Jade Wei - Senior Director of Investor Relations William Li - Founder, Chairman and Chief Executive Officer Louis Hsieh - Chief Financial Officer Nick Wang - Vice President of Finance

Dan Galves - Wolfe Research Nick Lai - J.P. Morgan Fei Fang - Goldman Sachs Vincent Ha - Deutsche Bank Paul Gong - UBS

Hello, ladies and gentlemen, thank you for standing by for NIO Incorporated’s earnings conference call, for the third quarter of 2018. At this time, all participants are in listen-only mode. Today’s conference call is being recorded. I would now turn the call over to your host, Ms. Jade Wei, Senior Director of Investor Relations of the company. Please go ahead Jade.

Thank you Annie. Good evening and good morning everyone. Welcome to NIO’s third quarter 2018 earnings conference call. The company’s financial and operating results were published in the press relase earlier today and are posted at the Company’s IR website. In today’s call, we have Mr. William Li, NIO’s Founder, Chairman and Chief Executive Officer, Mr. Louis Hsieh, our Chief Financial Officer and Mr. Nick Wang, Vice President of Finance. Mr. Nick will begin with prepared remarks and William will join for the Q&A session. 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 will be materially different from the views expressed today. Further information regarding risks and uncertainties is included in the filings of the company with the U.S. Securities and Exchange Commission. 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 its conference call includes discussions of unaudited GAAP financial information, as well as unaudited non-GAAP financial measures. Please refer to NIO’s press release which contains the reconciliation of the unaudited non-GAAP measures to comparable GAAP measures. With that, I will now turn this call over to our CFO, Mr. Louis Hsieh. Louis, please go ahead.

Thank you, Jade. Hello everyone. Thank you for joining our inaugural earnings conference call today. On behalf of William and the entire NIO team, we are excited to report our first quarter as a public company following the listing on the New York Stock Exchange on September the 12th. We would like to thank our employees, investors and particularly our users whose support has allowed us to continue our journey to fulfill our mission and to execute on our strategies. We are pleased to report a solid set of financial results for the quarter. The smooth ramp of our JAC NIO manufacturing facility led to the production of over 4200 ES8s and the brand new direct delivery system procedures that we’ve created successfully delivered 3258vehicles in the third quarter. That generated revenues of over RMB1.4 billion, up substantially from the second quarter. Deliveries of the ES8 in October reached 1573, slightly below its September number due to the anticipated slower deliveries in early October, when vehicle registration offices were closed for the seven day Golden Week national holidays in China. We utilized the time during the slower holiday period to modify our production line in our JAC NIO plant to prepare for the future launch of our ES6. We remain confident that our Q4 deliveries will be on the range of 6700 to 7000 vehicles, which leads to our reaffirmed guidance for the number of ES8s deliveries will reach 10,000 in the second half of 2018. We expect to finish production of all founders addition ES8s within the next few weeks and plan to deliver the vast majority of them by the end of the year as vehicle registration procedures allow. We plan to start to deliver a small number of base edition ES8s in the production order pool in early December. In the future, as our production continues to ramp, our target is to deliver ES8s to our users within two to three months after production order deposits are received. The ES8s have been delivered to over 170 cities in China with over 5,000 vehicles in operation. We have received valuable feedback from our users. Users have lauded the powerful solid acceleration while also providing reliable braking and other safety features. Users have also noted that the spacious and comfortable interiors with a well thought out design for families. Users that compare the driving performance of the ES8 to well-known established premium brands such as Mercedes, BMW, and Audi or to test the Model S and Model X, the only premium SUV brand in China and find that ES8 very competitive or even better in a variety of performance specifications while providing a much more luxurious and spacious interior and comfortable ride with customized entertainment system and applications for an enjoyable driving experience. NOMI, the first voice-enabled deep learning AI digital system installed in the Chinese premium cars has won the hearts of ES8 users. Users tell us NOMI access an intelligent and human life companion that makes driving much more fun. Starting from this month, we are rolling out an upgrade to the ES8 software Version 1.1.0, the first over-the-air software upgrade in our history. Version 1.1 turns on a 360 degree camera view around the vehicle to assist in parking and provides a positive safety assistance or active safety assistance such as forward collision warning, FCW, and lane departure warning, LDW, as well as improving many other functions to make driving safer, and more pleasant. Thinking beyond the delivery of our vehicles, we continue to expand our service network and enhance our service capabilities. As of today, we have twelve NIO Houses open in ten cities including Shanghai, Beijing, Guangzhou, Nanjing, Hangzhou, Shenzen, Suzhou, and Chengdu, and Hefei,. We also have another nine pop-up NIO Houses open in large cities where we see increasing demand for the ES8 and brand recognition of NIO. We currently have 38 service centers across 20 cities, mainly in authorized service centers. Our worry free services are highly praised by our users with over 90% of the ES8 users purchasing the worry free service packages. Service teams are working diligently to make – sorry to make great service a hallmark of NIO’s brand and users’ experience. The third quarter was also a critical to monitor our users utilize our full range of power solutions including NIO home chargers, NIO Apps, power maps, power trucks, power swaps and one click power services. More than 70% of the ES8 owners thus far have installed home chargers in their own parking spaces which gives them the most convenient and cost-effective charging solution. We have 295 power trucks covering 21 cities and swaps stations within 16 cities at the end of September. That is in addition to a growing infrastructure of public chargers across the country and the NIO App has the location information for more than 130 public charging piles. All of these resources are accessible to the NIO apps which provides users with one click service to these charging solutions. The total number of one click services just exceeded 10,000 last week demonstrating that the charging capabilities are well supported by flexible infrastructure investment, data-driven optimization and solid execution. Speaking of growing user community, we engage with the growing user community through offline and online platforms. Our NIO app has over 626,000 active users in total and more than 170 active daily users by the end of September – by the end of October. We are pleased with the way our brand and our vision of a joyful lifestyle have been received by our users and we are excited to continue to grow the NIO community. We have built a strong team to support our future growth. Our focus remains deliver vehicles at the highest quality, to further improve the user experience and to prepare a successful launch of our ES6. I would now turn the call over to our Vice President of Finance, Mr. Nick Wang to provide the financial details for the quarter. Nick, please?

Thank you, Louis. Speaking as one member of the NIO family, I echo Louis’ sentiments and I am very excited about our prospects for the future. Our solid third quarter results get us off to a strong start following the first full quarter of production and deliveries. I will now go over some of our financial results for the third quarter of 2018. To be mindful of the length of this call, I will address financial highlights here and encourage listeners to refer to our earnings press release which is posted online for additional details. Our total revenues in the third quarter were RMB1.47 billion or US$214 million representing an increase of 3,095.3% from the second quarter of 2018. Our total revenues are made up of two parts, vehicle sales and other sales. Vehicle sales were RMB1.43 billion or US$207.8 million representing an increase of 3,113.8% from the second quarter of 2018. The increase over the second quarter of 2018 was attributed to an accelerated delivery of the ES8 in the third quarter. Remember, that we only started making deliveries of the ES8 in the last three days of June. So, our second quarter sales figures reflects sales from June 28, through June 30. Other sales were RMB42.7 million or $6.2 million representing an increase of 2,581.8% from the second quarter of 2018. The increase over the second quarter of 2018 was mainly attributed to increased revenues recognized from the home chargers installed in the third quarter. Cost of sales was RMB1.6 billion or US$230.9 million representing an increase of 696.2% from the second quarter of 2018. The increase over the second quarter of 2018 was mainly driven by the delivery volume of the ES8. Our gross margin was negative at 7.9%, compared with the negative of 333.1% in the second quarter of 2018, mainly driven by the larger scale of production and delivery of the ES8. We expect gross margin to turn positive in the quarters ahead and as production and deliveries increase. Research and development expenses were RMB1.02 billion or US$149 million representing an increase of 37% from the third quarter of 2017 and an increase of 33.7% from the second quarter of 2018. The increase was primarily attributed to the three items, number one, increased share-based compensation expenses recognized related to stock option granted to the company’s employees. Number two, an increased number of personnel related to product and software development teams; and number three, increased development expenses of the ES6, the five seater premium electric SUV which is expected to be launched in the end of 2018. If we exclude share-based compensation expenses, R&D expenses were RMB947.3 million or US$137.9 million. Our selling, general and administrative expenses were RMB1.7 billion or US$243.2 million representing an increase of 208.9% from the third quarter of 2017 and an increase of 74.6% from the second quarter of 2018. The increase in SG&A expenses of the second quarter of 2018 was also primarily attributed to three items, number one, increased share-based compensation expenses, number two, an increased number of personnel related to user development and service-related teams and number three increased selling expenses for test drives and other promotional events. Excluding share-based compensation expenses non-GAAP, SG&A expenses were RMB1.3 billion or US$192.5 million. Loss from operations was RMB2.8 billion or US$409.1 million, representing an increase of 118.2% from the third quarter of 2017 and an increase of 49.9% from the second quarter of 2018. Excluding share-based compensation expenses, non-GAAP, adjusted loss from operations was RMB2.3 billion or US$346.2 million. Operating margin was negative 191.2%, compared with a negative of 4,076.8% in the second quarter of 2018. Excluding share-based compensation expenses, non-GAAP, adjusted operating margin was negative 161.8%, compared with negative 3,938.9% in the second quarter of 2018. Share-based compensation expenses were RMB432.2 million or US$62.9 million, representing an increase of 2,380.6% from the third quarter of 2017 and an increase of 581.2% from the second quarter of 2018. The increase in share-based compensation expenses was primarily attributed to increased share-based compensation expenses recognized because of the successful completion of our IPO. We recognize the SBC expenses related to the stock options granted to the company’s non-US employees whose grants included a condition of an IPO which was a significant one-time, non-cash charge and won’t recur in the future at a similar level. Net loss was RMB2.8 billion or US$409.2 million, representing an increase of 116.1% from the third quarter of 2017 and an increase of 56.6% from the second quarter of 2018. Excluding share-based compensation expenses non-GAAP and adjusted net loss was RMB2.4 billion or US$346.3 million in the third quarter of 2018. Net loss attributable to NIO’s ordinary shareholders was RMB9.8 billion or US$1.4 billion. Accretion on convertible redeemable preferred shares and accretion on redeemable non-controlling interests to redemption value were RMB6.9 billion or US$1billion and RMB31.4 million or US$4.6 million respectively in the third quarter of 2018. Accretion on convertible redeemable preferred shares to redemption value was a non-cash event and will no longer recur after the company’s IPO. Excluding share-based compensation expenses, accretion on convertible redeemable preferred shares to redemption value and accretion on redeemable non-controlling interests to redemption value, adjusted net loss attributable to NIO’s ordinary shareholders non-GAAP was RMB2.37 billion or US$345.1 million. Basic and diluted net loss per ADS were both RMB42.59 or US$6.20. Excluding share-based compensation expenses non-GAAP, accretion on convertible redeemable preferred shares to redemption value and accretion on redeemable non-controlling interests to redemption value, adjusted basic and diluted net loss per ADS were both RMB10.35 or US$1.51. Our balance of cash and cash equivalents, restricted cash and short-term investment was RMB9.2 billion Or US$1.3 billion as of September 30, 2018. And now, for our business outlook. For the fourth quarter of 2018, the Company expects: Deliveries of the ES8 to be in the range of 6,700 and 7,000 vehicles, representing an increase of approximately 105% to 114% from the third quarter of 2018. And our total revenue to be between RMB2.87 billion to RMB2.99 billion or from US$418.5 million to US$436 million an increase of approximately 95.6% to 103.8% from the third quarter of 2018. This business outlook reflects the Company’s current and preliminary view on a current business situation and market condition, which is subject to change. Now, this concludes our prepared remarks. I will now turn the call over to the operator to facilitate our Q&A session.

[Operator Instructions] First question comes from the line of Dan Galves of Wolfe Research. Please ask your question.

Hello, and thank you for taking my question. Can you talk a little bit about how order flow has progressed over the last couple of months? Also, how do you think things are going in terms of awareness of the product, brand recognition and what are you doing to actively grow awareness?

Okay, thank you, Dan. Good morning. Great question. I think, for order flow, it has remained relatively stable. So, we – right now, as far as – I know your question relates to backlog. Right now, we’ve delivered over 5300 vehicles and we expect to deliver about 2500 each of the next two months. So, November and December each to reach our 10,000 goal. The – every day, we are receiving between 50 and 80,sine at the 100 new orders from the RMB5,000 deposit. And our RMB45,000 production order deposit is healthy with a backlog right now over 5,000. So, order and demand remains solid. We are not doing that much as far as any kind of direct marketing, but we have opened up more NIO Houses. Most of the ones we mentioned earlier of the 12 were opened in the last couple months. So, they are beginning to get a lot more visitors. Our App currently now has 626,000 active users. So, we are getting awareness throughout the country, plus we have 5,000 cars on the road. So, people are beginning to talk about NIO. And William, do you want to?

Yes, hi, Dan. I will speak in Chinese and you help me to translate. [Foreign Language - Chinese] [Interpreted] Just like Louis mentioned, our community is growing rapidly and gradually. By the end of October, we have around 626,000 users and the DSU is around 170,000. As you can see, the brand awareness is increasing in the market and our delivery strategies are also growing quite smooth. We are now doing the users referral and scenario-based test drives. All these helped us to get more new users and we think this is well received among other users. We think the user referral is a very good approach because the one user in Wenzhou actually gives the recommendation to around ten users and we are quite confident with the word of mouth of reputation building in the market.

That’s great information. Thank you very much. One more question. You said that, that you plan to have positive gross margin in the quarters ahead. Can you talk about some of the most important items and the plan to improve the gross margin from where it was in Q3? Like, what are the levers? What are the mechanisms to improve gross margin?

Go ahead, Nick.

Yes, there are two major components in the gross margin. One is the building material and material cost, the other one is the fixed cost. We anticipate improvement on these two areas in Q4, because of a better economy scale and better leverage we have with our supply chain.

Okay, thank you very much.

We expect the gross margin to improve and we expect the vehicle margin with – if we hit our delivery to 7,000 this quarter, to turn the vehicle margins will definitely turn positive if we hit the 7,000.

Thank you. Thanks very much.

Thank you. The next question comes from the line of Nick Lai of J.P. Morgan. Please ask the question.

Yes, thank you, William and Louis and Nick. I am Nick Lai from J.P. Morgan. Yes, two very quick questions. First, building of margin, can you share with us our view that you probably are looking to in 2019? And after taking into account of two major factors, one is potential subsidy and another one is cost drop on battery side I mean, expecting battery cost to come down? And secondly, can you share with us the number of shipments and production in the third quarter, production was 4200 and shipment was 3200 is there any bottleneck that should be aware? Thanks.

The bottleneck is really – is not bottleneck other than just getting our logistics system set up correctly. This is new to us and then, also there is – as you know in China, most of the registration systems have a waiting list. So it takes time to get through the registration of the license plates. The factory is running relatively smoothly. We did – during the golden week holiday, as we did close – we didn’t close it, but basically, didn’t produced cars, but used it to revamp our line. So they can produce both ES8s and ES6s and also custom made just specific orders for customers. What was your earlier question, Nick? I am sorry. I forgot the first one.

Gross margin.

The gross margin is something we don’t know that will be set at the end of this year. Okay, so.

[Foreign Language - Chinese] [Interpreted] Of course, the subsiding in the next year will decrease. The government is asking for opinions and we think this is not going to affect our gross margin that much because the pricing includes the subsidy and this will not affect us that much, but this will affect the money paid from the users.

And your earlier question about cost down, as I think, we expect some reduction in the cost of the battery and also in the - as we get the volume order. So, we – Nick and team are working very hard to get part of the 10% reduction on the cost of the vehicle production side. Okay?

Okay, thank you.

Also the – on the fixed cost side, because we are going to have the bigger volume next year, apparently, the fixed cost amortization piece as part of the GM going to become improved as well.

Thank you.

Thank you, Nick.

Thank you. The next question is from the line of Fei Fang of Goldman Sachs. Please ask your question.

Hi, Louis, Nick, well, congrats on the results. You mentioned that you have modified production line to accommodate ES6 to be launched at year-end. Can you maybe talk a little bit more about the roadmap for launching the new model? Do you also try to build the backlog as well, and also what will be the key marketing strategy? And then I have a follow-up question. Thanks.

[Foreign Language - Chinese] [Interpreted] The ES6 has already gone offline this May in the powered production line in our Nanjing advanced manufacturing center and our plan right now is to do the official launch of ES6 at the middle of December. So, the whole company is now preparing for this launch event. The model of ES6 will also be make to order and our plan is we will start the delivery of ES6 next year probably around June and July.

That’s great. Thanks, William and if possible, it will be very helpful to give us a sense of how you would expect gross margin to progress over time for ES6? For example, what’s the breakeven volume for gross margin for this smaller model is similar to ES8 or it will be easier for you to turn profitable at the gross margin level?

I think the quick answer for that is pretty similar to ES8, I think on a per unit basis, because of the – a little bit lower attractive lower price point. On a per unit basis the margin, the contribution margins are little bit lower. But this can be well offset much larger volume provided by ES6, which basically means that fixed cost amortization is going to be less. We anticipate a similar level of that of ES8.

[Foreign Language - Chinese] [Interpreted] I would like to mention another point that as we get ES8 and ES6 share the components at a large extent and we also use many supply chain partners for the ES6 and ES8 at the same time. So it means that ES8 and ES6 volumes will significantly improve the gross margin of both of the models.

That’s great. Thanks, very much.

Thank you.

Thank you, Fei.

Thank you. Our next question is from the line of Vincent Ha of Deutsche Bank. Please ask your question.

Hi, good evening, William, Louis and Nick. Congratulations on t he decent set of results for the first quarter after listing. I have two questions and let me ask the first question first. Earlier Louis mentioned that we currently have 12 NIO House and also 46 service centers already on the ground. Now just want to get quick highlight – quick summary or target of what – or how many new houses or service centers and other kinds of network that we plan to achieve by the end of this year and probably by the end of next year? And what would that be implying to the operating expense trend, would you see the SG&A trend going forward? That’s my first question.

[Foreign Language - Chinese] [Interpreted] This year we will have one additional NIO House. This will open around December in Dongguan and next year, we will gradually open more NIO Houses. According to the sales plan, we think currently it will be around 20 to 30 NIO Houses, but we will adjust this plan according to the sales status and the order of the ES6 we will have a detailed plan for the first quarter of the next year. In terms of the service network, just now we mentioned that we have already delivered our ES8 in over 170 cities. We think there is going to be more for the ES6 and we have the authorized service centers we think we will evaluate the existing market and adopt the most effective way to deploy our service network. We are quite confident with this efficiency.

Vincent, to answer the last part of your question, the NIO Houses will cost about 1.5 million to set up, because these aren’t going to be in Beijing and Shanghai. It will be in a little bit smaller cities 1.5 million to 2 million. So that’s the cost – the operating cost will be about little bit less than that per city.

Okay, all understood. Now the quick second question is, could you also update us on the percentage of customer who is opting for the battering leasing option and also the battery swapping covered service? Because, some key question that I’ve been keep getting from some investors that concern that if the battery swapping option is getting really, really popular, we may run into a risk of like having a big stock of replacement batteries and that could cover like - put some pressure on our cash usage. Could you give us an update on that? Thanks.

To answer, I answer it at the easy part. The facts figures on a percentage of user to take battery leasing is 73% by the end of Q3 and I don’t have the percentage number for battery swapping. But our estimate is around a 6%, okay.

[Foreign Language - Chinese] [Interpreted] Just like Louis mentioned, we have already got over 10,000 one click power services and most of the power services is delivered by the power truck. And in terms of the situation we are quite unexpected in terms of the home charger installation because we have a 76% of users who can install the home chargers. And this suggest that average income and the status of the home charging facilities is much better than we expected. This cannot help us to reduce the infrastructure investment. This is a holistic solution because, we noticed that in some cities users do not need to use their car by their way when the car is out of power. So it means that we can use the power trunk or the faster charging facilities to solve the users’ issues. But, for other highways, we noticed that users would like to have a fast access and they would like to get the cars back very soon. It’s quite different from those cities. So it means, that this will affect power swap’s deployment strategy. In urban area we do not need to deploy a lot of power swap stations, but we would like to deploy more power swap stations in the highways. For example, in the Yangtze River Delta and the Pearl Delta, we would like to deploy more power swap stations, but this can also help us to control the cost because in those highways we just need to rent three parking spaces due to the power swap stations and we do not need to do any kind of civil constructions. So, we think this can help us to control the cost and we just need to evaluate the growth of our users and the scope of our users to come up with – a plan in terms of the power swaps deployment.

Vincent, we monitor this very closely. So, as William said, it depends on the demand. As of September 30, we are in 16 cities with power swaps are delivered over 30 swap stations. But it depends on current need. We are pleasantly surprised that over 70% of the people are installing home chargers, which is the best solution, right. And also, the power trucks are quite heavily used. So if that meets their needs, then that’s fine. So, we basically, when we deliver the best service by monitoring consumer and our user demand and feedback. So, we won’t overbuild, but we want to make sure we meet their charging needs.

Yes, thank you.

Okay.

Thank you. Next question is from Paul Gong of UBS. Please ask your question.

Hi, good evening management. I have two questions. The first one is, still regarding the orders. Did I recall it right that at this moment, you have about 5,000 active backlog, after 5,000 of the 300 – 5,300 of delivery? Does that means some earlier orders who has paid the 5,000 and we have actually cancelled the order? Is that’s a right on spending? And also given, right now, the order intake rate is roughly 50 to 80 per day, does that mean the intake and the deliveries in the next two months is roughly on battery charger is that’s a right on spending?

Yes, I mean, it depends on obviously how many people do cancel. So, you are right, Paul, that some of the people – the original people who put in the RMB5,000 deposit have canceled, because they didn’t want to wait – as you recall, our ES8 was delayed by several months. And so, some of these orders date back to last December, or early January. So they were – we do have a number of cancellations. But as far as the order backlog, we delivered over 5,300 cars and the 45,000 production order deposit rate is over 5500. So, we are pretty comfortable that we will be able to deliver between 10,000 and 11,000 cars in the next couple of months. Our facility is producing very well. So, that’s the issue and then, every day we are receiving between 50 and 80 or so new orders for the 5,000 refundable deposit. But that one is subject to cancellation obviously.

So, if I place an order today, I expect to receive the car within the next two months, is that’s the right expectation?

Not currently, because the Founder’s edition need to be delivered first, the first 10,000. So, you can probably get it in three months – within three months. Three or four months, at most. Okay, but once we clear the Founder’s Edition, the first 8,000 or 9,000 cars then, we will begin to speed it up and that’s why we put in the new equipment. So, it can produce cars as a order-by-order basis in the Jose plant. It’s a major order base.

Yes, sure. My second question is, regarding the Founder’s Edition and also the relatively cheaper ones, do you expect the fair margin derived from these edition and subsequent models or do you expect similar profit contribution per units? How do we think about this different margins and the intellectual…

I think the newer cars, the orders after the Founder’s Edition should have slightly higher margin, because the Founder’s Editions were given a special. Right, there for RMB448,000, you know that really equivalent to 548,000 with full options. So the other ones who made the order, the ones who pick the options will have slightly higher gross margins.

I think, one thing I want to add is that, the margin for the base model plus option versus the fully loaded Founder’s version, their margins is quite similar. But obviously, it’s a function of the option take rate. Maybe for the base model plus option, they are going to be more users who take our high-end option like Novi, maybe that’s going to contribute a lot of the margins to our product for sure. But, I think, we will obviously work the incoming orders from both the new user to order base model plus options coming in, we are going to see the beta, that’s going to become more clear to us.

So, at this moment, if we expect similar margins for the base plus options at a blended average versus the Founder’s Edition, that is above the similar margin, that’s right?

Similar. I think it maybe slightly lower, but again, we need to see the incoming order and then we can perform an proper analysis and we will be in a better position to tell.

Sure. Thank you so much. That’s quite helpful.

Thank you. [Operator Instructions] As there are no further questions now, I would like to turn the call back over to the company for closing remarks.

Thank you, once again for joining us today for the conference call. If you have any further questions, please feel free to contact our IR team and also TPG, the company’s IR partner. Thank you very much. Louis Hsieh Thank you.

Bye, bye-bye.

Bye-bye.