NIO Inc

NYSE:NIO

Q2-2025 Earnings Call

[Operator]

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.

[Rui Chen, executive]

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.

[Bin Li, executive]

[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.

[Stanley Qu, executive]

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]

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

[Ming Chung, analyst]

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.

[Bin Li, executive]

[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.

[Ming Chung, analyst]

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?

[Bin Li, executive]

[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.

[Operator]

Your next question comes from Bin Wang from Deutsche Bank.

[Bin Wang, analyst]

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?

[Bin Li, executive]

[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.

[Operator]

Your next question comes from Tim Hsiao from Morgan Stanley.

[Tim Hsiao, analyst]

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.

[Bin Li, executive]

[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.

[Tim Hsiao, analyst]

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.

[Bin Li, executive]

[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.

[Operator]

Your next question comes from Jing Chang from CICC.

[Jing Chang, analyst]

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.

[Bin Li, executive]

[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.

[Operator]

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

[Ming-Hsun Lee, analyst]

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?

[Bin Li, executive]

[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.

[Ming-Hsun Lee, analyst]

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?

[Bin Li, executive]

[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.

[Operator]

Your next question comes from Paul Gong from UBS.

[Paul Gong, analyst]

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.

[Bin Li, executive]

[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.

[Paul Gong, analyst]

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.

[Bin Li, executive]

[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.

[Operator]

Your next question comes from Yuqian Ding from HSBC.

[Yuqian Ding, analyst]

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?

[Bin Li, executive]

[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.

[Yuqian Ding, analyst]

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.

[Bin Li, executive]

[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.

[Operator]

Your next question comes from Tina Hou from Goldman Sachs.

[Tina Hou, analyst]

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?

[Bin Li, executive]

[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.

[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, executive]

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.]