Nio (NIO) Q3 2024 Earnings Call Transcript

Nio (NIO 1.51%)
Q3 2024 Earnings Call
Nov 20, 2024, 7:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Hello, ladies and gentlemen. Thank you for standing by for NIO Incorporated’s third-quarter 2024 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 of the company.

Please go ahead, Rui.

Rui Chen — Head of Investor Relations

Good morning and good evening, everyone. Welcome to NIO’s third-quarter 2024 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 CEO; Mr. Stanley Qu, CFO. Before we continue, please be kindly reminded that today’s discussion will contain forward-looking statements made to 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 Neil’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 gathers. 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 2024 Q3 earnings call. In Q3, the company achieved a new quarterly record with 61,855 deliveries. The NIO brand maintained its position as the top-selling brand in China’s PV segment priced above RMB300,000 with its market share reaching 48%.

The ONVO brand also started to deliver its first model L60 on September 28. Marketing is entry into the broader mainstream family market. In October 2024, the company delivered 20,976 vehicles. While the ONVO brand continued to ramp up production capacity, the company’s total deliveries in Q4 are expected to be between 72,000 and 75,000 units.

On the financial side, our Q3 results reflected continued improvement in component costs leading to a vehicle margin of 13.1%. Besides the gross margin of other sales have improved steadily, supported by sustained growth in revenues and the gross margin, the company achieved a positive operating cash flow and the free cash flow in Q3. Now, I would like to share with you some updates on our products, R&D, and operations. NIO’s Executive flagship ET9 is in the final testing and the preparation before mass production and the delivery is expected to start in March.

The ET9 brings together NIO’s leading innovation. Its delivery will reinforce NIO’s premium brand image. With new models to be introduced in the coming year, the NIO brand will be more focused on improving profitability. The ONVO L60 aiming the mainstream family market has been a hit with family users, thanks to the special cutting, ultra-low energy consumption, comprehensive safety features, and harder free charging and swapping experience.

Now we are ramping up our supply chain capacity. NIO’s monthly production capacity is expected to hit 10,000 units in December and 20,000 units by March. Besides, on December 21st, NIO’s third brand officially named Firefly will make a global debut on NIO Day 2024. Its first product will be delivered in the — its first product will be delivered in the first half of next year, targeting the compact car market, the Firefly brand will enrich the company’s product line up and make full use of existing sales network.

In terms of smart driving by October, NIO’s smart driving over 610,000 users and 78.4% had activity — activated NIO’s Navigate on Pilot, Together, they have driven over 1.39 billion kilometers with OP — the onward smart driven based on the company’s experience and the expertise built over time was rolled out with the making on the first brand to deliver vision-based and navigation guided market on Urban do. The company’s sales footprint continue to grow. So far, NIO has 176 NIO Houses and 412 NIO cases worldwide, while ONVO 191 stores across China. On the service end, the company has 398 service centers and 65 delivery centers.

The power of country’s plan is making strong headway, with more partners joining us in expanding the network. As of now, the company has 2,737 Power Swap stations worldwide, including 887 on highways have been provided over 58 million works for NIO and ONVO users. In addition, over 24,000 power chargers and the destination charges are up and running. We continue to expand globally.

On November 28th, the first NIO House in the MENA region will open update, and our sales and delivery have already started in UAE. Next year, with NIO products from ONVO and Firefly, the company will accelerate its international market entry. On September 29th, NIO China signed a new investment agreement and the secured RMB3.3 billion from the strategic investors. This capital boost reinforces our balance sheet and reflect the invested high confidence in NIO’s industry leadership.

On October 26th, the 2024 NIO Cup Formula Student Electric China came to an end, supporting the event for 10 years, NIO has helped more than 60,000 talented students chase their dreams in a rapidly evolving smart EV industry. November 25th marked NIO’s tenth anniversary, a milestone that wouldn’t have been possible without the trust and support of our users and investors. Going forward, as the NIO brand starts to enter new product cycle, and ONVO and Firefly will deliver more new products, the company is embarking on the face of a robust growth. We are confident in what is to come.

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

Stanley Qu — Chief Financial Officer

Thank you, William. Let’s now review our key financial results for the third quarter of 2024. Our total revenues were RMB18.7 billion, decreased 2.1% year over year and up 7% quarter over quarter. Vehicle sales were RMB16.7 billion, down 4.1% year over year primarily driven by a lower average selling price due to changes in product mix, partially offset by higher deliveries.

Vehicle sales increased 6.5% quarter over quarter, which was mainly due to the increased delivery volume. Moving to the performance of other business. Other sales were RMB2 billion, grew by 19.2% year over year and 11.9% quarter over quarter. The year-over-year increase was mainly due to the increase in sales of parts, accessories and aftersales vehicle services and provision of power solutions and partially offset by lower sales of used cars.

The increase quarter over quarter was mainly attributed to the increase in sales of parts, accessories, and aftersales vehicle services and provision of power solutions. Vehicle margin was 13.1% in this quarter, compared to 11% in the same period of 2023 and 12.2% last quarter. The year-over-year increase was mainly due to decreased the material cost per unit and partially offset by lower average selling price, a result of changes in product mix. The quarter-over-quarter increase was mainly due to decreased material costs per unit.

Overall gross margin was 10.7%, up from 8% in the same period of last year and 9.7% in the last quarter. Turning to opex. R&D expenses were RMB3.3 billion, increased 9.2% year over year and 3.1% quarter over quarter. The year-over-year increase was both mainly driven by the increased personnel costs in R&D functions.

SG&A expenses RMB4.1 billion increased 13.8% year over year at 9.3% quarter over quarter, which was mainly driven by higher personnel costs related to sales functions and increased sales and marketing activities associated with new product launch. Loss from operations was RMB5.2 billion, up 8.1% year over year and relatively flat quarter over quarter. Net loss was RMB5.1 billion, showing an increase of 11% year over year at the remaining relatively stable quarter over quarter. Lastly, we ended the quarter with a stronger balance sheet with total cash and cash equivalents, restricted cash, short-term investments, and long-term time deposit to RMB42.2 billion.

That wraps up our prepared remarks. For more information and the details of our unaudited third-quarter 2024 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.

Questions & Answers:

Operator

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

Tim Hsiao — Morgan Stanley — Analyst

Hi. Good evening, new management team. This is Tim from Morgan Stanley. Thanks for taking my questions.

I have two questions. The first one is about brand strategy alignment because we noticed since the L60, ONVO L60 was launched in September, the orders of NIO brands and ONVO brands being see-sawing. How order trends of NIO and ONVO concrete. Should we be worried about the potential cannibalization between these two brands when it comes to the end-demand brand proposition and the supply chain management? That’s my first question.

Thank you.

William Li — Founder, Chairman, and Chief Executive Officer

[Foreign language] Thank you for the question. Regarding the overall delivery volume of the NIO brand, you see a decrease in our delivery volumes starting October. That is more of an active adjustment than a passive results. As before October, our monthly delivery volume was above 20,000 units for several months consecutively.

But in the meantime, we also realized that the vehicle margin has been under pressure as we have some promotions and marketing expenses on the product. Then starting October, we have [Inaudible] on our expenses on that part by reducing around RMB15,000 per unit on the promotional costs and the marketing costs. With that, inevitably, you’ll see the impact on the sales volume. But starting November, as we are stabilizing our delivery volume and the demand, we are seeing the recovery from our volume.

And regarding our brand strategy, overall speaking, we think that using two or three brands to target different user groups is a success strategy for now. For the ONVO, it is still competing with other competitors in the same price segment. Right now, when we are looking at the main source of ONVO users, a majority of them actually come from the Model 3 users. And internally, we are also looking at the potential competition between the ONVO brand and the NIO brand, but the actual overlapping or the impact on the NIO brand is pretty minimum, only around 2%.

It is true that few users may choose over — may choose ONVO over new, but the overall impact on the sales and delivery of the NIO brand is limited. In that case, the combined increments of both ONVO and NIO still surpass the volume loss we had on the new brand in the past one or two months. To clarify that, to look at the source of our ONVO users, the top 1 source of this ONVO users actually is coming from Model 3.

Tim Hsiao — Morgan Stanley — Analyst

Thank you very much really. My second question is about the production ramp up. Because we noticed the production ramp-up of L6 so far is still a little bit slow. What is the main reason to a more moderate ramp up pace would there be any impact to our current order backlog toward the year-end.

And in the meantime, in view of the bus model pipeline Firefly and also the new T9 in March next year, as we have just mentioned and more upcoming models on the under ONVO and NIO. How would the group consider selling the bottlenecks into 2025? That’s my second question. Thank you.

William Li — Founder, Chairman, and Chief Executive Officer

[Foreign language] Thank you for the question. For the ONVO, it’s true that people have — where the market has a higher expectation for its ramp-up and production capacity. However, we also need to understand that L60 comes with a lot of cutting-edge technologies. For example, it has a 900-volt hydrate architecture, which is also intertwined with the production and operation of the battery and powertrain systems.

It also has a pretty advanced e-architecture operating system and digital system like coconut also equipped with a lot of the new technologies. So such technology preparation will also take time. And we also didn’t prepare a sufficient launch stock so that we will realize every high delivery in the first month. We actually believe that ramping up to 10,000 units per month in December, that is our third month of the full month delivery and then renting up to 20,000 in March next year is a reasonable speed and pace.

It’s true that this speed may not live up to some of your expectations. And we also understand that on the subsidy side, by the end of this year, some local subsidies and also the national trading subsidy will become. In that case, for some users who placed order later may not have their cars picked up by the end of this year, and that will affect their subsidy. In that case, we have also looked at the users who eventually turned us off or turn a ton and 50% to 60% of those users eventually rejected us was because of the late delivery and the failure of not getting the subsidy by the end of this year.

We — it’s also understandable after all ONVO product is around 200,000-something and 10,000 or 20,000 subsidy can be a significant amount to them. For ET9 and the Firefly, in general, they also have their own ramp-up pace and the preparation. But for these two products, we will prepare the launch stores more actively.

Rui Chen — Head of Investor Relations

Thank you, Tim.

Operator

The next question comes from Nick Lai with J.P. Morgan. Please go ahead.

Nick Lai — JPMorgan Chase and Company — Analyst

Thank you for taking my questions. Nick from J.P. Morgan. My first question is for William is how do — strategically, how do you find the balance between possibility and volume.

And, William just mentioned that in the third quarter in recent months, we reduced the incentive by RMB15,000 that obviously has should support vehicle margin into year-end. At the same time, that’s probably at expense of the slower sales volume. So longer term, can you share with us how should we think about the balance between profit margin and volume? Or in other word, do we have a desired vehicle margin in 4Q in the medium to longer term? I remember in the past, talk about a longer-term vehicle margin between 15%, 18% or even 20%. Can you share with us the medium to longer-term volume and profit margin strategy? Thanks.

Stanley Qu — Chief Financial Officer

Hi, Nick. [Foreign language] Thank you for the question. This is Stanley speaking. Regarding your question on the balance between the volume and the profitability, as also mentioned by William, after the launch of ONVO, for the NIO brand, our primary focus is to keep in our premium brand positioning and improve our product profitability.

So this will be our focus from now and beyond. And also starting October, we started to dial back on our product promotions and incentives. For the short term, it has affected our sales volume. But in the past 1 month or so, with operations, we also see a bounce-back momentum on our order backlog.

And regarding the vehicle margin of the NIO brand in the third quarter, it’s around 13.1% and — and for the fourth quarter, we set the target at 15% for the NIO brand, and we are confident to gradually leave up to that target in Q4 this year. And as we keep enhancing the premium positioning of this brand for the year of 2025, we will take 15% vehicle margin as a baseline. And by improving our marketing strategies and supply chain, we target to realize 20% gross margin going forward for NIO brand.

Nick Lai — JPMorgan Chase and Company — Analyst

Thank you. My second question is related to capex and opex guidance. we are launching new brand Firefly into ’25 also higher — high ET9 product and so on. So can you give us some guidance regarding opex — in the opex ratio as well in capex ’25? Thanks.

William Li — Founder, Chairman, and Chief Executive Officer

[Foreign language] Thank You for the question. As mentioned, starting next year, we will start to deliver our ET9 and there will also be new models coming from our second and the third brand. So over speaking, there will be improvements with our opex. As you can see, actually, in the third quarter of this year, we already see an increment in our SG&A expenses.

That is mainly because we are preparing — we were preparing the south network and the sales force for the launch of the ONVO brand. And such expenses will continue in Q4 and will also continue to increase in Q4 as right now, we have around 190 stores in China. And by the end of this year, we plan to have around 300 stores up and running for the ONVO brand. So we will need to invest in those facilities and the stores.

And in the meantime, as our target for March next year is to realize a 20,000 monthly target. In that case, we will need to keep improving our sales network and also sales force. But as we are building up the sales capacity and the capability for the ONVO brand and going into Q1 next year when the capability and capacity are well established our SG&A expenses were also gradually coming down. So at the moment, the SG&A is taking a major chunk — taking a big chunk of our sales revenue, but this will gradually come to a reasonable level starting Q1 next year.

In that case, our opex, along with the increase of our sales volume, will have an efficiency improvement quarter over quarter from next year. Regarding capex, this year, our overall capex actually had a significant decrease from last year. The full year capex is around RMB8 billion. And for next year, we will keep around the same it at around the same level.

So we will keep a very prudent management of our capex expenses.

Rui Chen — Head of Investor Relations

Thank you, Nick.

Operator

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

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

Hi. This is Ming from Bank of America. So my first question is related to the situation in Europe. I want to know that after the tariff in EU is increased.

Do you change your pricing strategy? And currently, this impact the demand in Europe? Thank you. That’s my first question.

Stanley Qu — Chief Financial Officer

[Foreign language] Thank you for the question. It’s true that with the tariffs on the battery electric vehicles from China, it has affected our pricing strategy and also sales volume in Europe, but while speaking for the overseas market, we still adopt this unified pricing strategy. That is basically a cost with a markup on top. In that case, because of the tariffs, our prices in Europe actually has gone up quite significantly.

However, our strategy for the European market is always aiming for the long term. At the moment, we will stay focused on improving our sales and service network. Understanding the needs of the local users and to improve our user satisfaction on the services and products. This is actually where — this strategy is not just because of the tariff even before the tariffs we’ve been focusing on the several key targets than simply prioritizing our source volume.

We will need to make sure that we have a reasonable investment into our European business. while maintaining a good user satisfaction and also improving our brand awareness. Again, our target for Europe is for the long term. And also out of the five European countries we have already entered Norway is not affected by the tariff policy.

In that case, our sales volume in the Norwegian market is still pretty good.

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

Yes, thank you. So my second question is related to the gross margin profile for ONVO brand because Stanley just mentioned the NIO brand in 4Q, gross margin will continue to improve to around of 15%. But I assume you will deliver around 20,000 units ONVO in 2024, what about is the rough gross margin profile for this brand. And when your monthly delivery reached 20,000 units for ONVO brand, what is the potential gross margin profile for the brand.

Stanley Qu — Chief Financial Officer

[Foreign language] Thank you for the question. For this year, as we have just launched and started to deliver the product at the early stage of the ramp-up and also because of the exclusive user rights for the early users, the actual vehicle margin for the ONVO L60 is not very high. It’s positive gross margin, but in the single digit. For next year, for the year of 2025, as we ramp up both production capacity and the delivery volume, we expect that for the ONVO brand, its vehicle margin will be around 10%, and that will be our baseline for the next year to work on.

And with the continuous improvement on the product cost structure and also with more products joining the overall lineup, we believe that for the next year, our overall vehicle margin target for the ONVO brand will be around 15%.

Rui Chen — Head of Investor Relations

Thank you, Ming.

Operator

Your next question comes from Bin Wang with Deutsche Bank. Please go ahead.

Bin Wang — Deutsche Bank — Analyst

Thank you very much. My product is about new products in the second half. You just mentioned we have a robust growth in ’25 and the first half would be always niche products such as the ET9 and a NIO brand. However, what’s the mean for the second half.

Do you plan to refresh continued generation for your fee volume products, such as the ET5, ET5 Touring and ES6, ET6. All the thought products will go to digital generation or not in 2025 second half. Thank you.

William Li — Founder, Chairman, and Chief Executive Officer

[Foreign language] Thank you for the question. For next year, under the NIO brand, our products will be upgraded to the next-generation platform and ET9 will be the first product coming off from the latest-generation platform. There are also other products in the pipeline. There will be also facelifts and upgrades.

Those will be the facelifts and upgrades of our existing products. So basically, in 2025 and 2026, we will complete the upgrades of our existing NIO products set by step. Regarding the ONVO brand. Next year, we will continue to deliver and sell our first product, L60.

But in the meantime, we also have another two family SUVs in the pipeline, ready to launch into the market next year. The R&D of these two products is in good progress, and they are also getting ready for the mass production. Regarding — with these two products launched into market, we will have a complete lineup for the family SUVs under the ONVO brand. For these two new products, one will be a mid-large-sized SUV offering with six and seven super versions and another will be a large five-seater SUV.

And these two products are pretty competitive regarding their cost structure and the product performance. A proper benchmark to look for will be L8 and L7 of the auto. If you look at our L60 with L6 from the auto, the price difference is USD 40,000 and — sorry, RMB40,000, and you will probably understand the rough price range for our next 2 ONVO SUVs. It will be also with the similar pricing strategy.

And with that, the price will be highly competitive. In the meantime, we are also completing our charging and swapping network, especially with more facilities available in the county level places in China. In that case, with more comprehensive sales network and service network, we are very confident with the overall performance of the ONVO brand next year. Regarding Firefly, we are going to deliver our very first product of the Firefly next year.

The product is actually named Firefly. We actually follow the mini strategy where the brand and the first product will share the same name. We are going to share more details on the brand and the project on December 21st of this year at our NIO Day. Our brand will be making an official debut and we will also unveil the first product.

And overall speaking, we are very confident with this product and brand lineup with that for the entire company, our sales volume next year will be doubling on top of this year’s results.

Bin Wang — Deutsche Bank — Analyst

Thank you. I got a second question about your service margin because you actually have improving in the sales margin in the third quarter to hold negative AOE. Can you explain what’s the driver for the margin increase in the third-quarter service? And what’s your guidance for the fourth quarter this year and 2025 for the service. It’s going to be double single-digit net gross margin in next year, so with your guidance.

Thank you.

Stanley Qu — Chief Financial Officer

[Foreign language] Thank you for the question. Regarding the vehicle margin improvement in the third quarter, it is mainly because of the two drivers. The first is the improvement and optimization on the cost of the pulp and components, including batteries and other parts. In the third quarter, such improvement is more significant than the previous quarters.

And the second driver is, as we are ramping up our sales volume, our production capacity and volume is also leveling up. In that case, we can also leverage the efficiency improvement and the better amortization on the manufacturing side. With that, we have improved our vehicle margin from 12.2% in Q2 to 13.1% in Q3. And going into the fourth quarter, for the NIO brand.

As we’ve mentioned, our focus will be enhancing the premium positioning of this brand. In that case, we will keep improving the product profitability by dialing back on the marketing expenses and the promotions and also keep improving our supply chain cost structure. With that, we are confident that we can gradually realize a vehicle margin of 15% in the Q4 this year for the NIO brand. Going into next year, we will also look for several key drivers to continuously improve our vehicle margin, including the improvements on the supply chain and the supply side.

Next year, there will be several major integrations and upgrades on the smart hardware, which can further improve our cost structure. And also, as mentioned by William, next year, there will be iterations and facelift on the NIO brand and new products by introducing more competitive products with more competitive cost structure into our portfolio, we can also improve the overall profitability of the brand. With that, we are also confident to realize a 20% vehicle margin for the NIO brand in 2025.

Rui Chen — Head of Investor Relations

Thank you, Wang Bin.

Operator

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

Yuqian Ding — HSBC — Analyst

Hi. Thanks. Yuqian here. I’ve got two questions.

The first is on the autonomous driving. What the management would see — would say the key milestone for NIO in the coming 6 to 12 months on this account? What’s the key challenges at the moment? What is the biggest highlight of NIO’s capability. Maybe give us a bit of a breakdown in terms of the user adoption end-to-end modeling, development, processing power and this cost. Thank you.

William Li — Founder, Chairman, and Chief Executive Officer

[Foreign language] Thank you for the question. In late July, at the NIO in 2024, we have introduced the NIO World Model and also the end-to-end solution based on the NIO World Model, NWM and we have already started to release some functionalities based on the NIO architecture and the word model and also have invited users for some internal testing and experience of this new architecture. Actually, before that, we have already released an active safety features and in some third-party testing and assessments on active safety performance of the electric vehicles. Our performance is actually pretty good, better than many of our peers.

And for the ONVO brand, it is also the first brand to deliver a vision-based navigation guided smart driving for the urban road. Recently, we have also just launched a new release and our users also really appreciate it and like that. So overall speaking, with our computing power and sensing capabilities on the vehicles with our data close loop and also our end-to-end Word Model, we will have — we will be leveraging these capabilities. And in the following months, there will also be several releases.

And gradually, you will see the effect coming from all these R&D investments. And for the entire industry, there are actually different road maps and solutions. And we have chosen this road map, and we are confident in the success and the result of that roadmap. And regarding our smart driving, we always have this principle that is it should serve the benefits and the interest of our users.

In that case, we have two principles. The first is that the smart driving should relieve the driving pressure of our users and secondly, should reduce accidents — traffic accidents. And for next year, our target is that with the smart driving assisting the driving tests of the human drivers, the safety level should be 10 times higher than fully driving by the human drivers. And this is actually an achievable target.

And safety is always a top priority of our features. On top of that, by securing a good safety of the future, we will then look at the usability and also the experience of the feature, such as further releasing the pressure and stress of driving. We have the same approach for our other features like our M2A we started with active safety, and we see significant benefits on improving the safety of our users with that feature.

Yuqian Ding — HSBC — Analyst

Thank you, William. The second question is on breakeven and capital requirements. — it looks like next year is very exciting, fully loaded with a strong product cycle also coupled with capex and opex intensity. So do we have a refreshed breakeven timetable? And how do we look at the capital requirement in the coming 12 to 18 months?

Stanley Qu — Chief Financial Officer

[Foreign language] Thank you for the question. Regarding the requirements for the capitals. In the third quarter of this year, we have a realized free cash flow. And in Q4, according to the current volume guidance, we expect to continue the positive free cash flow.

And for the year of 2025, as we target to double our delivery volume and also by controlling our funding and the pace quarter over quarter that we will continue a positive growth on our operating flow and such growth will sustain our opex and capex on the activities. So regarding the capital requirement, we’re in general, fundraising requirement, we don’t have a must-to-have agenda. Instead, we will adjust our fundraising. And regarding your question on the profitability, I would like to answer to that from perspective.

The first is that as still a young automotive company, sales volume is still a very important factor for us to consider. And just now, we have introduced the product one of all three brands for the next year. with new brands and new products coming into the market, we will be able to realize higher volume, and we are also confident with our sales volume in the coming years. And the second is regarding the vehicle margin.

We also will continue to improve our vehicle margin from Q4 this year, together with our sales volumes. And the third is continuous cost saving and efficiency improvement initiatives. Inside of the company, we actually started a project called cost mining to just identify the waste and also improve the cost structure and reduce or save costs on all aspects. And we also see pretty good effect with this initiative.

With that, we expect that with improved volume with improved operations, our loss will also be gradually narrowed.

William Li — Founder, Chairman, and Chief Executive Officer

[Foreign language] This is William speaking. Stanley has just introduced our approach to narrow the loss. Regarding our overall expenses, our R&D expenses will be continue to stay at this relatively high level. And for the SG&A expenses, because of our Power App can plants, we will roll out the charging and swapping networks and also we will need to build up the sales and network for the ONVO brand, so the SG&A expenses will also be under term pressure.

But still, we will make sure that we are on the right track to gradually narrow our losses. And regarding the profitability, the entire company to use 2026 as the timing where we will achieve the full-year breakeven. And we will be also planning our strategies and activities according to that target.

Operator

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

Xue Deng — CICC — Analyst

Hi. Thank you for taking my questions. So my first question is a follow-up question for the overseas market. So we actually our brand and automotive Europe market quite early as a pioneer, but now we also see some peer brands companies, they accelerate their culture in the European market.

So can you share our current, like European market strategies, whether we can differentiate our brands and also to further expand our volume. Also, especially combined with the launch of Firefly’s new models next year, where there be aggressive overseas extension targets next year.

William Li — Founder, Chairman, and Chief Executive Officer

[Foreign language] Thank you for the question. It’s true that NIO has been in the European market for a while and its overall operations and performance didn’t really live up to our original expectation. Yes, for the NIO brand, our expectations were for the European market is actually a pretty long-term vision. And also starting this year and the next year, another difference is regarding our second and third and ONVO in the Firefly, these two brands have a broader market globally.

With that, we will also be able to continue our international expansion, leveraging these two brands and this brand will be playing a bigger role in our next step. Especially for NIO, it is a premium brand. Now with the tariffs in Europe, its selling price is basically on par with the price of a push. In that case, it’s market is becoming more and more limited, but we will still keep a long-term presence of the NIO brand in the European market.

But in the meantime, we will prioritize the global expansion with the ONVO and the Firefly brand. That will be our strategy. So starting next year, you will see that ONVO the Firefly products are becoming available in one more countries and regions. And another difference is that here in the Chinese market, we started with the NIO brand for the premium segment.

And then we established the Power Swapping and the charging network and ONVO brand is now sharing all this established resources and network. But when it comes to the global market, actually, according to the product definition and brand positioning, ONVO actually has a larger market. And also, it can ramp up to a high much faster than the NIO brand. In that case, the Power Swap stations and the charging facilities deployed for the ONVO brand will then be leveraged by the NIO brand.

So in the global markets, actually, the NIO brand will rely more on the ONVO brand. And with that, we will be establishing the charging and swapping facilities centering on the ONVO brand and the Firefly brand for the global market.

Xue Deng — CICC — Analyst

OK. Thank you. My second question is regarding to the other sales gross loss. So we can see the gross lock of other sales also narrowed significantly for the previous quarters, so which I think may be related to the increase in our sales volume and also the increase in our like charging and swapping charges and our services.

So how do we look forward to the trend of the gross profit margin of other sales? And whether we have an expectation when they can turn positive.

William Li — Founder, Chairman, and Chief Executive Officer

[Foreign language] Thank you for the question. Regarding other business, in the second and the third quarter, we have narrowed the losses on other business and also improve the gross margin. This is mainly because on the one hand, we have been improving the efficiency of our aftersales services. And on the other hand, because of the pace of the fourth-generation power substation had slowed down the network deployment and structure construction of Power Swap stations.

With that, our net loss has narrowed in the third quarter. But in the coming quarters, we will — on the one hand, we will still continue to improve the efficiency and also the profitability of our outer self services. However, on the other hand, the entire company, especially for the ONVO brand, we will need to speed up our infrastructure cost structure so that we will have our Power Swap stations and other facilities built in advance earlier than the actual need. And in the meantime, with our Power Up context brand for the coming quarter, we will speed up the installation and construction of this swap station.

With that, there will be a higher loss on other business. But overall speaking, we hope that the profitability or the improvement on the after services can offset the loss we have on the advanced deployment of these Power Swap facilities. That will be our overall strategy this year.

Operator

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

Paul Gong — UBS — Analyst

Hi, William. Thanks for taking my questions. Two questions here. The first question is regarding the demand visibility for the Avon you seem to be pretty confident with 20,000 units of the volume of the 60 delivery in March that would put 60 on par to Xiaomi 27 and the auto L6 for now.

But when you consider right now, it is a peak season with the help of the stimulus and moving to Q1 is going to be slack season with perhaps less policy support. How do you have such visibility? Will you carry over, let’s say, a significant amount of the backlog takeout from right now into the Q1 delivery? Or how do you have such kind of strong visibility for the 20,000 delivery in March?

William Li — Founder, Chairman, and Chief Executive Officer

[Foreign language] Thank you for the question. We are confident in the demand for the L60 as in the recent several months wait time for the L60, the wait time for the delivery of the L60 is relatively long. And also as starting next year, some of the subsidies on the vehicles will be car. In that case, our short-term demand were — is affected because of this disturbance.

But if you look at the actual conversion rate from past to drive to order, you will see a pretty high rate. Please forgive me that I cannot disclose the specific number, yet this conversion rate is higher than any existing new products. So overall speaking, with a competitive product with a competitive price, we are confident with this product even against the competition in the market. And for the moment, our main focus is to enhance the coverage of its sales and service network.

At the moment, it has around 10 almost stores — and for the next step, we will enlarge the coverage as in comparison to Tesla, and then we also such coverage is not expensive enough. So we will open more stores. We will enhance and enlarge our sales force gradually, you will see the positive effects of these actions. And starting in January next year as the subsidies will be basically because sold were removed for all the products in the similar segment.

In that case, it will be on the same level for the competition. But with a stronger product competitiveness and also established sales capacity and capability, we are confident with L60’s overall performance.

Paul Gong — UBS — Analyst

Thank you. My second question is regarding the next generation platform, NT3. I think the NT2 versus NT1 has a significant improvement of the autonomous driving calculation power, including the four [Inaudible] and also has improved some of the powertrain efficiency. Right now, we were thinking about designing the NT3, how do you think of the platform in terms of, let’s say, the computing power for the ADA, the battery size, the power of the motor and the system integration architecture, etc.

So can you give us a little bit color of the technology direction of the NT3 platform, please?

William Li — Founder, Chairman, and Chief Executive Officer

[Foreign language] For the new brand, the ET9 will be the first model coming off from our latest generation technology platform. It is equipped with many new things, including high-voltage architecture, architecture operating system, smart driving capabilities enabled by our in-house developed the chip for the smart driving and also advanced and high-performance sensors. So if you look at its configuration and the performance, it is quite different from any of our existing products. It is basically at a different level.

And gradually, these technologies will be trickling down to our future products on the third-generation platform. We will use these technologies to iterate and upgrade our existing products. And for ET9, it is the embodiment of our R&D investment and the results achieved in the past 10 years.

Rui Chen — Head of Investor Relations

Thank you, Paul.

Operator

Your next question comes from Tina Hou with Goldman Sachs. Please go ahead.

Tina Hou — Goldman Sachs — Analyst

Thanks, management for taking my questions. The first one is regarding operating expenses. In terms of R&D, I also see that usually in the fourth quarter, there is around — about close to RMB1 billion of higher R&D expense versus third quarter, should we expect a similar type of seasonality Q4 ’24. And also for 2025, as we continue to develop new products and then continue to invest in autonomous driving and other technologies.

What kind of — what level of R&D spending are we looking at? For sales and marketing in 2025, seeing that this year, we launched one model, the ONVO L60. But next year, we’re going to launch four new models. So it doesn’t seem like the sales — the SG&A expense is going to slow down in terms of the growth. Is my understanding correct? Thanks.

William Li — Founder, Chairman, and Chief Executive Officer

[Foreign language] Regarding the R&D expenses, in general, we will be having our investment in R&D for around 3 billion per quarter, and we will be stabilizing at around that level. But because of the differences of the projects and also at the different stages of the product R&D, the actual spending — there will be ups and downs in the actual spending for every quarter. For example, in the fourth quarter of this year, the expenses will be higher or is expected to be higher than the third quarter. That is also mainly because of the products are at the different stage of R&D and the cycle and these expenses will also be different accordingly.

For the year of 2025, we will also keep our R&D expenses at the same — at around the same level. that is around RMB3 billion per quarter on the non-GAAP basis. We will also keep the R&D team in the similar size, around 11,000 people. And then with — as we progress with our R&D projects and product development, there will also be slight ups and downs in the R&D expenses on a quarterly basis.

But in general, it will be around $3 billion. Regarding the SG&A expenses, as also as mentioned, in line with the increase of our resource volume, we will also have SG&A expenses going up but we will also manage this quarter over quarter so that we can make sure that we optimize the ratio of the SG&A in comparison to the overall sales revenue.

Tina Hou — Goldman Sachs — Analyst

Thanks. So my second question is regarding the share of losses of equity investee. So we’ve seen over the past three quarters, that we have seen a negative number and that number has been expanding. So is this related to the Battery as a Service operation? And then how should we think about this loss from the equity invested going forward? Thanks.

William Li — Founder, Chairman, and Chief Executive Officer

[Foreign language] Thank you for the question. In the third quarter, the share of the losses of the equity has an increase. That is mainly because for the entire company, we have made some investments into the upstream and downstream companies centering on this industry. And in the third quarter, the loss went up, it’s mainly because of the losses of our investee, which is also acceptable and understandable as they are also in a highly competitive industry.

In terms of the — in terms of [Inaudible], which is our battery asset management company, its actual business means that it will not worsen our losses on the shares because if you look at this actual business, since Q1 this year after we have adjusted the prices for the Battery as a Service monthly subscription fee, we actually have witnessed a higher take rate on the bus service especially in the second half with both NIO and ONVO products into the market, the business actually experienced growth with the battery asset management. In that case, it has a pretty promising profitability going forward.

Operator

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

Rui Chen — Head of Investor Relations

Thank you again for joining us today. If you have any further questions, please feel free to contact us through the contact information provided on our IR website. [Operator signoff]

Duration: 0 minutes

Call participants:

Rui Chen — Head of Investor Relations

William Li — Founder, Chairman, and Chief Executive Officer

Stanley Qu — Chief Financial Officer

Tim Hsiao — Morgan Stanley — Analyst

Nick Lai — JPMorgan Chase and Company — Analyst

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

Bin Wang — Deutsche Bank — Analyst

Yuqian Ding — HSBC — Analyst

Xue Deng — CICC — Analyst

Paul Gong — UBS — Analyst

Tina Hou — Goldman Sachs — Analyst

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