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Li Bin: the order volume of ET5 is not a problem. We are focusing on capacity climbing.

2025-03-31 Update From: SLTechnology News&Howtos shulou NAV: SLTechnology News&Howtos > IT Information >

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Shulou(Shulou.com)11/24 Report--

On November 10, Weilai released its results for the third quarter of 2022, which ended September 30. According to the financial report, the total revenue of Lailai in the third quarter was 13.0021 billion yuan ($1.8278 billion), an increase of 32.6 percent compared with the third quarter of 2021 and 26.3 percent compared with the second quarter of 2022. The net loss was 4.1108 billion yuan ($577.9 million), an increase of 392.1% over the same period last year and 49.1% over the previous quarter. Excluding equity incentive expenses (not in accordance with non-GAAP), the adjusted net loss was 3.4989 billion yuan ($491.9 million), an increase of 514.2 per cent over the same period last year and 54.3 per cent over the previous quarter.

After the release of the results, Li Bin, founder, chairman and CEO of Xilai, Fengwei CFO, and qu Yu, vice president of finance, attended the subsequent conference call to interpret the results and answer analysts' questions.

The following is a transcript of the analyst's question and answer session:

Bank of America Merrill Lynch analyst Ming Hsun Lee: my first question is about the supply chain. According to the previous forecast, the target for this year should be about 150000 units, that is to say, the production capacity in the fourth quarter should be between 6.7 and 68000 units. According to the guidance given by the current management, can we say that the company has lost more than 20,000 units of production capacity due to the epidemic and tight supply chain? In addition, I would like to ask the management to update with us the supply of subframes, chips and previously tight parts. Assuming that there is no epidemic in Hefei in the first quarter, how many cars can the company supply in a month or a quarter?

Li Bin: the overall delivery volume (or production) in October is indeed thousands less than our own expectations, and there are several factors behind this, such as the subframe mentioned earlier. We basically solved the problem of the subframe in November. In addition, our ET5 production uses the new EDS factory in Weilai, right next to the F2 factory, we have built a brand new factory. The degree of automation of the new factory is so high that about 30 workers can support the operation of the whole factory. However, production capacity climbing does have a great impact on us, affecting our output of two or three thousand units. Another factor, of course, is the epidemic. The epidemic did have an impact, probably adding up to affect production capacity for more than a week. The combination of these factors did make us produce a lot less in October.

But our production has resumed in November. Weilai EDS plant will add a new production line next week, and the production capacity will almost be able to climb up by the end of the month. In addition, the problem of the subframe has been solved. We expect ET5 to meet our expectations in December. At present, there will be no big obstacles to the production capacity of the ET7 and ES7 models.

Paul Gong, an analyst at UBS: my first question is that you mentioned in your briefing that the customer satisfaction of Xilai ET5 exceeded expectations, but you did not mention that the order exceeded expectations. Could you please share the current order status of ET5 with us? How does it compare with previous expectations? After all, in order to prepare capacity for ET5, the whole F2 factory actually has a lot of preparation, especially after October 25, Tesla carried out a new wave of price cuts. May I ask the management whether Tesla's price reduction has had a certain impact on Weilai's sales?

Li Bin: everyone is very concerned about the delivery time of ET5. At present, the order volume of ET5 is really not a problem for us, we are still focused on production climbing. I would like to emphasize one point here, as we all know, including the ET5, we pay close attention to the quality climbing process of all the new cars in the early delivery period. The overall demand for ET5 is undoubtedly very strong, which is in line with our expectations. Of course we want as many as possible. On the other hand, we don't want users to wait too long.

As for the impact of Tesla's price reduction on us, because it has also reduced prices before, so this is nothing new to us. We do not see (Tesla price reduction) any special volatility impact on the demand for Weilai products. The price difference between Tesla's Mode 3 and ours has always been relatively large. And as SUV's Model Y, the price difference between it and our ES6 has been relatively large, so from the perspective of price band, we actually do not strictly think that Tesla and Weilai are in a market range. To sum up, so far, we don't think (Tesla's price reduction) has any great impact on us.

UBS analyst Paul Gong: my second question is about fees. No matter in terms of R & D expenses or sales and marketing expenses, this quarter has increased a lot compared with the previous quarter. Is this a phased and short-term situation (considering the current launch of new products and the need to open up the European market at the same time), or will it be a structural or even trend fee increase? Does management have a rough expectation of expenses? What level should it be?

Qu Yu: compared with the second quarter, the increase in administrative expenses (SG&A) in the third quarter is due to the expansion of our sales and service network in the Chinese and European markets. Wei Lai entered more European markets in the third quarter, and held more promotions than in the second quarter. In the long run, you can also see from our quarterly results that as the company continues to improve its operational efficiency, SG&An as a percentage of revenue will continue to be optimized. I believe that by 2023 and in the future, this ratio will gradually stabilize.

Li Bin: let me supplement the R & D expenses. Indeed, you can see that there was a lot of growth in the third quarter, mainly due to the pace of our research and development, especially the new brands and our R & D investment around batteries, chips, etc., including some spending on personnel, testing, and so on. It's all part of our plan, and it's nothing special. However, in terms of R & D expenses, at present, our entire R & D layout and work have basically been finalized. It can be said that in the future, including personnel costs, the intensity of R & D investment in almost every quarter will remain at about 3 billion yuan per quarter.

Generally speaking, we will continue to improve the systematic efficiency of R & D. In terms of investment intensity, we will basically maintain around 3 billion yuan per quarter, and will be stable at this level for a period of time.

UBS analyst Paul Gong: let me follow up, what percentage of Europe's SG&A can account for in the third quarter?

Qu Yu: Weilai's business in Europe is still in its infancy, and the proportion of SG&An is not large. At present, our sales and marketing team in Europe is about 500 people.

Morgan Stanley analyst Tim Hsiao: congratulations to ET5 on getting very good market feedback. My first question is to follow up on the overall production and delivery. Just now the management also mentioned the guide for the fourth quarter, that is to say, in November and December this year, individual models will probably deliver 1.7-19000 units. Li Bin also mentioned that the speed of resuming production is very good at present. Could you ask the management to share with us what the peak output of the two plants can reach by the end of this year? Do we have any expectations for next year? What is the rate of output in a single month? In addition, do you think the production bottleneck will become a long-term structural problem? Because from the current point of view, domestic control is still relatively strict. In addition, at present, there are more players and more models on the market, and it seems that the bankruptcy of supplier production capacity and the improvement of yield are much slower than originally expected, so will this situation continue until next year? and then become a structural problem for the whole year?

Li Bin: generally speaking, the short-term pressure volatility brought about by epidemic prevention and control is difficult to predict, please understand. But from the perspective of supply chain and vehicle production, our current chain should be able to support the overall delivery target for next year. Vehicle production is no longer a problem, and there may be some problems in the supply chain. For example, overall delivery in December will be constrained by power semiconductor chips, which will be partially limited. But we think that from next year, these effects should be good on the whole. So, in terms of overall capacity, if we do not take into account the impact of the epidemic, I think the supply chain and capacity will basically not be our bottleneck.

From the perspective of vehicle production next year, I think this will be a very comfortable rhythm, because both of our factories will be able to maintain an output of 150000 vehicles per shift, which is a relatively good result for the overall production rhythm, quality, operational efficiency and so on.

Morgan Stanley analyst Tim Hsiao: my second question is for management. According to my observation over the past period of time, it seems that the product life cycle of smart electric vehicles in China is shorter rather than longer than that of fuel vehicles. If the relatively large R & D investment and process manufacturing costs of the company are taken into account, how does the management view the steady-state gross profit margin or operating profit margin of medium-and long-term smart electric vehicles? The steady-state gross margin expected by the market was between 20% and 25%. Is this figure too optimistic? How does management view the long-term profitability of smart electric vehicles?

Li Bin: throughout the entire intelligent electric vehicle industry, due to the relatively fast speed of intelligent iteration, the iteration cycle of the product must be accelerated, and there will be a big replacement in almost three years. On the whole, Weilai also iterates our intelligent technology at this pace. In this case, the strategy of each company may be a little different. For example, for Xilai, the software and hardware of each generation of cars are on the same platform, such as Weilai's NT2.0 technology platform, all cars are the same, and so is NT1.0. In addition, Ulai also provides a unified battery pack (Unified Pack), the power system is also a very limited combination, but the shape and shape are different to meet the needs of different users.

So generally speaking, I think the R & D efficiency of Weilai is still very high. As for the gross margin of 20% Mel and 25%, I don't think this is a big problem. From Weilai's point of view, even considering that the price of the battery has gone up so much this year (we have raised some prices for the whole car, but not so much), we can still maintain a fairly good gross profit margin. In fact, we have reached a gross profit margin of 20% + before, assuming that the battery can fall back to a normal and rational price, a gross profit margin of 24% and 25% is not a problem.

Of course, in the long run, with vertical integration and team investment in battery chips, I think we still have room to increase our gross margin. Therefore, from a long-term strategic point of view, we think that a gross profit margin of 25% Murray and 30% can be achieved. But the challenge of the mass market will be bigger. If you just look at the mass market and add all the companies together, I guess the overall gross profit may be negative. BYD has done a really good job because of the vertical integration of batteries and components. I personally think that in the mass market, without the ability of vertical integration, it is very difficult to achieve a gross profit margin of 20%, 25% or more than 20 points.

The above is our overall observation.

Bin Wang, an analyst at Credit Suisse: I have three questions for management to confirm: the previous guidance given by management mentioned that it will make money in the fourth quarter of next year. Second, the previous guidelines mentioned that the sales of the Weilai ET5 will exceed that of the BMW three-Series. Will the management maintain the guidelines at present? Third, the management mentioned earlier that the gross profit margin this year will be 18% Mur20%. Will the management maintain the guidelines at present?

Li Bin: first of all, generally speaking, we still maintain the previous direction. Judging from our current state, there should be no problem for our core business to break even in the fourth quarter of next year, and we still have such a plan. But as we all know, we currently have two new brands in the state of research and development, as well as investment in new businesses such as batteries, chips, mobile phones, and so on. Next year, the R & D investment in these new businesses will be on the scale of 3 billion to 4 billion RMB, almost 1 billion per quarter. Therefore, from the perspective of the fourth quarter of next year, if we do not include the above, I am confident that we will achieve a balance of payments.

Secondly, ET5 surpasses BMW three series, ET5 is much better than BMW3, and we are still very confident. But this is not a guide, this is the goal mentioned by our co-founder in a marketing campaign. But from my personal point of view, I think Weilai has such an opportunity.

Finally, in terms of gross margin. There are challenges this year, mainly because of the price of batteries. As we all know, the price of lithium carbonate has remained high recently, and it has also increased a lot. at its lowest time, the price was more than 400,000, but now it has reached about 600000. Because the battery price and the gross profit margin are linked, it does affect the gross margin of a few points in the fourth quarter, and there is really nothing we can do about it. After all, we can't raise the price any more. We will face some pressure, but it can be done to keep the gross margin stable. Relatively speaking, the gross profit margin in the fourth quarter can remain relatively stable at the level of the third quarter. But I don't think the price of lithium is a problem of supply and demand. I don't think any electric car company in China will affect delivery because of the lack of battery supply and the inability to buy batteries. So it's not a question of supply. I think there is no doubt that the price of lithium should go down, but it is difficult for us to predict the exact timing. The lithium price has a great impact on us. We all know that the battery packs used by Wei Lai use more batteries, with an average of close to 90 kilowatt-hours of electricity. If the price of lithium carbonate stays so high, it will indeed have an impact on gross profit margin. Here, I can give you an estimate that every 100000 price increase of lithium carbonate will have an impact on our gross profit margin of about two points, so if the price falls from 600000 to 400000, then we will have a gross profit of 4 points; if the price can be reduced to a reasonable level of more than 100,000, it will generally release a gross profit of 8 points for us. This is the overall external environment we are facing at present.

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