has completed over 23 million swaps for users. NIO has also installed 7,000 power chargers and 8,800 destination chargers. Besides our Power Map has also been connected to over 1.1 million third-party chargers globally.

On April 17th, NIO's first 500-kilowatt powered chargers went online, completing the new generation of a power-up station which is an integrated station featuring 500-kilowatt power chargers and the Power Swap station. 3.0. Through efficient coordination between chargers and the swap stations and flexible capacity distribution, the power chargers can operate more stably and efficiently. On April 22, the fourth NIO user console was established after the NIO user council member election, which was actively participated by new users worldwide.

This year, NIO User Trust will continue their work centering on public welfare, user care, and common growth. On March 25th, further deepening of a partnership with World Wide Fund for Nature, WWF, NIO announced to join the Science Based Targets initiative and plan to set a science-based target within the next two years with the goal of contributing to global sustainable development and living up to the blue sky commitment. In the face of the changing market situation, we will timely adjust our sales and the marketing priorities to ensure the market competitiveness of our products and services. In the second half of 2023, with the entire NT 2.0 product lineup entering the premium battery electric vehicle market and 1,000 NIO Power stations put into operation, NIO's product competitiveness powered by our decisive efforts into developing full stack R&D capabilities and the core technologies of smart EVs, will be gradually unleashed, which, in turn, can better prepare us for the increasingly intensifying competition at the next stage.

As always, thank you for your support. With that, I will now turn the call over to Steven to provide the financial details for the first quarter. Over to you, Steven.

Steven Feng -- Chief Financial Officer

Thank you, William. I will now go over our key financial results for the first quarter of 2023. And to be mindful of the length of this call, I'll reference to RMB only in my discussion today. I encourage listeners to refer to our earnings press release, which is posted online, for additional details.

Total revenues in the first quarter were RMB 10.7 billion, representing an increase of 7.7% year over year and a decrease of 33.5% quarter over quarter. Our total revenues are made of two parts: vehicle sales and other sales. Vehicle sales in the first quarter were RMB 9.2 billion, representing a decrease of 0.2% year over year and a decrease of 37.5% quarter over quarter. The decrease in vehicle sales year over year was mainly due to lower average selling price as the result of higher proportion of 85 and 75-kilowatt hours standard-range battery pack deliveries, partially offset by increase in delivery volume.

The decrease in vehicle sales current quarter was mainly due to a decrease in delivery volume and lower average selling price as a result of higher proportion of 85 and 75-kilowatt hours standard range battery pack deliveries. Other sales in the first quarter were RMB 1.5 billion, representing an increase of 117.8% year over year and increase of 11.3% quarter over quarter. The increase in other sales year over year was mainly due to the increase in sales of accessories, provision of repair and maintenance services, provision of auto financing services, sales of used cars, and the provision of power solutions, the result of continued growth of our users. The increase in our sales call quarter over quarter was imminent due to the increase in provision of auto financing services, sales of accessories, provision of repair and maintenance services, provision of power solutions, and sales of used cars as a result of continued growth of our users and partially offset by a decrease in revenue from rendering of research and development services.

Gross margin in the first quarter of 2023 was 1.5%, compared with 14.6% in the first quarter of 2022 and 3.9% in the fourth quarter of 2022. The decrease in gross margin year over year and quarter over quarter was mainly attributed to decreased vehicle margin. More specifically, vehicle margin in the first quarter was 5.1%, compared with 18.1% in the first quarter of 2022 and 6.8 % in the fourth quarter of 2022. The decrease in vehicle margin year over year was mainly attributed to changes in product mix and increased battery cost per unit.

The decrease in vehicle margin quarter over quarter was mainly due to changes in product mix and increased promotional discount for the previous generation of ES8, ES6 and EC6, which were partially offset by the inventory provisions, accelerated depreciation on production facilities, and losses on purchase commitments for the previous generation of ES8, ES6, and EC6 in the fourth quarter of 2022. R&D expenses in the first quarter were RMB 3.1 billion, representing an increase of 74.6% year over year, a decrease of 22.7% quarter over quarter. The increase in research and development expenses year over year was mainly attributed to increased personnel costs in research and development functions and increased share-based compensation expenses recognized in the first quarter of 2023. The decrease in research and development expenses cost of quarter reflected fluctuations due to different design and development stages of new products and technologies.

SG&A expenses in the first quarter were RMB 2.4 billion, representing an increase of 21.4% year over year and a decrease of 13.7% quarter over quarter. The increase in SG&A expenses year over year was primarily due to the increase in personnel costs related to sales and general corporate functions and increased expenses related to the company's sales and service work expansion. The decrease in SG&A expenses quarter over quarter was mainly due to a decrease in sales and marketing activities and professional services. Loss from operations in the first quarter was RMB 5.1 billion, representing an increase of 133.6% year over year and a decrease of 24.1% quarter over quarter.

Net loss in the first quarter was RMB 4.7 billion, representing an increase of 170 -- 165.9% year over year and a decrease of 18.1% quarter over quarter. Loss attributable to NIO's ordinary shareholders in the first quarter was RMB 4.8 billion, or an increase of 163.2% year over year, a decrease of 17.8% year quarter over quarter. Our balance of cash and cash equivalents restricted cash, short-term investment, and long-term deposits was RMB 37.8 billion as of March 31st, 2023. Now this concludes our prepared remarks.

I will now turn the call over to the operator to facilitate our Q&A session.

Questions & Answers:

Operator

Thank you. [Operator instructions] Your first question comes from Tim Hsiao from Morgan Stanley. Please go ahead.

Tim Hsiao -- Morgan Stanley -- Analyst

And so, my first question is about the cost control because NIO has been investing more aggressively since 2021 on new models, sales, marketing, and energy replenishment network. So, in light of the challenging industry and the macro outlook, will NIO consider streamlining the model portfolio and cutting back on investment in some projects like smartphone, battery, chipset, and to refocus resource on the few flagship models? And separately, does NIO still stick to its original schedule to launch -- or mass market your outputs products next year? So, that's my first question. Thank you.

William Li -- Founder, Chairman, and Chief Executive Officer

Thank you, Tim. Great question. As you have mentioned, the market competition is intensifying and we do face a lot of changes in the market dynamics. For the new technology platform.

2.0, We are about to show the whole lineup of the eight products based on the NT 2.0, and these eight products will enter the market in the near term gradually. The current focus of us is to make sure we have the new organization structure to have a more targeted sales strategy and a marketing strategy for all the eight products to reach its own target user groups. Because when we design those products, we do have a specific positioning of different products in their specific segment and the target group. So, the current challenge for us is to make sure the marketing and the sales team can be more dedicated on these eight products in terms of our showroom layout and the product reach and the marketing reach and the distribution of the resources at the sales and marketing teams.

We want to make sure for each product that we have a dedicated team to take responsibilities in terms of the sales and the marketing efforts. Of course, for those key products, we will put more resources to make sure we can reach much better sales performance. But the -- just like I mentioned, the focus for us now is to make sure we can have more dedicated resources for the eight products separately and to make sure they can achieve good market share in terms of their specific segments. Yes, of course, we need to be more agile in terms of face the challenges of the changing market situation to ensure our competitiveness in terms of the products and services.

Regarding the topics of the R&D projects, of all speaking, we would like to insist on over big directions in terms of the R&D projects. In the short term, yes, we do have some pressures, but we think it is really important and necessary for us to focus on those R&D capability building to build our long-term competitiveness. But at the same time, based on our resources and the priorities of the company, we can adjust the pace of the investment for all those different R&D projects. For the question regarding our outputs project, our timing for this brand is still the same, that is the second half of 2024 where we plan to launch the outputs products at that time and we will choose the specific timings for those different products.

However, at the same time, we want to make sure for the outputs products that we can have a much faster pace in terms of the go-to market because this can help us to improve the efficiency and have a much better planning of the resources, especially at the marketing and the sales front.

Tim Hsiao -- Morgan Stanley -- Analyst

So, my second question is about the new ES6. The second-quarter guidance came in stronger than expectation which could go to like a 3,000 to 4,000 units of additional sales of the new ES6. So, could you share a little bit more about the order intake of the new ES6 since it's launched today? And is there any bottleneck to the delivery of new ES6? In the meantime, are you still expecting the sales aggregate of ET5, ES6, and the upcoming ET5 Touring to achieve 20,000 a month? And when do we expect to achieve that volume target? So, that's my second question. Thank you.

William Li -- Founder, Chairman, and Chief Executive Officer

Thank you, Tim. ES6 is a very well received by the users and also received a very good feedback in the media. We think the order performance has reached over expectations, and the test drive conversion rate of the ES6 actually reached record high in the history of NIO. So, that's why we're very confident in terms of the sales performance of ES6.

At this stage, especially in June, we need to focus on the ramp-up of the ES6 first. But for the targets, in July, is we want to achieve 10,000 units in terms of the production and delivery. We're very confident to achieve this target in July. And the supply chain team, manufacturing, and other teams are making all sorts of preparations to make sure we can achieve this objective.

Regarding the ET5, ET5 Touring, and ES6 overall volume, we believe there is an opportunity for us to still achieve a 20,000 units in one month. The big challenge for us right now is more about the ET5 because if we look at the ET5's pricing, we can see that, last year, we still have around RMB 12,000 subsidies for the users. And this is -- at the same time, users can get the home chargers for free of charge last year, but now users, will need to pay for the home chargers for the ET5. So, net net speaking, probably for the ET5, if we make the apple-to-apple comparison is probably like RMB 20,000 more expensive this year.

This is the fact and the challenge we need to face, but what we need to focus on is to make sure we can find a better way to expand the user needs and the demands. The more challenge we are facing right now is about the ET5. But just like I mentioned, we're going to launch the ET5 Touring on -- on June 15th. This is going to help us to improve overall product competitiveness because we believe the ET5 Touring can cater to the diversified needs of individuals and family users.

And this can help us to boost our competitive of -- our product competitiveness in this specific market segment.

Tim Hsiao -- Morgan Stanley -- Analyst

Thank you.

William Li -- Founder, Chairman, and Chief Executive Officer

Thank you, Tim.

Operator

Thank you. Your next question comes from Bin Wang from Credit Suisse. Please go ahead.

Bin Wang -- Credit Suisse -- Analyst

Thank you. I got two questions. Number one, about margin outlook. When you reached the peaking for ES6 in a quarter, so what's the gross margin expectation we can hire for the third quarter and second half? That is number one question about gross margin guidance.

Stanley Qu -- Vice President, Finance

Hi, Bin. This is Stanley. As William mentioned, the delivery of our NT 2 product was higher price from Q2 and Q3. The average selling price and gross profit margin per car will recover.

So, we -- we are confident that the gross profit margin will start to recover to double digits in Q3 and over 15% in Q4, yeah. Thank you.

Bin Wang -- Credit Suisse -- Analyst

OK, great. My second question about any further fundraising events are needed because right now people are worried about your cash position, which has declined quite fast. And so, can you provide some potential fundraising, especially with NIO China IPO?

William Li -- Founder, Chairman, and Chief Executive Officer

Thank you, Bin, for your question. Yes, for this year, if we look at the first quarter and the second quarter, because of the delivery performance, which is actually less than that of the fourth quarter last year, so this has affected our operating cash flow. But together with our delivery volume ramp-up in the third quarter, we believe that operating cash flow will also improve. Currently, we believe our cash is sufficient to support the company's business development.

As a publicly listed company, we make very prudent management of our cash positions, and at the same time, we do have all the different channels to do the fundraising in different markets. But this year, we have made some adjustments in terms of -- of our cash spending. For example, we have delayed over capex investment and we have also delayed some R&D projects. At the same time, in terms of our global market expansion, we believe it's more important to -- to focus on the markets that we have already entered.

So, for example, for those countries, we have already entered in Europe. So, if we have any kind of plans in the capital markets, we will, of course, let everyone know.

Bin Wang -- Credit Suisse -- Analyst

Thank you, Wiliam.

William Li -- Founder, Chairman, and Chief Executive Officer

Thank you. Thank you.

Operator

Thank you. Your next question comes from Ming Hsun Lee from BofA. Thank you. Please go ahead.

Ming Lee -- Bank of America Merrill Lynch -- Analyst

Thank you, William and Steven. So, I also have two question. My first question is, what is the battery price decline in first quarter? And how much does the battery price help gross margin in the first quarter? And also, could you also comment the second quarter and third quarter's battery price trend? That's my first question. Thank you.

Stanley Qu -- Vice President, Finance

Hi, Ming. Generally, the price of lithium carbonate decreases a little bit in -- from Q1. So, this leads to a certain increase of our gross profit margin. Regarding -- amount wise, I think the 2.5 thousand per car.

But recently, I think we can also see the lithium carbonate price also recover a little bit to 310,000 per ton. So, the -- well, the price -- change of lithium price will bring uncertainty to our gross profit margin, yeah. Generally -- that's generally the impact of lithium, yeah.

Ming Lee -- Bank of America Merrill Lynch -- Analyst

Thank you, Stanley. And my question is regarding your latest capex and operating expense guidance, because I think William just mentioned that you are starting to control some investment, especially for some long-term investments. But are you able to give some new guidance if there's any? I remember, last year, the capex is around RMB 10 billion, yeah. So, I want to know your guidance for this year for capex and opex.

Thank you.

Stanley Qu -- Vice President, Finance

Yes, Ming. Our capex will still concentrate on the construction of Power Swap stations, charging network, cell service network, and also tooling and production facilities for our new models. We will well control the cadence of those investments. But at this moment, I don't think we can give a clear guidance of capex investment for -- for this -- for this year.

Yeah, we will make adjustments dynamically in line with the -- the spending and also the status, yeah.

Ming Lee -- Bank of America Merrill Lynch -- Analyst

Yeah, and also, any guidance on operating expense? Sorry.

Stanley Qu -- Vice President, Finance

OK, regarding operating expense, one is for the R&D expense. The upcoming years remain to be the crucial stage of our R&D and also mass production of our core technology as new models. So, our average in each quarter of 2023, the non-GAAP R&D expense will be kept at 3 billion to 3.5 billion per quarter. Yes, we will also manage the spending curve and also keep improving our system efficiency.

And for SG&A expense, yeah, we can see a decline in Q1. The main reason is because the reduced marketing activities and also seasonality impact of Chinese New Year, along with more marketing events like auto show, road show, and also launch of new models. The SG&A total amount will increase from Q2, but the efficiency will be improved from Q3 since all entry products will be launched and more volume will be realized. I mean, that's the guidance for the opex of next quarters.

Ming Lee -- Bank of America Merrill Lynch -- Analyst

Now, thank you, Stanley. Thank you.

Stanley Qu -- Vice President, Finance

Thank you, Ming.

Operator

Thank you. Your next question comes from Yuqian Ding from HSBC. Please go ahead.

Yuqian Ding -- HSBC -- Analyst

[Foreign language]

William Li -- Founder, Chairman, and Chief Executive Officer

Yeah, go ahead.

Yuqian Ding -- HSBC -- Analyst

Oh, I'm sorry, yeah, sorry. So, I got two question. The first is, do we have plans to introduce any budget version of our existing model, especially the potential volume carrier, ET5, but lower price and lower content to access more -- more volume? And the second question, we talked about the dial down a little bit on opex generally. Does that also affect or postpone or break-even point of the year?

William Li -- Founder, Chairman, and Chief Executive Officer

Yeah. Thank you, Yuqian, for your question. When I started, there are many different kind of pricing movements in the market. But for us, regarding ET5, we don't think it's reasonable for us to have a budget version of the ET5 because of our philosophies that we believe the different configurations -- or the important configurations should come as a standard for all of our NT 2 products, for example, the dual motors, AD suites, and other important functions and features.

We believe those standard package philosophy can serve the long-term interests to our users. But at the same time, we do have some flexibility in many other different approaches, for example, user rights such as the free battery swapping. When we make those kind of considerations and adjustments, of course, the important thing is to make sure we can put the user's interests first. So, when we decided to make those kind of adjustments, we also need to consider the interest of our install base.

For the second question regarding the breakeven point, according to the current situation, we do think probably we need to delay our breakeven point to within one year, and we think that this is probably a reasonable assumption. Thank you, Yuqian.

Operator

Thank you. Your next question comes from Nick Lai from J.P. Morgan. Please go ahead.

Nick Lai -- JPMorgan Chase and Company -- Analyst

My first question is really following up the previous question regarding cash burn and capex and so on. So, as just mentioned, that will push back R&D expense and so on, and I'm more curious about '24, '25 planning. How should we expect the capex or cash burn into '24 and '25? Would that be flat or up or down compared with 2023? Thank you.

William Li -- Founder, Chairman, and Chief Executive Officer

Thank you for your question, Nick. Regarding the dynamic and the fluid market situation, we understand it's important for us to control the risks and to keep stable and sound business operations. For the outputs brand, basically, the project is moving forward according to our plan. For the production site, we believe the current production capacity is sufficient to support the needs of NIO brand and outputs brand.

So, it means that in terms of production facilities and the capacities, there's no need for big capex investments. In the market front, we believe, starting from this year, we should have sufficient Power Swap stations to support both brands to share the Power Swap stations. Previously, we mentioned that probably for the go-to-market outputs brand, we do need to make some investment in terms of capex and opex. But we would like to control the pace of the go-to-market cadence to make sure we can have much faster movement and cadence and have a much agile mode to operate the go-to-market outputs brands.

So, this can help us to save the resources and capital. In terms of the cash management, of course, as a publicly listed company, we need to be very prudent in terms of the cash management. For the financing channels, we do have different channels in terms of the R&D and the U.S. dollar capital markets.

So, for us, we think cash is not going to be a big issue for the company. But at the same time, we still need to make a refined management of our cash and also the working capital of the company.

Nick Lai -- JPMorgan Chase and Company -- Analyst

My second question really is about the product mix, yeah. The new product, supposedly, is going to account for a meaningful portion of the volume. And how should we think about the contribution from these four major model? And how should we think about the product mix going forward? Thanks.

Stanley Qu -- Vice President, Finance

Hi, Nick. Regarding the volume percentage of ET5, ET5 Touring, yes, and EC6, I think, from a long run, the percentage will be 80%, around, yeah. But from -- and from the long run, as I mentioned earlier, this year, I think with all -- all the NT 2 product launched, our gross profit margin can recover to 15%. And -- and long term, considering the cost advantage brought by in-house technology capability and also the innovative supply chain development, we -- the -- the NT 2 product gross profit margin target will be -- still be 20% from a long run, yeah.

Thank you.

Nick Lai -- JPMorgan Chase and Company -- Analyst

[Foreign language]

Operator

Thank you. Your next question comes from Paul Gong from UBS. Please go ahead.

Paul Gong -- UBS -- Analyst

So, my first question is regarding the new model sales trends. It seems that a few recent new models all share similarity with a strong start, but after a few months, subsequently decline. Does ES6 also face such kind of challenges? Or how should we avoid this happening again?

William Li -- Founder, Chairman, and Chief Executive Officer

Yeah. Thank you, Paul, for your question. Last year, we launched three products, ET7, ES7, and ET5. To be honest, in terms of the recent performance of these three products including the second quarter, we understand that the market performance of these three products is lagging behind of our expectations.

If we look at the factors that are affecting the performance of these three products, just like I mentioned before, last year, for the users who purchase those three products, they have more user rights and benefits and they can enjoy the national subsidies. But this year, for the users purchasing these three products, apple-to-apple comparison, the cost increase is around RMB 10,000 to 20,000. So, at the same time, if we look at the micro environment, we can see the market competition is also getting intensified. So, some users are choosing probably some other new brands or some traditional brands offer our products.

This is one factor. And another factor is internal cannibalization or competition. For example, some ES7 users may decide to choose ES6 instead of the ES7. And for some ET5 users, probably they decided to wait a little bit for the ET5 Touring.

This is the situation that we are facing right now. That is why we decided properly we are going to make some adjustments in the near term in terms of our sales channel and network as well as organization structure and our sales and marketing strategy and policies. But for the five new products, based on the new technology platform, 2.0 that we launched this year, we do not have this concern. The first product we launched this year is EC7.

After the delivery of EC7, we can see the demand is actually quite stable. As for the ES6, just now I have mentioned that we are very confident about the sales performance of ES6 after the product ramp-up. And then, for this year, we are very confident of our speaking for all the new products that we launched this year, including the ES8. We are about to start the delivery of the ES8 the near term.

And currently, we can see that the reservation order performance is actually higher than our expectations. We believe, right now, the current pace of our product quality and the product go-to-market is actually much better than before. So, we believe all these five new products, based on the NT 2 technology platform, should be able to reach reasonable performance in terms of this delivery ramp-up. And recently, we have also launched the 2023 ET7.

After the delivery of ET7, we believe it can also meet our expectations and the order performance is also quite stable. Thank you, Paul.

Paul Gong -- UBS -- Analyst

So sorry, I forgot -- I forgot to translate. Sorry, I forgot to translate. So, my second question is regarding the -- the -- the margin outlook of the high-end NIO brands versus low-end outputs brands. NIO brands remains to be relatively expensive, thanks to the branding and the excellent service the company has been offering but yet to achieve a satisfactory or kind of like excellent margins.

So, when you are moving toward the outpace to the relatively lower end, how do you foresee the margin would be like, especially compared to the high-end one? Thank you.

William Li -- Founder, Chairman, and Chief Executive Officer

Thank you for your question. Regarding the brand positioning, I believe right now is a very chaotic period for the brand positioning for the users -- for most of the users, in the majority of the time that they choose a product based on the price. So, right now, in terms of our product or service, as well as our technology and experience, we believe we are much better than others in those different areas. But the values of our products and services and the technologies are not reflected in the perceived value and the price of the products.

This is the reality that we're facing right now. But we believe, for the long run, the value of our products and services will be recognized by the users and by the market. At the same time, we do face some challenges in the microenvironment. For example, the lithium carbonate cost has significantly impacted our vehicle gross margin.

Back in 2021, we have reached around 20% vehicle gross margin. At that time, we believe if the lithium carbonate cost goes back to a reasonable level, we should still have a chance to reach 20% of vehicle gross margin. In the long term, we believe, in terms of the economies of scale and the efficiency improvement, as well as the vertical integration of our core components and the in-house R&D capabilities, there's a strong base for us to achieve a 20% vehicle gross margin. That's for NIO.

But for output, the strategy is very different because we believe that, in terms of the vehicles gross margin, it's actually more about how you define the products and how we design the products. So, for us, it's more about finding the best solution in the specific segment than the outfit the brand's target is at. For us, if we look at the market, we see some companies that they sell the product at a price of around RMB 200,000, but they can still achieve over 20% vehicle gross margin. So, it shows that this is achievable.

For NIO, because we have many high-specs configurations of a NIO product, for example, the over 1,000 TOPS computing powers and all those smart features, it will be very difficult for us to lower the cost on those components, and this will affect us in terms of lowering the price of our products. But for outputs, it's different. When we define outputs as products, of course, the target of us is to achieve reasonable vehicle gross margin. And we believe it is reasonable and is possible for us to achieve the 20% vehicle gross margin.

Paul Gong -- UBS -- Analyst

Thank you so much, William, for sharing. Thank you.

Operator

Thank you. Your next question comes from Xue Deng from CICC. Please go ahead.

Xue Deng -- CICC -- Analyst

My first question is about NOP Plus version. NOP Plus has been open for several years -- several months. Can you share the -- some user -- users' data such as usage time or accumulated mileage or average takeover mileage during this period? And how -- how -- how is their feedback? And we can see the official version will be charged for subscription. So, can you share more of your understanding of subscription charge? And also, in the second half of this year, we can see that highway navigation function to swapping stations will be further launched.

So, what do we think are the improvement of customers' experience with this new function? And the last one is, is there any type of plan for a city function in the second half year?

William Li -- Founder, Chairman, and Chief Executive Officer

Yeah, thank you for your question. I will answer the NOP Plus-related question, and Steven is going to address the questioning about the Power Swap stations. For the NOP Plus, right now, we have over 50,000 users using the NOP Plus service. And for -- the accumulated mileage of NOP Plus is over 41 million kilometers.

And every week, the mileage is around 2 million kilometers. We have already started the test of the NOP Plus in the city scenarios and use cases. This year, we're going to accelerate the test of NOP Plus in the city use cases or urban use cases. We will also -- when it gets steady, we will also release these feature to the users.

Based on our internal evaluation, right now, we are very confident regarding the performance of th NOP Plus in the urban scenarios. At the same time, regarding the NAD, we're also doing some test. And if, in the future, the regulations and the laws are in the right place for the NOP Plus release, then we will release the -- sorry, we will release the NAD for our users when the regulations is in the right place. And we believe that this is probably, right now, all the R&D of our NOP Plus, and NAD is basically on track and according to our schedule.

Xue Deng -- CICC -- Analyst

So, my second question is about the battery swapping stations. Yeah, we can see that you have gotten nearly 1,500 stations at present now, and yearly, we can see 200 stations has been added since this year. So, have you seen that's the answer of our battery swapping stations network has been built and is quite good for our sales of our new models, especially for our penetration of lower-tier cities?

Steven Feng -- Chief Financial Officer

Hi, this is Steven. I think the short answer is a very clear yes. We see -- we have seen a very clear flywheel effect between the Power Swap station network and our sales growth. And as has been mentioned, we have already deployed 1,500 Power Swap stations across China.

And at the end of this year, the number of Power Swap stations will rise to around 2,400. And every day, we offer around 70 -- 60,0000 to 70,000 times our Power Swap to us -- to our users. So, in average, every day, one Power Swap station offers 40 to 50 times power swaps to our users. So, that means, on one hand, our users rely on Power Swap station as their favorite charging method.

And other hand, they Power Swap stations are very efficiently utilized. So, that's why we see a clear flywheel effect, and that's why we're very determined to accelerate our Power Swap station deployment. And also, we're very confident that more Power Swap stations will lead to more sales growth. And actually, in the Yangtze Delta River and some Tier 1 cities, we have seen that as the charging experience improves, the -- our sales volume also grow.

So, that's why we are very confident that, with more and more Power Swap stations, we can penetrate into lower-tier cities. Naturally, NIO sales will lead to a very strong momentum or a solid growth in the low-tier cities. Last but not least, I think, looking forward, as more and more OEMs seriously look at Power Swap stations as a more or less standard way, those Power Swap stations will become a more and more convenient way for more and more EV users.

Xue Deng -- CICC -- Analyst

Steven [Foreign language]

Steven Feng -- Chief Financial Officer

Thank you.

Operator

Thank you. Your next question comes from Vijay Rakesh from Mizuho Securities. Please go ahead.

Vijay Rakesh -- Mizuho Securities -- Analyst

Yeah, hi, just a quick question. You know, given some of the new ramps with the five-year models, and looks like you're getting good response on it, what do you expect second-half or even third-quarter production run rates to get to the 20,000 per month on average? And just wondering what the expectation is on second-half to first-half deliveries.

William Li -- Founder, Chairman, and Chief Executive Officer

Thank you, Vijay, for your question. Of course, for us, the target for the second quarter of this year is to deliver over 20,000 units every month, and we're very confident to achieve this target.

Vijay Rakesh -- Mizuho Securities -- Analyst

Got it. And just one other question. I see -- look at some of the subsidies -- if you look at some of the subsidies moving to Tier 2 cities, is that a near term -- could that be a challenge for NIO given you don't have enough swap stations, etc. on the Tier 2 cities, etc.? Thanks.

William Li -- Founder, Chairman, and Chief Executive Officer

This year, our target is to deploy 1,000 additional Power Swap station. And the full majority of those Power Swap stations will be deployed on highways, and some of them will be installed in the Tier 3 and the Tier 4 cities. We believe that this is going to directly boost the sales performance of our products. Actually, in April, we started the deployment of the Power Swap station 3.0, and we accelerated the deployment in May.

In June, we believe we're going to deploy around 100 Power Swap station 3.0. And we believe, gradually, from now on -- from now on, we're going to speed up the deployment of the Power Swap stations.

Vijay Rakesh -- Mizuho Securities -- Analyst

Thank you.

Eve Tang -- Capital Markets

Thank you, Vijay.

William Li -- Founder, Chairman, and Chief Executive Officer

Thank you.

Operator

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

Eve Tang -- Capital Markets

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

Thank you.

Duration: 0 minutes

Call participants:

Eve Tang -- Capital Markets

William Li -- Founder, Chairman, and Chief Executive Officer

Steven Feng -- Chief Financial Officer

Tim Hsiao -- Morgan Stanley -- Analyst

Bin Wang -- Credit Suisse -- Analyst

Stanley Qu -- Vice President, Finance

Ming Lee -- Bank of America Merrill Lynch -- Analyst

Yuqian Ding -- HSBC -- Analyst

Nick Lai -- JPMorgan Chase and Company -- Analyst

Paul Gong -- UBS -- Analyst

Xue Deng -- CICC -- Analyst

Vijay Rakesh -- Mizuho Securities -- Analyst

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