Q3 2023 NIO Inc Earnings Call

Participants

Rui Chen; Head of IR; NIO Inc.

William Li; CEO; NIO Inc.

Steven Feng; CFO; NIO Inc.

Stanley Qu; SVP, Finance; NIO

Tim Hsiao; Analyst; Morgan Stanley

Nick Lai; Analyst; JP Morgan

Yuqian Ding; Analyst; HSBC

Ming Hsun Lee; Analyst; Bank of America

Paul Gong; Analyst; UBS

Xue Deng; Analyst; CICC

Jason Getz; Analyst; Mizuho Securities

Steven Weng

Presentation

Operator

Ladies and gentlemen, thank you for standing by for NIO Incorporated's third quarter 2023 earnings conference call. At this time all participants are in listen-only mode. Today's conference call is being recorded. I will now turn the call over to your host, Mr. Rui Chen, Head of Investor Relations of the Company. Please go ahead, Rui.

Rui Chen

Good morning and good evening, everyone, welcome to NIO's third quarter 2023 Earnings Conference Call. The Company's financial and operating results were published in a press release earlier today and are posted on the Company's IR website.
On today's call, we have Mr. William Li, Founder, Chairman and CEO. Mr. Steven Feng, our CFO and Mr. Stanley Qu, Senior VP of Finance.
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.

William Li

(Interpreted) Hello everyone, thank you for joining NIO's 2023 Q3 Earnings Call.
In the third quarter of 2023, by making the most of a complete product lineup on the NT2 Platform, the improvement of overall sales capacity and capability, as well as the continuous expansion of sales, service and power networks, NIO delivered a total of 55,432 premium smart electric vehicles, up 75.4% year over year.
The retail stats from CATARC show that in Q3, NIO ranked the first in China's BEV segment with an average transaction price of over RMB300,000, with market share above 45% in the segment.
In September, NIO launched and delivered the all new EC6, a midsized coupe SUV upgraded to the second generation. It also marked the completion of NIO's product lineup on the NT2.0 Platform.
In Q4, as price war deepens and the competition gets tighter for smart EVs, NIO delivered a total of 32,033 vehicles in October and November, up 32.2% from last year, while maintaining our prices stable. In Q4, the total deliveries are expected to be between 47,000 to 49,000.
Going forward, we will stay focused on executing sales strategies and improving operational efficiency. We believe the competitiveness of NIO's second-generation products will be fully unleashed next year.
In terms of NIO's financial performance attributed to the increased sales mix for higher priced models, decreased parts costs and improved economies of scale enabled by more deliveries combined with a refined management of sales policies, the vehicle margin in the third quarter reached 11%.
Next, I'd like to share with you the recent highlights of our products, R&D and operations.
On 21 September NIO held NIO IN, NIO's Innovation and Technology Day. At the event, NIO's 12 Full Stack technology capabilities covering the holistic business scenarios for smart EVs for multiple brands and platforms were introduced to the public for the first time.
In the meantime, NIO also unveiled China's first vehicle operating system, SkyOS, and the in-house developed LiDAR SoC, named Yang Jian, demonstrating NIO's systematic R&D capabilities, leading the industry.
Regarding assisted and intelligent driving, NIO has been quickly iterating the system capabilities. On 15 November, power swap pilot for highway Beta was released in China. So far 29 power swap stations on highways already support this feature. PSP seamlessly combines NOP+ and the power swap, bringing new users a hassle-free highway driving and battery swapping experience that is automated and intelligent from end to end.
In the meantime, NIO has rolled out the NOP+ for urban traffic providing users with uninterrupted driving experience from Point A to Point B, both on highways and on city streets. Enabled by NIO's generalization capability in-house and taking into consideration the high demand routes on users' wish lists, we have started to roll out NOP+ for cities, route by route, from November and will gradually realize wider coverage.
At present the NOP+ has been released to early bird users in several major cities and is quickly becoming available for more routes and in more cities which has far surpassed the target announced at NIO IN. At our upcoming NID 3Communication event, we will be sharing more information about that.
In terms of the sales and service network, so far, we have 458 NIO House, NIO Space and pop-up stores in 152 cities as well as 314 service centers and 62 delivery centers in 217 cities.
As for the charging and the swapping network, to date we have installed 2,226 power swap stations, over 9,400 power chargers and over 11,000 destination chargers worldwide. More than 1.46 million public chargers have been connected with NIO's charging map.
NIO's long trusted and well proven battery swapping system has offered over 32 million convenient, efficient and safe battery swaps to new users, making power swap the most trusted recharging solution for them. Nio NIO Power Cloud and NIO's power swap network has been opened to the entire industry.
In November, NIO partnered with Changan Automobile and Geely Holding, respectively, on battery swapping. In the future, NIO will join hands with more industry partners in such areas as formulation of swappable battery standards, battery swap network, R&D of battery swapping vehicles and the management of battery assets so as to provide a holistic, chargeable, swappable and operatable solution to more smart EV users and jointly contribute to the development and wider adoption of battery swap.
NIO Day, NIO'S [planned] annual gathering with users will be held on December 23 in Xi'an, Shaanxi province. This year we will unveil a brand-new flagship model, a real epitome of NIO's innovative technologies. This product will become a technology benchmark for smart EVs and a trendsetter of the smart EV technologies worldwide.
On September 26, with contributions to shaping a low-carbon industry with innovative EV battery swapping, NIO received the Green Innovation Award of the 2023 Paulson Prize for Sustainability. This award is a [recognition] of the novelty and expandability as well as the economic and [inaudible].
The 2023 NIO Cup Formula Student China, a racing car design competition for college students, was held from November 8 to November 12 in Fufei. NIO has been sponsoring and supporting the competition since 2015. So far, Formula Student China has cultivated more than 40,000 young professionals for China's automotive industry, becoming one of the most important cradles of young automotive talent in China.
The next two years will see the most intense competition during the transformation of the automotive industry. Faced with massive uncertainty in the external environment, recently we've sorted through and have adjusted our key objectives, priorities and action plans to become more focused on efficient execution and improvement of system capabilities while ensuring long-term investment in core technologies, strong sales and service capabilities to navigate the intense market competition and on-time release of the nine core products from the three brands.
We will continuously optimize internal working processes and the division of roles and responsibilities, stay focused on projects that can contribute to the Company's financial performance and comprehensively improve organizational efficiency and resource utilization. We are very confident of NIO's long-term competitiveness in the smart EV industry.
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 third quarter. Over to you, Steven.

Steven Feng

Thank you, William. I will now go over our key financial results for the third quarter of 2023. To be mindful of the length of this call, I will 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.
Our total revenues in the third quarter were RMB19.1 billion, which is an increase of 46.6% year over year, and increase of 117.4% quarter over quarter.
Our total revenues are made of two parts, vehicle sales and other sales. Vehicle sales in the third quarter were RMB17.4 billion, representing an increase of 45.9% year over year and 142.3% quarter over quarter. The increase in vehicle sales year over year and quarter over quarter was mainly attributable to higher vehicle deliveries. Other sales in the third quarter were RMB1.7 billion, representing an increase of 55% year over year and increase of 4.5% quarter over quarter.
Gross margin in the third quarter of 2023 was 8% compared with 13.3% in the third quarter of 2022 and 1% in second quarter of 2023. The changes of gross margin year over year and quarter over quarter was mainly attributable to the changes of vehicle margin. More specifically, vehicle margin in the third quarter was 11% compared with 16.4% in the third quarter of 2022 and 6.2% in the second quarter of 2023.
The decrease in vehicle margin year over year was mainly attributable to changes in product mix, partially offset by the decreased battery cost per unit. The increase in vehicle margin quarter over quarter was mainly due to changes in product mix as well as decreased promotion.
Our R&D expenses in third quarter were RMB3 billion, which is an increase of 3.2% year over year and a decrease of 9.1% quarter over quarter. This slight increase in research and development expenses year over year was mainly attributable to increased personnel costs in research and development functions, partially offset by the decreased design and development costs and deduction of expenses due to support for technology advancement provided by local government authorities during the third quarter of 2023.
The decrease in research and development, R&D, expenses quarter over quarter was mainly due to the support for technology advancement provided by local government authorities during third quarter of 2023.
SG&A expenses in third quarter were RMB3.6 billion, representing an increase of 33.1% year over year and increase of 26.3% quarter over quarter.
Loss from operations in the third quarter was RMB4.8 billion, representing an increase of 25.2% year over year and a decrease of 20.3% quarter over quarter. Net loss in the third quarter was RMB4.6 billion, representing an increase of 10.8% year over year and a decrease of 24.8% quarter over quarter.
Our balance of cash and the cash equivalents, restricted cash, short-term investment and long-term time deposits was RMB45.2 billion as of September 30, 2023.
Now this concludes our prepared remarks. I will now turn the call over to the operator to proceed our Q&A session.

Question and Answer Session

Operator

Thank you. (Operator Instructions). For the benefit of all participants on today's call, please limit yourself to two questions. If you have additional questions, you can re-enter the queue.
Our first question comes from Tim Hsiao with Morgan Stanley. Please go ahead.

Tim Hsiao

Thank you very much for taking my questions. I actually have two parts of the question. The first one is about the battery swapping, because NIO, as just mentioned, further expanded its strategic alliance in battery swapping from previous partner like Sinopec to Changan and Geely. Could you share a little bit more about your plan of how to structure the new alliance of battery swapping and the potential financial impact like your CapEx and operating loss?
In the long term, will you consider to spin off the battery-swapping business and operate it independently or even go public as a standalone third-party battery swapping or utility operator? That's my first question.

William Li

(Interpreted) Thank you, Tim, for your question. Yes, recently we have announced the cooperation agreements with both Changan and Geely on the battery swapping. In terms of the battery swap network, the way we look at it is a bit similar to the cloud service or the cloud infrastructure. Both power swap stations and the cloud infrastructure require and rely on the network effect. Both can have pretty long investment cycles. Both are actually started with internal services first. After sufficient validations and verifying the demands and the fulfilments for our users' needs, we will then open up the service to the public. After five years of validation and internal services, we believe that we are ready to provide such network and a service to the industry. It's about time to open up the network to the industry.
As we all know that there are quite a lot benefits with power swap. It is faster than charging and also it has better user experience. It also brings values and benefits to users and also the society. Especially in China, many users living in the urban environment or compound and apartments do not have a home charger. In fact, actually more than 50% of our users cannot install chargers at home. In this case, battery swap becomes even more important and the convenience for those users to not having home chargers.
This is also very important for the mass market brand because NIO is after all a premium brand and many of our users can still have chargers at home but for the mass market brands, the percentage of not being able to having the home chargers will be higher. That's why when we started to share our battery design standards and also specifications for the mass market brand to the industry peers, many of them are very interested in this alliance.
We have already announced two agreements and there are several more that are still in negotiation as they also believe that with NIO's current battery swap technologies, service standards and also service network, this is what they need for their product as well as for their users.
And also, in terms of the business model for the power swap, we believe that it is sustainable both from the business perspective as well as from a finance perspective. Especially after five years of operations and validation, we have confidence in the sustainability of battery swap.
In terms of our battery swap network, as we will continue to expand our power swap network, there will be CapEx also relevant to such network development. But in the meantime, we are also looking for approaches where we may introduce partners into our power swap network. Basically, they will buy the battery swap station as a product from us and then they will install the stations and hand it over to us for the operations. In this case, they will be holding these battery assets for us. There are a dozen such stations already running based on this business model. So, for the longer term we will also be looking for partners holding the battery swap station assets.
In terms of the NIO power charging service, it is also already almost breaking even. As you may know that 80% of our power was charged for the non-NIO users. So, for the longer term, NIO power charging will also be a profitable business. Actually in certain areas and with certain charging stations, the operations...

Swap stations.

William Li

(Interpreted) With certain swap stations, the operation is already profitable. This is also in terms of sustaining of the power swap stations, there are some investors showing their interest into having power swap, our power swap business as an independent business. We're also in conversation with them.

Yes, okay. Thank you, Tim, your next question?

Tim Hsiao

Sure, thank you. Thank you, William, for sharing all that detail. So, my next question is about the car manufacturing because as you just mentioned, NIO announced you acquired a production facility from JAC. So, first, does that mean NIO has been granted a manufacturing license? In the meantime, I think that means NIO officially shifted from the asset-light business model to asset heavy. So, in the near term, how should we think about the unit cost, vehicle manufacturing from fourth quarter onward? So, I think that previously we provided vehicle margin guidance for 15% for December quarter.
And in the long term, do you still think that the full-stack inhouse development, production and direct vehicle sales without relying on dealers would be the most ideal model for both NIO and Alps, the mass market brand, or if there will be any major difference? That's my second question. Thank you.

William Li

Steven will answer this question.

Steven Weng

Okay, so I'll start with your question about the manufacturing (inaudible) factory. During this acquisition, the manufacturing agreements between NIO and JAC are still performed, stipulated. And the production activities of the models in the cooperation are going on normally. Going forward, if there is any changes to the manufacturing cooperation with regards to the (inaudible) models between NIO and JAC or other (inaudible) that constitutes significant information after this acquisition or in the future. NIO will come [prepared] with and disclose the capital market in a timely manner, comply with the (inaudible) laws and regulations and the rules for listed companies

William Li

(Interpreted) And also to add onto Steven's comment, if we bring the entire manufacturing fully inhouse, overall speaking our manufacturing cost will be reduced by around 10%.

Tim Hsiao

Great, thanks very much, William and Steven, for all the details. Thank you. Thanks a lot.

Operator

Our next question comes from Nick Lai with JP Morgan. Please go ahead.

Nick Lai

(Spoken in Chinese) My first [group of] questions is really about enhancing increased [cooperation] efficiencies and the (inaudible). So if you could please give us some examples and a little bit more about this initiative.

William Li

Thank you Nick. Thank you, Nick. (Interpreted) In this round of organizational optimization, we have identified several principles because over the years of development, we have some low efficiency positions and jobs and also some duplicated roles and responsibilities. In this case, we have identified this low efficiency, so redundancies in the organization. We've improved the processes of low efficiencies and we've also eliminated jobs and positions that are duplicated or are of low efficiencies.
Also, in terms of the projects deferred or terminated, basically we look at the projects and their financial contribution. If they cannot bring any financial contribution in the coming three years, we will be thinking about deferring them or terminating them. For example, if they cannot contribute to the gross margin or the P&L, they may need to be deferred or reconsidered.
A quick example is regarding the in-house manufacturing of our batteries. We have identified that in the coming three years, bringing battery production in-house will not help us with the gross margin improvement. In this case we have decided to defer the plan. We will still continue to do the in-house R&D of battery cells, battery materials and battery packs but we will outsource the manufacturing of the battery packs for better overall efficiency and performance. So, for this round of optimization, we've done a detailed and a thorough review and adjustments and also made the necessary adjustments based on the needs of the business and the resources of the entire company.
But in the meantime, we will still make sure that we don't miss our (inaudible) or dilute our investment and resources for the high priority items for the coming two years. The first is the long-term investment for the core technologies, so that we can still keep leading in terms of the products and the technologies.
As mentioned earlier today, at NIO Day 2023, we are going to unveil a brand-new flagship model, and this product will be equipped with a lot of state-of-the-art technologies that are leading the entire automotive industry.
Our second priority is the continuous development of our sales and service networks. Recently, we have enlarged the sales teams. We have also increased the number of the points of sale so that we can get ready for the more intense competition in the coming two years, because if we don't make such preparation, we will not be navigating the intense competition.
An example is that in October, in Shanghai our sales volume has outnumbered that of BMW and Mercedes running on all power sources, including ICE cars as well as EVs. In cities from Jiangsu or Zhejiang provinces, we are also establishing a pretty solid foothold with a pretty significant market share, but when it comes to lower-tier cities like fourth-tier or fifth-tier cities, we still have a long way to go, or in cities where the EV infrastructure is not yet ready, we are also not outperforming those well-established brands. In this case, we need to continue to develop our sales and service networks.
In terms of our sales performance, in Zhejiang, Jiangsu and Shanghai, 50% of our sales volume is contributed by the sales in these three areas. On the one hand, it shows that our products are well recognized in the highly competitive markets in these three places. On the other hand, it also means that we need to further enhance our brand awareness in the lower-tier cities.
The third priority in the coming two years is to secure the on-time release of our [NI core] products from the third brand. We have already made investments, and the products of this third brand will be coming into the market very quickly in the coming two years.

Thank you, Nick.

Nick Lai

(Spoken in Chinese) My second question is really about the balance of the choice between sales volume and margin, and how to consider these two factors when it comes to the market competition. Are we still maintaining 15% vehicle (inaudible) margin in Q4 and the long-term target of (inaudible) 20%, 22% vehicle (inaudible) margin sometime towards '24] (and beyond). Thanks.

William Li

Our strategy for the third quarter is pretty clear, that is to keep our prices stable. Earlier this year in June, we have adjusted our user benefits. Actually, both our existing users and the new users were accepting this adjustment pretty well, so we may be the only company able to satisfy both existing users and new users with benefit adjustments.
Since then, we have been keeping a pretty stable price strategy, as we believe that it is beneficial to our brand image and also product competitiveness, and also users are experiencing benefits.
Going into Q4, the price wars deepens, the competition also gets more fierce. For many well-established brands, like our competitors BMW and Mercedes, they are also slashing prices pretty aggressively. Even on their EV models, the price reduction can be as high as 31%, but we still keep a pretty stable price amid this fierce competition.
This is also reflected - these stable prices are also reflected in our improved vehicle margin. So our longer-term strategy will be keeping our price stable, while continuously improving our vehicle margin. In the meantime, we will also improve our sales capacity, capability and efficiency so that we can bolster our sales volume, but this can take time, and we will be staying patient.
We will not realize or boost our sales volume at the cost of our product margin, as this is not healthy for the longer run. Maybe Stanley can also add more information regarding the specific financial numbers.

Stanley Qu

Hi, Nick. Our vehicle gross profit margin is 11.23%, and we are confident to achieve a higher margin in Q4, considering more market production efficiency, lower price of lithium carbonate and also decreased parts cost.
Our target is still kept at 15% for Q4, and from long run, as an important project internally, we have started to further improve our cost structure for NT2 products by optimizing design, improving supply chain and production efficiency and also business negotiation with our partners.
As mentioned by William, our new brand keeps focus on the premium market segment, and we will keep product prices relatively stable. So combining all those factors together, we believe our vehicle margin can be further increased to 15% to 18% in 2024. That's the general guidance for vehicle margin. Thank you.

William Li

(Interpreted) Also looking at our previous vehicle margin decrease, before the prices of the lithium carbonate [rise], we actually managed to realize a vehicle margin as good as 21%. So for a much longer term, we will also target a (inaudible) a vehicle margin above 20%.

William Li

Thank you, Nick.

Operator

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

Yuqian Ding

Thanks. This is Yuqian Ding here. I've got two questions. Maybe we roll it one by one. The first one is on the cash position. We notice the cash balance increasing quarter on quarter. Other than the strategic investment and the convertible bonds, there is also still a RMB1 billion increase. Is that coming from the improving operation? Can you shed a little bit more light on that?

Stanley Qu

Hi, Yuqian, this is Stanley. As far as the new product delivery ramp-up in Q3, we achieved a positive operating cash flow. Going forward, if our sales continue to grow, we are confident to realize a healthy operating cash flow. That's for your first question.

Yuqian Ding

Okay, got it. Thank you. The second question is on the OpEx reduction. Thanks, William, for sharing our optimizing of the battery business. We also read there is also a headcount cut. Could you share more on whether there will be asset write-off during the process of the cost optimization, and when would we expect us to reach a lean yet sustainable shape?

Stanley Qu

About the cost optimization, we reduced 10% of working positions and completed the adjustment in November, but for Q4 there will be almost no financial impact, since we need to pay additional compensation for the employees who left the Company offset with less payroll cost.
But for next year, together with the headcount reductions, we also delayed or cancelled certain projects, as mentioned by William, so the total impact to 2024, we'll be seeing a total cost around RMB2 billion.

William Li

(Interpreted) Yes, this round of optimization has helped us to improve the financial performance slightly over our previous budget. However, we do need to have some one-time expenses due to the severance package for the terminated employees.

Yuqian Ding

Got it. Thanks, William and Stanley.

Operator

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

Ming Hsun Lee

Hello, William and management. Thank you for taking my question. My first question is regarding your second brand, Alps in 2024. In future, will you consider to share the charging stations and the battery swap stations along with the NIO brand? Also, will you consider sharing the sales channel with the NIO brand? Thank you.

William Li

(Interpreted) When it comes to our mass market brand, code named Alps, actually recently we have just had the very first validation build of this brand roll off the production line. The condition of this verification build is pretty good. It can be maybe one of the best [BEV] cars we have in the history of NIO, so we are very confident in the competitiveness of this product. Before the official launch and the delivery, we still have time to continue to optimize and improve the product.
In terms of our power swap and the charging network strategy, for NIO, our battery swap network will be coming in two parts. The first is the exclusive network for NIO and the NIO users, and the second will be a shared network, not only for NIO users but also for Alps users and other brands with swappable vehicles. In terms of the charging network, we've been sharing our chargers already with many non-NIO brands.
In terms of the sales network, this will be separated, so they will have their own sales stores, but we will be sharing the service capacities and facilities, so service centers will be shared between NIO and Alps.

Ming Hsun Lee

My second question is regarding your 2024 product, because this year you already have updated all of your new models, and I also note some new models. In 2024, will you have some (inaudible) version of existing models and start to use 100 voltage charging system on your car? In this case, do you have any guidance about the battery swap station you expect? Thank you.

William Li

(Interpreted) Yes, it's a common standard and practice for the automotive industry to have model years where (inaudible), but for our NT2 product, we will not have any major modifications or upgrades, as many of them were just newly launched or delivered to the market. To stabilize our quality and supply chain, we will only make minor improvements and upgrades on our NT2 products.
In terms of our plans for the power swap station in 2024, as mentioned, we will be not only building our exclusive battery swap network but also a battery swap network for sharing. On the one hand, we will build this power swap network for other brands, or that can be shared with other brands. In the meantime, we will also be continuously looking at the demands of our new users, so that if there are any requirements or high demand stations or locations, we will also install stations there. But we are still working on the specific plans and numbers.

Operator

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

Paul Gong

Hi, thanks for taking my question. My first question is regarding your sales force, sales team. I think in last quarter's earnings you mentioned that you are going to significantly increase your salespeople headcount. May I double-check, how is this proceeding at this moment? Have you achieved your original target of expanding the sales team, or have you adjusted your original plan?

William Li

(Interpreted) Thank you, Paul. At present, for our frontline sellers, we have a team of around 5,700 persons, but many of them were just newly on board. Around 3,300 of them were newly on board into the Company and it still takes some time for them to really get to know the brands and also get familiar with the entire sales processes, because for the newly hired fellows, we will spend around one month and a half on the training and afterwards they can start to sell vehicles to our users.
According to our historical data, a seasoned fellow on average, will need to spend around six months to be familiar with the brands and the processes and will be coming a real sales force for the Company, so we need to stay patient with these newly hired fellows, as many of them just joined the Company in September and October.
But in the meantime, we will also be completing and improving our assessment and evaluation systems, our training systems. We will also bring these fellows more efficient tools so that they can really make full use of their sales capacity and capability.

Paul Gong

Thanks, my second question is regarding the R&D spending. I think this quarter you had about RMB300 million quarter over quarter decline on the R&D and the explanation is some incentive from the local government. May you quantify that number and more importantly, going forwards what would be your projected quarterly R&D spending?

William Li

Yes. Stanley, you answer the question.

Stanley Qu

Yes, hi, Paul. There are some slight decreases considering some support we received from the local authorities. But in the long run, as we mentioned during the past also earnings call, our non-GAAP R&D investments per quarter will also be kept at RMB3 billion to RMB3.5 billion.
As mentioned also mentioned by William in previous statements, we will ensure investment in core technologies and also maintain the advantages of technology and product and guarantee the timely launch of the new product. The investments, R&D, will not decrease, there will be a slight fluctuation across different quarters. Thank you, Paul.

Thank you, that's very helpful. Thank you.

Operator

The next question comes from [Xue Deng] with CICC. Please go ahead.

Xue Deng

(Spoken in Chinese) My first question is regarding autonomous driving. We have already opened the submission of a wish list in September, so relying on Group intelligence we try to extend the (inaudible) function near (inaudible) cities, which is a little bit different from other OEMs. They open up city by city. So (inaudible) ideas on the implementation of the([inaudible) function is (inaudible). Also, I see that our target of the cumulative mileage of 60,000 kilometers by the end of this year, so how is our current progress?

William Li

(Interpreted) In terms of new NOP+ for cities, actually we leverage our generalization capabilities, as well as the (inaudible) AI capabilities, so that we can roll out this NOP, route by route, for our users based on their demand. Of course, in the meantime, we have also formulated the data closed loop capabilities where we can really leverage all this data coming from the generalization and also [code] AI
At the NIO Day we have announced that by end of this year we're going to open up the routes covering around 60,000 kilometers of mileage and so far our progress is pretty good and we already have established the capabilities of releasing NOP+ for early bird users in more than 100 cities and we will be rolling out such service and invite our users into the program step by step, so that it can be covering more cities with more users gradually.
Of course, in terms of in terms of city-based, route-based autonomous driving or NOP, we did see some of our peers, they have some marketing slogans regarding their services. But we believe that NOP+, especially NOP+ for cities, is a pretty serious service and we would like to make sure that our users have a safe and also good experience and then we will roll out the service and its coverage, step by step. But overall speaking, our progress has far surpassed our expectations and after all, we already have more than 100,000 vehicles running on the road. This will also help us to further formulate and improve our data closed loop.
Especially for every new NIO NT2 vehicle, it is standard with (inaudible) and also 33 high performance sensors. This will further help us to formulate the data closed loop and improve the data capabilities and in return we will also accelerate the capabilities for iteration. This is also a very unique advantage of NIO, which is quite different from any other competitors offering a similar service.

Xue Deng

(Spoken in Chinese) My second question is regarding overseas markets, will it still be one of our strategic focus? Could you please introduce the current operation situation of our overseas market this year regarding our sales volumes and our layout program for our core regions and also about the dealerships and the interest [structure] and also our next year's target and plan.

William Li

(Interpreted) At the moment in five European countries, we have opened six NIO Houses, eight NIO spaces, two multi-function service centers and also partnered with 54 authorized service centers. We have also installed 30 power swap stations in five European countries.
But in terms of our business development in Europe, we're still at the early stage of the business development and expansion. We want to continue to test the water, ensure we have good user experience, before we scale our operations and the business there. That's why volume is not a priority for us in terms of our European business and in the coming one year we will continue to stay at this stage. We will make sure that our capability and capacity are sufficient to serve our users in Europe before we start to work on a higher scale.

Operator

Your next question comes from Jason Getz with Mizuho Securities USA. Please go ahead.

Jason Getz

Hi, thanks for letting me ask a question. You talked a couple of months back about 20,000 vehicles a month in December, we're running a little bit below that now. What have been the biggest headwinds there, has there been some production challenges, maybe broader macro weakness and then, what would it take to get to that 20,000 units and how should we think about the run rate moving through 2024 with the new sales force?

William Li

(Interpreted) Thank you for your questions. As we have mentioned earlier today, in the premium battery electric vehicle segment priced over RMB300,000, NIO has realized the 45% market share in the third quarter of this year. Actually, our market share in this segment has been pretty stable, around 40%. This has proven that we have a relatively solid foothold in the premium BEV segment, we have a pretty significant also stable market share already established in the segment.
But when it comes to convincing users of premium ICE cars of buying a premium EV, it is actually more difficult than convincing mass market users. Because for the mass market users buying a car of RMB100,000 or RMB200,000, they pay attention to the ownership cost and also the usage cost of the product. But for the users of premium electric vehicles, they pay more attention to other factors.
The second reason that may be affecting the wider adoption of the premium BEV is regarding the coverage of infrastructure. As I have also shared, in the Yangtze River Delta areas, mainly Shanghai, Jiangsu and Zhejiang, we have a pretty significant market share. Our sales volume has outnumbered that of BMW, Audi and Mercedes with their ICE car sales. A very important reason behind is because we have 700 power swap stations already established in this area, so infrastructure is also playing a very important role in boosting the sales volume and the adoption of electric vehicles.
So far in China we have already installed over 2,000 power swap stations, but roughly 700 of them are along the highways. In some regions and areas our power swap stations are still not widely accessible. In this case, we will need to also speed up and enhance our infrastructure coverage so that we can further boost the wider adoption of electric vehicles, so basically two main reasons. The first is regarding the consumption habits of the premium vehicle users and the second is mainly because of the coverage of the infrastructure for electric vehicles.
But we believe that this trend of convincing ICE users of buying EVs, or this overall trend of transforming into battery electric vehicles, will be picking up at speed. Because we also find that some of our peers and competitors, before they only had hybrid vehicles or range extended vehicles, but now they are also launching their battery electric vehicles. Such a strategy will also push the transformation of the entire industry, so we are actually happy to see such transformation.
Also, many car companies are now also installing and expanding their charging network and NIO is working on our battery swap network. With wider infrastructure we will also boost the adoption of the battery electric vehicles. Overall speaking, we believe that 2024 will be better off than in 2023, because in 2024 we will also be having a more stable product portfolio, without frequent product launch and delivery, which has also slightly disturbed our overall execution.

Jason Getz

Got it, thanks and then a quick follow-up. On the battery swap partnership side, are there any kind of design changes that your partners will have to do to their vehicles in order for them to use the swap stations? If so, have you guys talked about what per cent of mix of vehicles they produce might need to be changed or edited in the production process in order to do battery swapping?

William Li

(Interpreted) Actually we have shared the battery spikes and also the design details of our battery packs for the mass market brand to our battery swap partners. They will need to design and engineer their vehicle products, mainly chassis interfaces following our battery standards. It will take some time for them to decide on the right models and complete the product R&D, but the overall investment and R&D expenses for developing such new models based on our battery standards won't be very high.
Jason Getz Got it, thank you.

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

Thank you 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 today's conference call. You may now disconnect your line, thank you.