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

On March 1, Weilai released its fourth quarter and full-year results for 2022 ending December 31. Total revenue in the fourth quarter was 16.0635 billion yuan ($2.329 billion), up 62.2 percent from the fourth quarter of 2021 and 23.5 percent from the third quarter of 2022, according to the earnings report. The net loss was 5.7861 billion yuan ($838.9 million), an increase of 169.9% compared with the fourth quarter of 2021 and 40.8% compared with the third quarter of 2022. Excluding equity incentive expenses (non-GAAP), the adjusted net loss was 5.0656 billion yuan (US $734.4 million), an increase of 190.0% compared with the fourth quarter of 2021 and 44.8% compared with the third quarter of 2022. For the whole of 2022, total revenue was 49.2686 billion yuan ($7.1433 billion), up 36.3% from 2021. The net loss was 14.4371 billion yuan ($2.0932 billion), compared with a net loss of 4.0169 billion yuan in 2021. Excluding share-based compensation expenses (non-GAAP), the adjusted net loss was 12.1412 billion yuan ($1.7603 billion).

After the release of the earnings report, Wei Lai founder, chairman, CEO Li Bin, CFO Feng Wei, vice president of finance Qu Yu, vice president of capital market Jade Wei attended the subsequent conference call, interpreted the earnings report, and answered analysts 'questions.

The following is a transcript of the analyst Q & A session:

Tim Hsiao, Morgan Stanley analyst: The first question about the parts supply chain, at the end of last year, Weilai's vehicle delivery was constrained by a shortage of some parts, including camera chips. According to the company's first-quarter guidance, our delivery in March was still weak. Is there still a bottleneck in the supply of key supply chains? Could management please share the latest situation? What is the approximate quantity of monthly and weekly output of the whole vehicle with the highest overall matching of the same parts at present? What kind of improvement will you see in the second quarter?

Li Bin: In the fourth quarter of last year, it was true that the supply of parts affected the delivery of some vehicles, but with the end of the epidemic in China in the first quarter of this year, at present, the supply of parts is not a bottleneck for us on the whole. In the second quarter, with the delivery of new cars, there will be initial climbing challenges, but for the whole year, if we can maintain the current situation, we believe that the pressure on supply will be greatly reduced and will not be a constraint.

Tim Hsiao: The second question about gross profit margin and battery price, the gross profit margin of the company in the fourth quarter dropped obviously. Among the 6.7 points of gross profit margin mentioned in the financial report, how many are one-off and how many will continue to the first quarter? In addition, the good news this year may be the battery price reduction, the long-term procurement cooperation with Ningde era, and the battery cost reduction, which is a contribution to the group's profit, because the company also mentioned before that lithium carbonate becomes ternary, which may affect the gross profit margin of the next two points. Through our negotiation with the battery factory, how much contribution does the management expect to make for the whole year?

Qu Yu: First of all, clarify a question about the gross profit rate in the fourth quarter. Weilai new ES8, ES6, EC6 will be delivered to users in the second quarter of this year, so we lowered the fourth quarter cash ES8, ES6, EC6 order volume forecast, so the inventory preparation and purchase commitment losses related to these products are included in the fourth quarter earnings report, totaling 985 million yuan. Excluding this impact, the profit margin on vehicle sales in the fourth quarter was 13.5%, which was due to changes in the product mix, especially the increase in sales of ET5 models with lower profit margins in the fourth quarter. Regarding the outlook for gross profit margin for the whole year, we ask Li Bin to answer.

Li Bin: By the fourth quarter of this year, we are confident that gross profit margin will climb to 18%-20%. There are several reasons. The first is our product portfolio, starting in the second quarter, relatively high gross margin products will be delivered one after another. The second is the drop in lithium prices and raw material prices you mentioned, as well as the drop in chip costs, which has a relatively large impact on us. At present, the price of lithium carbonate has dropped rapidly. The general view in the market includes that we have had very close communication with many upstream material companies two days ago, and also learned about their production capacity and production situation. We expect that a large number of lithium carbonate related projects will be put into production this year. Demand, certainly not as strong as last year, last year's situation is indeed more than everyone expected, in general, we think that by the fourth quarter,(lithium carbonate) prices have a chance to fall to 200,000 or less. Third, we believe that overall deliveries will rise significantly from the third quarter, because from the second quarter onwards, our new products will be delivered one after another, and many fixed cost sharing will also be able to improve well as sales and deliveries rise. So we believe that returning to the gross profit margin level of 18%-20% is our goal, and we are confident to achieve it.

I want to add that we will still face a lot of pressure in the first quarter, because the first quarter is still a transition period for us, and as you can see, our sales volume is also in a transition period, because we have to wait to switch to the second generation platform. On the other hand, for these 866 models that have already been produced, we have some policies on financial discount interest in order to subsidize the retreat of the national subsidy and the clearing of the exhibition vehicle, which has an impact on the short-term gross profit. In addition, because our F1 factory has to prepare for the production of the second generation of the 866 model, the output of the F1 factory in the first quarter is also relatively low, which will also have some impact on our single vehicle amortization. In addition, the product portfolio is the reason, the delivery of the first quarter is mainly ET5, relatively speaking, the gross profit margin will also be lower.

Ming Hsun Lee, analyst of Bank of America Merrill Lynch: I have two questions. The first question is about the guidance on expenses. The management mentioned last quarter that it hopes to control the R & D expenses to about 3 billion yuan each quarter in the future. Is there any update on the guidance on operating expenses at present? In addition, the management also mentioned that one of the goals this year is to increase the efficiency of capital utilization, so I would like to know if there are any new guidelines for the company in terms of marketing and R & D expenses this year?

Qu Yu: The company's outlook for R & D expenses has not been adjusted. The average R & D expenses for this quarter are RMB 3 billion to RMB 3.5 billion, not according to US GAAP. In terms of sales and general expenses, as Li Bin said, as NT2.0 platform starts to deliver new cars to users in the second quarter, our sales efficiency will gradually improve, and the proportion of sales and general expenses in sales revenue is expected to decrease significantly.

Li Bin: Sales and general expenditure also include investment in European business. At present, sales in Europe are still in the early stage, and the investment will be relatively large. Therefore, when sales efficiency is determined, it may also be necessary to take into account the situation of global market entry.

Ming Hsun Lee: The second question is about product launch. This year's new cars are mainly hunting versions of 866, EC7 and ET5. Can the management confirm that EC6 and ES6 will be delivered in the same time as ES8? Will ES7 and ET7 have minor changes or upgrades this year? What are the company's product launch plans for next year? Are there plans to launch a second brand?

Li Bin: According to the latest plan, we will deliver four cars in the second quarter of this year, including ES6, the most important model, and the fifth car of this year in July, a month later than the original plan. Our original plan was to deliver five cars in the second quarter. However, we later realized that we still had to give each car a little more time to ensure the quality of the launch, including the marketing rhythm. In addition, we continue to promote product iteration and improvement, and will communicate with the market in a timely manner. Next year's product rhythm, it is still too early to consider, these months to deliver five cars has been a lot of pressure, I can say is, Wei Lai's product planning has been very rigorous, but also strictly according to the plan to promote, at present, we are according to their own rhythm forward.

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