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Niu Applied sciences (NIU) Q3 2021 Earnings Name Transcript

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Niu Applied sciences (NASDAQ:NIU)
Q3 2021 Earnings Name
Nov 22, 2021, 8:00 a.m. ET

Contents:

  • Ready Remarks
  • Questions and Solutions
  • Name Individuals

Ready Remarks:

Operator

Good day, women and gents. Thanks for standing by, and welcome to the Niu Applied sciences’ Second [Phonetic] Quarter 2021 Earnings Convention Name. [Operator Instructions]. Later we are going to conduct a question-and-answer session and directions will comply with at the moment. [Operator Instructions].

Now, I will flip the decision over to Mr. Jason Yang, Investor Relations Supervisor of Niu Applied sciences. Mr. Yang, please go forward.

Jason YangInvestor Relations Supervisor

Thanks, Operator. Whats up everybody, welcome to in the present day’s convention name to debate Niu Applied sciences’ outcomes for the third quarter of 2021. The earnings press launch, company presentation and monetary spreadsheets have been posted on Niu’s Investor Relations web site. This name is being webcast from Firm’s IR web site and a replay of the decision will likely be out there quickly.

Please notice in the present day’s dialogue will include forward-looking statements made beneath the Protected Harbor provisions of the USA Personal Securities Litigation Reform Act of 1995. Ahead-looking statements contain dangers, uncertainties, assumptions and different components. The Firm’s precise outcomes could also be materially totally different from these expressed in the present day.

Additional info relating to the danger components is included within the Firm’s public filings with the Securities and Change Fee. The Firm doesn’t assume any obligation to replace any forward-looking assertion besides as required by regulation. Our earnings press launch and this name embrace discussions of sure non-GAAP monetary measures. The press launch accommodates a definition of non-GAAP monetary measures and the reconciliation of GAAP to non-GAAP monetary outcomes.

On the decision with me in the present day are our CEO, Dr. Yan Li; and the CFO, Ms. Fion Zhou. Now let me flip the decision over to Yan.

Yan LiChief Government Officer

Thanks, Jason and due to everybody for becoming a member of us on the decision in the present day. So within the third quarter, we now have seen a robust progress once more with our complete gross sales quantity reaching 397,000 models, a 57% year-over-year enhance, making this our greatest quarter for gross sales in our historical past by way of quantity.

The gross sales quantity in China market reached 392,000 models, a major enhance of 60% year-over-year, whereas the amount within the Worldwide market reached almost 5,000, down 11% in comparison with final 12 months, primarily as a result of delivery points that you’re all conscious of, that proceed to delay orders that we now have obtained and manufactured, however can not go away the manufacturing facility and due to this fact can’t be booked as gross sales.

Within the first three quarters of the 12 months, our gross sales quantity totaled 800,000 models, a rise of 77% in contrast with the identical interval final 12 months. Now the robust Q3 progress within the China market showcases the energy of our progress technique which incorporates the enlargement of our product portfolio to cowl a variety of electrical scooters and the fast enlargement of our retail channels and geographic footprint. As talked about within the final incomes calls, beginning this 12 months we now have launched 5 new autos beneath the brand new model and 5 new autos beneath the Gova model, which enabled us to have a variety protection of shopper wants from mid to high-end.

The brand new product design additionally take note of preferences of each female and male prospects permitting us to draw a wider vary of buyer group. Within the electrical motorbike class, our entry mannequin, Gova G3 has a beginning value of RMB3,699 and our top quality NQi GT has a price ticket of RMB20,299. Now we have a complete of 8 collection and 22 electrical motorbike product choices.

For the electrical bicycle class, we now have our entry degree Gova G0 with a value of RMB2,499 and our prime of the road mannequin, UQi begins with a value of RMB8,999. Now we have a complete of 12 collection within the 42 product choices. From the design model, we now have three collection, the G, F and C every with distinctive design model beneath the Gova model. And beneath the brand new model we now have the N and the U collection, every with distinctive and stylish model.

When it comes to efficiency, we provide a drive vary of 40 kilometers to 100 kilometers on one cost for each electrical bikes and electrical bicycles. For the reason that rollout of China laws on electrical bicycles over the previous 2.5 years, we now have rapidly developed a full product portfolio to cowl the mid to high-end market. The total protection was the important thing to quick progress in Q3 and likewise set the stable basis for future progress in 2022. As we proceed to develop our product portfolio this 12 months, we’re concurrently increasing our retail retailer footprint throughout China quickly. Q3 is historically a peak season for gross sales, however off-season for retailer enlargement. Nonetheless, this time we’re in a position to cowl our greatest gross sales quarter ever whereas additionally including one other 320 new branded shops throughout China, which is 1.6x of the enlargement tempo in comparison with Q3 2020.

As of September 30, we now have 2,686 shops working in China. We’re properly on observe to have 3,000 shops in operation by finish of 2021. These shops will function a basis to drive gross sales progress for 2022. Now transferring away from gross sales for a second, I am very happy with a milestone we hit as a Firm final month. On October 11, our greater than 2 million customers helped us attain the ten billion kilometers driving mark. It was the primary time 10 billion kilometer has been recorded in two-wheeler business historical past. To have a good time this superior milestone, we launched a collection of selling campaigns with the slogan of, really feel a bit proud or really feel a bit new beginning in September and can run by way of the tip of the 12 months.

The model of Niu characterize model, expertise and freedom. Together with model values, we now have chosen a set of represented Niu customers and shared their story with Niu scooters over a number of channels. These customers embrace the photographers, journey fanatics, speak present host and others. Every story confirmed how driving a brand new automobile has helped them with their each day city commute and makes their lives somewhat higher or really feel somewhat bit satisfaction or proud with Niu. These tales and movies have been broadcasted over social media channels like Weibo, WeChat and in our web site. And naturally most of the KOLs and KLCs have additionally created their very own content material across the theme I really feel somewhat bit proud, a bit new, simply additional amplifying our message had reached. In only a few brief weeks of — all these have achieved almost 100 million views. Extra importantly it helped to convey our model worth to our customers and potential prospects. The message positioned Niu not simply as a electrical scooter firm, but additionally as a way of life model.

Moreover the consumer tales, we additionally launched a social media video marketing campaign with a characteristic video of feeling little bit proud. The video has been aired throughout social media, offline and still have been even showcased in adverts for the brand new James Bond movie receiving greater than 0.5 billion views.

Now contemplating Niu has greater than 2 million customers, we additionally have interaction our customers with a treasure hunt, location-based sport in our app. Person obtain a raffle ticket in the event that they experience their Niu previous a secret spot of their metropolis. This ticket might be redeemed for varied costs like equipment and likewise enter them right into a lottery for 10 billion kilometer restricted editions. In our preliminary rollout in ten cities over the previous month, greater than 2 million digital raffle ticket have been collected by our customers displaying simply how engaged our customers are with our model, product and providers.

All of these user-centric actions and advertising campaigns have improved our model consciousness considerably within the China market and people campaigns particularly resonate was the Gen-Z customers who’re searching for manufacturers which have deeper which means. And Niu’s complement to model, expertise and freedom is one thing they worth significantly. The mixture of selling campaigns with our continued retail retailer enlargement units us up for one more quarter of progress right here in This fall.

Now worldwide gross sales for a second right here. Our Q3 was somewhat beneath expectation as in contrast with the China market. However this isn’t a results of decreased demand. As a lot of you might be conscious, worldwide logistics continues to create ever longer backlogs and we’re not immune from it. The truth is, our e book orders have been 50% increased than what we really shipped. And the whole lot that is being shipped is usually on again order at any one among our level of retail throughout the globe.

Regardless of the off-season in Q3, we’re in actual fact very optimistic with This fall for the worldwide market orders. We’re enthusiastic about tomorrow, really, on November twenty third when will we are going to launch a number of new product at EICMA, the biggest two wheeler exhibits globally held in Milan, Italy, together with our strongest 125 CC electrical moped, the MQiGT-EVO, our first 150 cc hybrid moped, the YQi, and our upgraded e-bike the BQi and two further KQi kick scooters, a lot of which will likely be shipped this quarter and in shops to kick up the gross sales season in February throughout Europe and the Americas.

First, within the electrical motorbike moped courses, we are going to launch the MQiGT-EVO. EVO would be the mark of latest efficiency line. The MQiGT-EVO will likely be unveiled at EICMA and is the primary product launched in our new EVO collection. It has been redesigned inside out with the highest velocity of over 100 kilometer per hour and thrilling zero to 60-kilometer per hour observe time in beneath six seconds, outstripping its gas-powered rebels.

We consider it is a first electrical moped that may actually compete on value and outperform on energy and velocity with its petrol competitions within the 125 CC class of mopeds. Along with the efficiency, the MQiGT-EVO has added a variety of options that embrace keyless ignition, electrical anti-theft locking and our all new TFT coloration dashboard customizable by way of the customers’ app. Now we have already obtained a number of thousand orders to be shipped in This fall and MQiGT-EVO will likely be in shops in Europe and America as early as February with the value tag of EUR5,000.

Moreover the MQiGT-EVO, we’ll be additionally debuting our first 150 CC equal hybrid moped, the YQi. The YQi mix the very best conventional IC engines and the lithium-ion battery powered electrical motors. It comes with 150 CC IC engine coupled with 2.4 kilowatt electrical motors offering acceleration that is a lot superior to even a conventional 250 CC moped. The YQi is positioned because the gateway automobile for EV for 2 wheeler fanatic, who haven’t made the transition away from petrol. It’s nonetheless in improvement and will likely be out there in Europe and Americas in late 2022.

Now with the addition of YQi, MQiGT-EVO and likewise the upgraded MQi GTS [Phonetic] and the RQi electrical [Phonetic] motorbike, we now have offered full protection of bikes from 100 CC to 150 CC, significantly increasing our conventional choices, our 50 CC equal electrical moped internationally.

We consider it will additional consolidate our management within the electrical motorbike market globally.

Now, as we talked about final incomes name, we now have entered the micro mobility market with the pre-sales of our kick scooter product, the KQi3, on Indiegogo on July 13. After a profitable run on Indiegogo, we then have obtained greater than 15,000 orders by the tip of September 30. Tomorrow at EICMA in Milan, we’ll convey two new kick scooter merchandise to the market, one thing we name it a KQi3 Max [Phonetic], which will likely be improve of KQi3 Professional. It’s geared up with extra highly effective upgraded 450-watt motor, and with a bigger lithium battery capacities, which may simply attain a velocity of 35 kilometer per hour, and have a drive vary of 65 kilometers.

There isn’t a mass market product like this out there proper now, and we’re enthusiastic about it. Will probably be priced at EUR949. We’ll additionally convey much more economical kick scooter into the household known as the KQi2. The K2 takes many design cues of K3 and with extra consumer customizable options. The K2 have a prime velocity of 25-kilometer per hour, and the driving vary of 40 kilometers. They’re going to be priced at EUR499. And with a smooth and trendy design, the K2 is anticipated to grow to be a favourite city mobility commuter globally. The K2 will likely be shipped earlier than the tip of December 2021. Now with the K3 and the K2, we now have a strong lineup of kick scooter merchandise with value beginning at EUR499 as much as EUR949.

Now we have a portfolio of choices that meet the funds of wide selection of shoppers who’re searching for reasonably priced options for his or her city commute. Now we have already obtained many orders, and we count on to ship greater than 20,000 models of kick scooters in This fall to satisfy the primary batch of orders. We can even develop our choices into the e-bike market. Tomorrow at EICMA, we’ll launch our new e-bike product known as BQi that has a trendy city minimal design and is able to prolonged experience vary of 100 kilometers. Because of its two detachable batteries. The BQi will likely be priced beneath EUR1,500, making it probably the most highly effective and reasonably priced commuter e-bikes to hit the market in 2022.

The continued progress for e-bike demand throughout Europe and the Americas is the thrilling progress path for us in each these markets. And with product like BQi, we predict we are able to rapidly faucet into the demand of the subsequent 12 months. Now with the kick scooters and e-bike to cowl micro mobility market, we’re additionally increasing our worldwide gross sales channel. Moreover the present 153 flagship and premium shops and 1,000-plus licensed sellers, we now have additionally established our e-commerce presence on channels like Amazon and likewise offline channels, which can enable us to enter into shopper electronics to love a medium market in Europe and plenty of throughout the US.

Supported by the diversified product choices and channel expansions, we’re fairly optimistic with our worldwide gross sales in This fall and in 2022 and past. Now, I’ll flip the decision over to Fion to debate our monetary outcomes. Fion?

Fion ZhouChief Monetary Officer

Thanks, Yan, and hey everybody. Our press launch accommodates all of the figures and the comparisons you want, and we now have additionally uploaded Excel format figures to our IR web site in your straightforward reference. As I evaluation our monetary efficiency, we’re referring to the third quarter figures, except I say in any other case. And all of the financial figures are RMB except in any other case famous.

Our quarter three gross sales quantity reached 397,000 models, representing a 58% year-over-year progress. China gross sales quantity elevated by 60% primarily pushed by new product launches prior to now two quarters and the continued retail community enlargement whereas new e-bicycle mannequin, C0 and one upgraded e-motor cycle mannequin G3 have been out there in the marketplace in quarter 3. These two fashions contributed round 16% of our complete gross sales quantity within the third quarter.

We opened 750 new shops in China through the first half of this 12 months. The newly opened shops not solely contributed to our gross sales quantity progress, but additionally performed a essential position in selling our model and gaining our market share. We opened one other 320 new shops within the third quarter, which can assist us with additional regular progress sooner or later quarters.

Worldwide gross sales quantity nonetheless decreased by 11% on account of continued challenges from worldwide delivery. Almost about product combine, N collection accounted for six% of complete gross sales quantity, M collection accounted for six%, U collection accounted for 13% and Gova merchandise accounted for 75%. Out of the 75% from Gova merchandise, 41% was from the low value mannequin G0, F0 and C0, remaining 34% was from different Gova fashions with comparatively increased retail value. The elevated combine in Gova product was due largely to 2 causes. First, the brand new Gova product launches in quarter two and early quarter three F0, C0, G3 and F4 has been very profitable and drove fairly a bit gross sales progress in quarter three.

Second, through the third quarter, Firm offered promotional actions for the Gova collection merchandise with a view to encourage quicker adoption of compliance e-bicycles in China. Complete income elevated by 37% to RMB1.2 billion, barely decrease than steerage we offered earlier, primarily as a result of decrease than anticipated gross sales from worldwide markets. Income from China e-scooter gross sales remained robust and elevated by 45%. The equipment, spare elements and repair income from China market additionally elevated by greater than 40%. The lower in worldwide markets we consider is short-term and we’re trying ahead to constructive progress sooner or later quarters.

Our ASP in quarter three declined by 13% year-over-year. Let us take a look at the main points. In China market, the scooter ASP decreased by 90% year-over-year mainly as a result of gross sales from low value mannequin G0, F0 and C0 which accounted for 41% of complete gross sales quantity in contrast with 27% in the identical time final 12 months.

In worldwide markets, the scooter ASP decreased by 18%. As talked about within the final two quarter’s earnings name, the depreciation of US greenback and the change in the best way distributors place orders are the important thing causes for the lower. In contrast with quarter two, our worldwide scooter ASP elevated by 5%. If we take out the influence from kick scooters, the ASP enhance is round 14% quarter-over-quarter. The ASP of equipment, spare elements and providers was RMB267 per scooter, a 29% lower primarily due to the decline in gross sales from worldwide markets.

Gross margin was 20%, 0.9 share factors decrease than this time final 12 months, as a consequence of weaker worldwide gross sales. This has lowered our margin by round 1.1 share factors. Nonetheless, 0.2 share level decline was offset by the rising margin and rising proportion of equipment, spare elements and providers income from China market. Subsequently, internet influence was 0.9 share level decline.

Our complete working bills excluding share-based compensation have been RMB143 million, elevated by RMB46 million or 48% year-over-year. The rise was attributable to a RMB25 million increased branding and commercial in gross sales and advertising bills, RMB11 million increased depreciation bills of latest retailer openings and RMB13 million increased employees price.

As a share of income, our working bills excluding share-based compensation was 11.7%, 0.9 share factors increased than quarter three final 12 months primarily attributable to increased branding and advertising expenditures. Our internet revenue was RMB92 million, a 15% enhance year-over-year. The adjusted internet revenue was RMB102 million and the adjusted internet margin was 8.3%, 1.8 share level decline in comparison with the identical interval within the final 12 months. As talked about above, as a result of 0.9 share factors gross margin decline and enhance from working bills as [Phonetic] 0.9 share of income.

Turning to our steadiness sheet and money movement. We ended the quarter with RMB1.6 billion in money deposits and short-term investments. Our working money movement was constructive RMB402 million, a lot increased than our internet revenue. Our quarter three capital expenditures was round RMB76 million, largely associated to capability enlargement of RMB26 million and new retailer openings of RMB50 million.

And now let’s flip to steerage. We count on the fourth quarter income to be within the vary of RMB840 million to RMB908 million, a rise of 25% to 35% year-over-year.

With that, let’s now open the decision for any questions that you could have for us. Operator, please go forward.

Questions and Solutions:

Operator

[Operator Instructions]. Your first query comes from the road of Vincent Yu of Needham and Firm. Please ask your query.

Vincent YuNeedham & Firm — Analyst

[Foreign Speech]. Hello administration. Thanks for taking my query. I’ve questions on these three matters. One is on our abroad enterprise, how can we take into consideration the delivery constraints, will it proceed to influence our income within the subsequent quarter? After which how we predict this backlog will likely be realized in subsequent few quarters? And our second query is on the availability chain. How can we take into consideration these rising price and the elements [Phonetic] prices impacting our operations?

And the third query is, would really like if you happen to, administration, share some insights on the e-scooter alternative cycle particularly beneath present — really mushy macro situation. Thanks.

Yan LiChief Government Officer

Hey, Vincent. Should you do not thoughts, I will reply this query in English.

I feel first one with the delivery backlog, I feel, Q3 has been a bit powerful. Clearly, for Worldwide, Q3 additionally you take a look at it, it has really traditionally has been a off-season, as a result of no matter we ship in Q3 is definitely going to be arriving in Europe and Americas in type of This fall. It is really — it is really the winter season, it is really low gross sales. So we really count on the This fall delivery begin to enhance particularly October, November nonetheless bit powerful, however we’ll begin seeing really capability begin to entail in second half, beginning like November and likewise in December.

So we even have a number of orders in backlog and speculated to be go on the ship in December. Each from the motorbike viewpoint, electrical motorbike and likewise the 20,000-plus electrical scooters. So I feel that is for the worldwide gross sales, worldwide delivery backlog. It would not be — it would not be essentially a block subject in This fall. As a result of demand facet, we nonetheless see a robust demand for each bikes and likewise for the kick scooters.

Now on the availability chain points, I feel earlier this 12 months, the availability chain points was actually a scarcity of chipsets, particularly the essential chipsets that — we had that influence somewhat bit our enterprise, however not considerably. After which we have been in a position to really redesign our MCUs and all of the stuff really consumer alternative, the home China chipset to interchange among the essential ones. And that really helps to scale back the influence. Proper now, it is really the — the Q3 is nothing an excessive amount of. I feel actually we’re This fall. And the could also be subsequent 12 months, there perhaps strain by way of uncooked materials costs, in time period of lithium batteries.

Early — First half of this 12 months, we really see the strain not from lithium battery, however from like all different stuff like copper, metal. So that really influence the fee for our chassis, additionally the fee for tires, all these stuff. So we really elevated the product value mainly in April this 12 months to offset these — the uncooked materials value will increase.

Now going into 2022, we really suppose there could also be a case that the lithium battery value will go up a bit, which most of the — you guys already noticed out there, as a result of the EV business in China is definitely booming. And so, that really will create price strain on our facet. And the treatment to that will likely be, we’re potential answer to extend the product retail value in addition to the exit [phonetic] manufacturing facility value in early 2022 to offset that.

And this isn’t actually new to us. So, in actual fact if we take a look at — you comply with Niu for a variety of years, yearly we elevated our product value by someplace round 3% to five%. Though the typical ASP typically declines due to product combine, however you take a look at the person product sensible, the value really goes up, a number of occasions due to CPI, additionally as a result of we really used to offset the fee will increase.

The very last thing was the coverage induced the alternative quantity. So we really began to see among the impacts begin to kick in, for instance in — it begins metropolis by metropolis. Within the — early within the 12 months as we see some provinces now like Beijing. Beijing simply — Beijing really in November 2018, they begin to subject what you name the momentary licenses till the April of 2019.

After which, that momentary license is barely good for 3 years. So really begin in November first, this 12 months, CBL Beijing will disallow the momentary licenses, the yellow license. Should you really drive a yellow license electrical scooter on the road, your scooter will get confiscated and then you definitely really obtained like RMB1,000 tremendous.

So that really drive a bit retail gross sales in October in addition to I feel going ahead, even the winter season for Beijing would not be that chilly by way of gross sales, as a result of lots of people really want to purchase alternative scooters. And we begin seeing for Beijing, now then the second we begin seeing for the complete Guangdong province, they’re rolling out one thing related that can really — will in all probability be impacted beginning this mainly this winter season lasts till the subsequent spring.

So, clearly you are not going to see an enormous leap like 4x, or 3x or 4x leap in from our retail demand. However it can nonetheless influence, I feel the general market demand. I feel this is among the causes that even in Q3 we do have [Phonetic] fairly a bit Gova merchandise and truly throughout our name, you see the Gova product represents 75% of our gross sales in Q3. As a result of these replacements, a number of these alternative not extraordinarily excessive finish, many are mid-end product. That is why our mid-end product choices begin to actually take up among the market share beginning in Q3.

Hopefully that addressed your questions.

Vincent YuNeedham & Firm — Analyst

Sure. Very useful. Thanks.

Operator

Your subsequent query comes from the road of Jing Chang of CICC. Please ask your query.

Jing ChangCICC — Analyst

Hello. Jason, hello, thanks [Phonetic] in your communication, and congrats to Fion on taking up. I’ve two questions. The primary is in regards to the common promoting value of equipment. So we are able to see that the typical promoting value of equipment and providers fluctuated nice on totally different quarters. So I’m wondering how a lot of the typical promoting value comes from abroad battery packs, and the way a lot of it from the subscription service charge? And likewise different equipment? And likewise how can we anticipate on the fourth quarter and likewise the long run?

And my second query is, you may see that the gross sales quantity of N, M and U collection decreased lots within the third quarter in comparison with final 12 months. So ASP and our new product launch subsequent 12 months are primarily specializing in high-end fashions. So first, how to have a look at the competitiveness of our new high-end merchandise? And likewise if all of the friends product preserve low costs. And as well as easy methods to see our gross sales progress momentum, and such product combine subsequent 12 months?

Fion ZhouChief Monetary Officer

Okay, Jing I’ll reply the primary query. And really in quarter three the accent and spare elements income was RMB19 [Phonetic] million and providers income was RMB15 [Phonetic] million. And , as we talked about the accent and repair income elevated lots within the China market. And this quarter we do see worldwide market, and that is why the accent and providers income declined within the worldwide market. However with the restoration of the worldwide gross sales in quarter 4, as Yan talked about and people sort of different revenues will recuperate with the identical line because the worldwide gross sales.

So we nonetheless depend on fairly robust enhance sooner or later quarters of this type of income.

Yan LiChief Government Officer

Okay. And I feel in your second query, sure, I feel for Q3, as I discussed that N, M, U, which is new branded merchandise which group N, M, U and their Niu branded merchandise really the amount really did lower partially as a result of actually in Q3 and the second half of the Q2, it is really the Might and the June, we roll-out like 5 new Gova merchandise. And that really — and with the advertising marketing campaign actually tried to achieve market share within the mid-end product alternative prospects.

So I feel that really, — and if you happen to take a look at our — as a result of our enterprise will not be precisely direct to shopper. Our enterprise progress is definitely, we promote to distributors and distributor promote to retail shops and retail retailer to shoppers. So alongside these strains there are capital being utilized by the distributors and capital being utilized by the retailers. To some extent you may perceive that as we now have extra new product in Gova, our distributors and the retailers, they solely have restricted capitals, proper.

So among the capital will likely be occupied by the Gova product. I feel that is the place it really creates the capital drain [Phonetic] is completed by the distributors on the Gova product left on N, M, U, that really create a brief lower on N, M, U. Second is definitely, we have not accomplished an excessive amount of by way of — in Q3 have not actually rolled-out, the up — the brand new product what we name, the brand new product for N, M, U besides the M2S [Phonetic] which is upgraded model for M2.

So I feel that additionally create somewhat bit drag within the N, M, U product. However going ahead, I feel this in 2022, we now have deliberate really fairly a variety of new merchandise beneath the N, M, U collection. And that can really assist to extend not solely the proportion and likewise enhance the gross sales quantity of the N, M, U merchandise. So we’re really fairly promising. I am fairly hopeful about 2022 for the N, M, U collection.

Jing ChangCICC — Analyst

Okay. Thanks.

Operator

[Operator Instructions]. Your subsequent query comes from the road of Bin Wang of Credit score Suisse. Please ask your query.

Bin WangCredit score Suisse — Analyst

Thanks. I obtained two questions. Primary is about your service revenue. Is that linked to your low-end model of the Gova collection, which signifies that Gova collection naturally have much less income revenue that is why income progress has been decrease in comparison with the scooter progress. Simply needed to know the totally different merchandise, the speed if we see any distinction. That is primary query.

Quantity two is about, are you able to elaborate somewhat bit about your market dynamic additionally in U class as a result of we have very acquainted with kick scooter in your upcoming hybrid merchandise. You talked about about cc hybrids, which implies we now have a engine in digital scooter, [Indecipherable]. Thanks.

Yan LiChief Government Officer

All proper. So Bin I feel I will deal with these two questions. One was the service revenue. Sure, so among the Gova product are usually not, it does not have the sensible IoT units. So to that extent we’re not going to see what you name, the connectivity revenue from these Gova merchandise. And — however it’s not all Gova merchandise does not have the connectivities. There are portion of Gova merchandise could have, what you name an add-on bins posted at a retailer. So these Gova product really, we have been nonetheless in a position to cost the customers nonetheless pay connectivity charge alongside the Gova product. So which may be addressed — among the considerations right here.

Second, we did not point out explicitly, however actually beginning this 12 months, we’ll begin getting service revenues from our sharing scooters. So, we’re getting about $10 monthly per scooter, not fully on the complete fleet. A few of the operators who have not began, have not paid but, however virtually on half of the fleet. So I imply, as we now have extra sharing autos deployed globally, you are going to see that revenue, that income stream coming properly. I feel that is two a part of providers.

Now on the brand new classes I assume you have been asking in regards to the hybrid merchandise, sure, the hybrid merchandise are our first try. We’ll debut this product really tomorrow at EICMA. So you are going to see the information on the design, it is really a fantastically designed product. What we see is definitely there’s one a part of motorbike class that we aren’t in a position to assault. That is really across the 150 cc to 250 cc bikes. That a part of motorbike nonetheless characterize roughly about 30% of the market in Europe and the USA. However the reason is that it really require longer drive vary. Should you merely simply do electrical, will probably be too costly for customers to purchase except you go together with the type of the economic product zero, which like EUR10,000 much more. So what do we now have is, that is really a very inside design expertise that really mix a combustion engine with the electrical motor, and that with — even with a battery into it. So really will enable consumer to have a restricted drive vary, whereas restricted by the gasoline tank. However at identical time if you do a metropolis commute, we’ll use extra as the electrical motors, such that it’s going to really offer you a extra environmental-friendly, inter-model utilization, inter-model gasoline utilization per kilometer. However this product will likely be in all probability out there towards the second half of the 2022.

So this — in EICMA, we’ll present the idea design on among the applied sciences and the merchandise nonetheless in improvement and will likely be prepared within the second half of 2022.

Bin WangCredit score Suisse — Analyst

Thanks.

Operator

Your subsequent query comes from the road of Wei Chen [Phonetic] of UBS. Please ask your query.

Wei ChenUBS — Analyst

Good night, Jason, Yan and Fion. Thanks for taking my query. The primary is in regards to the margin. Traders are involved in regards to the value warfare on this 12 months and which was most extreme within the third quarter. We famous from mid-November, YADEA and AIMA have raised value by 5%. So, can I’ve your view on the value warfare beneath the influence margin development in 2022? That is my first query.

Yan LiChief Government Officer

Perhaps I will point out first and have Fion to speak a bit extra on margin half. Sure, so to be sincere, I feel these two gamers have been concerned in value warfare and we aren’t engaged within the value warfare. However we did a bit advertising promotion, our Gova product in Q3. As a result of a number of value warfare occurs within the actually low finish, even with our Gova entry product at RMB2,499, we’re nonetheless like a mid-end product, we’re not even a low-end but.

So to some extent, we see our margin nonetheless a lot, a lot increased than YADEA’s and AIMA’s margin. And clearly, now they begin to elevate value in September. We have not accomplished that but. Cause we have not accomplished that but, as a result of we did somewhat bit in April that helped to soak up among the price, and that can even fastidiously observe the market to see when the correct time to extend the value.

However as I discussed earlier with what we noticed, the development of lithium battery costs there’s possible that we’ll enhance value in early 2022. And we normally do this through the vacation season, whereas the Chinese language New Yr seasons could have a much less influence from the retail. Yeah, I feel that is my feedback.

Fion ZhouChief Monetary Officer

Yeah. I feel you already addressed all of the components.

Yan LiChief Government Officer

Okay.

Wei ChenUBS — Analyst

Once more, additionally as a result of the margin, I do know there are lot of transferring elements, together with the value warfare and likewise the commodity value. So what’s your common view on 2022 margin, as a result of I see there are some margin strain in third quarter. And what’s your view on the fourth quarter and 2022? Thanks.

Fion ZhouChief Monetary Officer

So perhaps I may give some insights, after which Yan will add further feedback. As Yan talked about, really despite the fact that we take into account in regards to the retail value enhance in early 2022, we’re nonetheless going through the upper uncooked materials price drawback. And by chance there we now have made the fee optimization. And people initiatives started to point out constructive impact, and that is why did not see any — the large margin loss on this quarter. And people price optimization initiatives will convey profit sooner or later quarters. And with the technique that we might enhance the sale, the retail value was round 3% to five%, which won’t convey the — lively suggestions from the shoppers. I feel we are able to nonetheless stay the nice gross margin. And Yan?

Yan LiChief Government Officer

Yeah, I feel that basically on one hand, I do not see weak spot in margin decline subsequent 12 months. However alternatively, I feel we’ll see a secure margin and with a slight enhance.

Wei ChenUBS — Analyst

Okay, thanks. And my subsequent query about is, is about your new product. You simply talked about that you’ve ready a number of new merchandise together with the kick scooter, the electrical motorbike in 2022. Can — as a result of we aren’t actually acquainted with these new market segments, are you able to give us extra coloration just like the gross sales steerage in 2022 or 2023? Which product line will grow to be a major contribution by way of income within the subsequent two to 3 years? Thanks.

As a result of I feel among the merchandise are primarily for model constructing, it is not for quantity gross sales. Right me if I am flawed. Thanks.

Yan LiChief Government Officer

Yeah, I feel let me put this fashion, proper. So I feel it is too early for us to offer our guidances. However I feel there are three classes, one which we’re trying on the kick scooters. The kick scooter, the complete market lowered about — I feel from what I learn the in all probability like a 6 million to eight million models per 12 months relies on whether or not you embrace some the children ones or not. And this 12 months, so 6 million to eight million largely in United States and Europe.

So these two markets the place we do have a robust model in time period of city mobility, and I feel this 12 months we initially have our K3. And now with K3 Max and K2 and truly subsequent 12 months we’ll have a few extra kick scooter merchandise that can give us a variety of product that assist us to cowl the complete product vary spend for that 6 million models of whole market — the complete market is 6 million models. So we’re really fairly optimistic with our progress in sensible kick scooter.

Now the e-bike. E-bike can also be about 6 million models 12 months roughly about 80% or really, sure, about 80% in Europe and about 10% to fifteen% in United States. So we now have a two e-bike product to this point. Now we have our Aero EB-01 that we launched final 12 months begin to make some gross sales this 12 months after which we now have our BQi to be launched at EICMA tomorrow. However that product would not be out there for gross sales till Q1 or early Q2 of 2022.

So, however as we are going to really begin to really generate extra product alongside the e-bike classes. Each the kick scooter and e-bikes who’ve two devoted workforce for it and we’re really dedicated to these two product classes. So I do suppose they’re quantity or income mills. Now with the opposite motorbike product, put this fashion, if we simply take a look at the European market, then the not simply take a look at the electrical, whole European market, it is about 1.5 million models to 2 million models a 12 months in time period of bikes.

Majority are petrol at this level. After which inside that, the complete market above 50% are 100 CC beneath, and 50% are like 125 CC above. Our product providing was once 50 CC beneath. By 50 CC beneath means the drive velocity is sort of a 50-kilometer per hour. And we begin to have like a 70 CC, 80 CC product like a drive velocity of 70, 80-kilometer per hour.

So the MQiGT-EVO and likewise the upgraded N-GTS, and likewise the R product, each add 90-kilometer per hour, 100 kilometers, 120 kilometers. And people are literally able to assault the opposite 50% of the market, which is 100 CC above. We by no means had product in that market. So it is a broad house for us. And you’ll see these market really, I do suppose these product are additionally income mills.

Wei ChenUBS — Analyst

Very clear. Thanks.

Operator

I see there aren’t any questions, thanks — seeing no extra questions on the queue, let me flip the decision again to Mr. Li for closing remarks.

Yan LiChief Government Officer

Properly, thanks, operator and thanks all for taking part in in the present day’s name and in your help. We recognize your curiosity and sit up for reporting to you once more subsequent quarter on our progress. Thanks.

Operator

[Operator Closing Remarks].

Length: 51 minutes

Name members:

Jason YangInvestor Relations Supervisor

Yan LiChief Government Officer

Fion ZhouChief Monetary Officer

Vincent YuNeedham & Firm — Analyst

Jing ChangCICC — Analyst

Bin WangCredit score Suisse — Analyst

Wei ChenUBS — Analyst

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