NIO Inc. (NIO) Q4 2025 Earnings Report, Transcript and Summary

Hello, ladies and gentlemen. Thank you for standing by for NIO Inc.'s Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] Today's conference call is being recorded. I will now turn the call over to your host, Mr. Rui Chen, Head of Investor Relations and Corporate Finance of the company. Please go ahead, Rui.

Good morning and good evening, everyone. Welcome to NIO's Fourth Quarter and Full Year 2025 Earnings Conference Call. The company's financial and operating results were published in the press release earlier today and are posted on the company's IR website. On today's call, we have Mr. William Li, Founder, Chairman of the Board and the Chief Executive Officer; and Mr. Stanley Qu, Chief Financial Officer. Before we continue, please be kindly reminded that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the views expressed today. Further information regarding risks and uncertainties is included in certain filings of the company with the U.S. Securities and Exchange Commission, the Stock Exchange of Hong Kong Limited and the Singapore Exchange Securities Trading Limited. The company does not assume any obligation to update any forward-looking statements, except as required under applicable law. Please also note that NIO's earnings press release and this conference call include discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. Please refer to NIO's press release, which contains a reconciliation of the unaudited non-GAAP measures to comparable GAAP measures. With that, I will now turn the call over to our CEO, Mr. William Li. William, please go ahead.

[Interpreted] Hello, everyone. Thank you for joining NIO Inc.'s 2025 Q4 and full year earnings call. In Q4 2025, we delivered 124,807 smart EVs, achieving a year-over-year increase of 71.7%. Quarterly deliveries for all 3 brands reached a record high. For the full year 2025, the NIO, ONVO and FIREFLY brands worked in close synergy and delivered a total of 326,028 vehicles, up 46.9% year-over-year. This marks our return to a strong growth trajectory. In January and February of 2026, we delivered 27,182 and 20,797 vehicles, respectively. For the first quarter, we expected total deliveries to be between 80,000 and 83,000 vehicles, representing a year-over-year increase of 90.1% to 97.2%. Turning to the financial performance. In Q4 2025, our vehicle margin reached 18.1%. The continuous improvement in margin was mainly driven by strong sales growth, a higher mix of high-margin models and also continued vehicle cost optimization. Meanwhile, the margin of other sales reached 11.9%, supported by the expanding scale and improving profitability of our services and community-related business as our user base continues to grow. In Q4, non-GAAP operating profit reached RMB 1.25 billion, while GAAP operating profit reached RMB 810 million. On the cash flow side, we delivered positive free cash flow for 2 consecutive quarters and achieved positive operating cash flow for the full year of 2025. This quarterly profitability also further validates the competitiveness of our technology road map, products and business models. It also demonstrates the continued strengthening of our operational capabilities and efficiency, providing a solid foundation for long-term sustainable development. Since 2025, we've been serving a broader group of users through the NIO, ONVO and FIREFLY brands. The 3 brands have been well recognized by users in their respective segments. For the NIO brand, the All-New ES8 has shown strong market momentum since deliveries began at the end of September 2025. In just 160 days, it reached the milestone of 70,000 deliveries, setting a monthly delivery record among vehicles priced above RMB 400,000. In Q2 this year, we will introduce the NIO ES9 and executive flagship SUV. As a combination of NIO's 11 years of technological innovation and user experience development, the NIO ES9 is equipped with multiple industry-leading technologies, delivering a luxurious experience -- luxurious executive mobility experience for users. In addition, the ET5, ET5T, ES6 and EC6 will introduce the 2026 version in Q2. Overall, the NIO brand will continue strengthening the product lineup and its position in the premium fab market. For the ONVO brand, its L90 has been very well received by large family users since its launch. Thanks to its innovative experience, outstanding safety performance and exceptional space design, the ONVO L90 became the best-selling large battery electric SUV in 2025. Next, the ONVO L80, a large 5-seat SUV with front and rear [indiscernible] will be introduced in Q2. At the same time, L90 and L60 will also receive product upgrades and refreshes. With an expanding product lineup and continuous product upgrades, the ONVO brand will deliver the finest mobility experiences to more family users, driving steady sales growth. The FIREFLY brand officially launched in 2025 has quickly established itself, thanks to its clear market positioning, cost-leading product competitiveness and innovative user co-creation model. In 2025, the FIREFLY ranked #1 in the high-end small car market for 7 consecutive months. User interest in the FIREFLY continues to grow across more regions. Our long-term investments in core technologies are beginning to bear fruit. Key technologies, such as the world's first automotive-grade 5-nanometer chip for Smart Driving, the full domain vehicle operating system and the SkyRide Intelligent Chassis have all achieved mass production. These innovations not only elevate product performance and user experience, but also deliver significant cost advantages. Together, they form a strong foundation for the company's long-term competitiveness. In late January this year, we released a new version of NIO World Model known as NWM. In this version, we adopted a training paradigm with complete closed-loop reinforcement learning, one of the first implementations of its kind in China. With the advanced architecture of world model and its closed-loop reinforcement learning, NWM has significantly enhanced the performance of Navigate on Pilot or NOP across all domains. February marked the first full month following the rollout of the new version. During the month, the share of driving time using Smart Driving increased by more than 80% compared with January. With this update, over 2,000 power swap stations in urban areas now support power swap pilot seamlessly integrating with urban NOP and offering users the industry's only fully automated recharging experience. ONVO Smart Driving has also achieved end-to-end upgrade across Navigate on Autopilot for urban roads, parking assist and Smart Safety. This year, ONVO will further upgrade the Smart Driving hardware and software systems across its lineup, allowing more users to benefit from our full stack proprietary technologies. On the sales side, we currently operate 171 NIO houses and 395 NIO spaces, while ONVO has 420 stores. For the service network, we have 406 service centers and 75 delivery centers. In 2026, the 3 brands will continue to strengthen their presence in key markets while expanding into more lower-tier markets through Sky stores, which serve as a shared sales and service stores for all 3 brands. As of now, we have 3,815 power swap stations and more than 28,000 power chargers and destination chargers worldwide. On February 6, 2026, the company reached the milestone of 100 million cumulative swaps, which demonstrates that battery swapping has been widely validated by both users and the market. During the Chinese New Year holiday, our swap volume reached new highs, surpassing 177,000 swaps in a single day. Power Swap is a systematic and innovative solution to addressing the mismatched life cycles of vehicles and batteries, serving also as a form of energy storage, it is increasingly becoming an integral part of the new power system. Over time, the continued expansion of the power swap network will enhance the EV user experience and provide a unique defensible competitive advantage for the company's long-term success. While continuing to deepen our presence in the Chinese market, we are also steadily advancing our global strategy. So far, the FIREFLY including its right-hand drive version is available in 10 countries. In 2026, we will continue to expand overseas through the country distributor model with FIREFLY serving as a leading brand. Last month, our Smart Driving chip subsidiary, GeniTech or Shenji signed an agreement with its first run of equity financing. The round raised RMB 2.257 billion getting Shenji a post-money valuation of more than RMB 8 billion. Shenji's chip technology, R&D capabilities and commercialization outlook have been widely recognized by multiple leading industry investors and top market institutions. This financing will support Shenji's continued development of high-performance chip products and strengthen our long-term positioning in autonomous driving and embodied AI. The company has now entered the third stage of its development, embarking on a new cycle of high-speed growth. We will continue to make determined and sustained investments in the 12 full stack technology domains for smart EVs, ensuring our leadership in both products and technology. In 2026, we will launch 3 new models, further strengthening our product portfolio and expanding our share in the premium large vehicle segment. We will also continue investing in charging and swapping infrastructure, while improving the commercial operations of our infrastructure network. In addition, we will further strengthen our sales and service network, ensuring that our overall system remains resilient in an increasingly competitive market. In 2026, we will continue to deepen organizational transformation, refine the CBU mechanism centered on user value creation and strengthen our company-wide business system with heightened ROI awareness and improved cost control. We remain committed to our original aspiration as a user enterprise, delivering more competitive products and technology, better services and stronger business performance to honor the trust and support of our users, shareholders and investors.

Thank you, William. Let's now review our key financial results for the fourth quarter of 2025. Our total revenues reached RMB 34.7 billion, up 75.9% year-over-year and 59% quarter-over-quarter. Vehicle sales were RMB 31.6 billion, representing a strong increase of 80.9% year-over-year and 64.6% quarter-over-quarter. The year-over-year and quarter-over-quarter growth were mainly due to increased deliveries and higher average selling price driven by positive product mix effect. Other sales were RMB 3 billion, up 36.6% year-over-year and 17.5% quarter-over-quarter. The year-over-year growth was driven by increased sales of used cars, technical R&D services and sales of parts, accessories and after-sales vehicle services while the quarter-over-quarter increase was mainly due to the increase in revenues from technical R&D services and sales of parts, accessories and after sales vehicle services. Looking at margins. Vehicle margin was 18.1% compared with 13.1% in Q4 last year and 14.7% in the last quarter. The year-over-year and quarter-over-quarter improvement were driven by positive product mix effect with the ramp-up of higher-margin products. Moreover, gross margin from other sales reached a record high of 11.9% during the quarter, reflecting the continued enhancements in the profitability of our user base-driven service and community-related businesses. With the improvement in both vehicle margin and other sales margins, overall gross margin increased to 17.5% compared with 11.7% in Q4 last year, and 13.9% in the last quarter. With the implementation of sales business unit mechanism and the progress of organizational optimization, we are seeing a sustained improvement in operational efficiency. R&D expenses were RMB 2 billion, decreased 44.3% year-over-year and 15.3% quarter-over-quarter. The year-over-year decrease mainly driven by lower personnel costs in R&D functions due to organizational optimization and decreased design and development costs from different development stages. The quarter-over-quarter decrease was primarily driven by lower personnel costs in R&D functions due to organizational optimization. SG&A expenses were RMB 3.5 billion, decreased 27.5% year-over-year and 15.5% quarter-over-quarter. The year-over-year and quarter-over-quarter decreases were mainly driven by a decrease in personnel and related costs in marketing and other supporting functions as a result of organizational optimization as well as the decrease in sales and marketing activities. In the fourth quarter, we achieved an important milestone, our first ever quarterly profit. Profit from operations was RMB 0.8 billion compared with loss from operations of RMB 6 billion in Q4 last year and RMB 3.5 billion last quarter. Excluding share-based compensation expenses, adjusted profit from operations was RMB 1.25 billion. Net profit was RMB 0.3 billion compared with net loss of RMB 7.1 billion in Q4 last year and RMB 3.5 billion last quarter. Excluding share-based payment compensation expenses, adjusted net profit was RMB 0.7 billion. Furthermore, we delivered positive operating cash flow and positive free cash flow this quarter. We ended this quarter with a stronger balance sheet with total cash and cash equivalents restricted cash, short-term investments and long-term time deposits amounting to RMB 45.9 billion. That wraps up our prepared remarks. For more information and the details of our unaudited fourth quarter and full year 2025 financial results, please refer to our earnings press release. Now I will turn the call over to the operator to start our Q&A session. Operator?

[Operator Instructions] Your first question comes from Tim Hsiao with Morgan Stanley.

This is Tim from Morgan Stanley. Congratulations for achieving the first ever quarterly profitability. I have 2 questions. The first question is about the product and the volume sales growth target. I guess, during the call, I think William just mentioned he is going to launch ES5 series and the 6 series facelift and L80 in the second quarter. So what's our plan for second half? Could we have a quick update on the model pipeline for second half? And separately, given the challenging auto industry backdrop, is NIO still maintaining annual volume growth target of 40% to 50% this year? That's my first question.

[Interpreted] Thank you for the question. It's true that the entire industry has encountered challenges in the first quarter of this year as a lot of the industry numbers and data have already shown the market and the environment. For this year, we also believe that the size of the Chinese passenger vehicle market will also see a slight decline from last year. But within the China's passenger vehicle market, we believe that the penetration rate of the new energy vehicles will continue to grow. And among the new energy vehicles, battery electric vehicle will see a stronger growing momentum. Actually, last year, the increase of the new energy vehicle market as a whole is largely driven by the increase of the BEV models. The penetration rate of BEV increased by 26% to 33%. This is largely driven by the BEV models. And as technology and infrastructure network continue to mature, we believe that the BEV market segment will maintain the strong momentum also this year. And also more specifically for the BEV segment, we also see a good potential within the premium segment as the perception and the awareness on the premium battery electric vehicle model has already established in that segment. The penetration will also be growing driven by that. For all the vehicles priced above RMB 300,000, we actually see an increase of above penetration of 58% year-over-year, while for the REEV model, the penetration within that segment actually decreased by 4%. And the overall BEV penetration in the premium segment also increased from only 14% in Q4 2024 to 27% in Q4 2025. And more specifically on the large 3-roll battery electric SUVs as well as a large 5-seater battery electric SUVs, we also see a strong momentum last year. In September last year -- or since September last year, the large 3-roll battery electric SUV model has been leading the segment across all powertrain and energy types for 5 consecutive months. And in the second half of last year, the BEV sales actually increased by 350%, while for REEV, it actually decreased by 6%. So we believe that with this trend where BEV is actually growing within the segment, our product launch cadence is also in a perfect match with the macro trend in the industry. This is also where we have the confidence for the continuous growth this year. And also as mentioned in Q2, this -- actually on April 9, we are going to host the technological launch event for the NIO ES9, which is our flagship executive SUV, also a technological flagship and the official launch of the NIO ES9 will be in Q2 this year. And in the meantime, in Q3, we are going to introduce the large 5-seater SUV developed on the same platform as the All-New ES8. And in Q2 this year, for the ONVO brand, we are going to introduce the L80, which is a large 5-seater SUV. Together with the L90 as well as the All-New ES8 that are already in the market and also popular among the users, we will be having 5 midsized and mid- to large SUV models to complete our product lineup in the large SUV premium model. And this is also where we believe that it will be the key drivers for our full year growth. And also for the ET5, ET5T, ES6 and EC6, they are also leading in their respective segments also with steady demand. For the ONVO L60, it is also the top 3 among its -- among the peers in each segment. Very soon, we are also going to introduce upgrades on the L60 and we can really look forward to the refreshes of this product. And worth noting that for FIREFLY, it is actually performing pretty well among the high-end small car segment with a very significant market share. And for the full year, we also are having confidence with the soft volume of FIREFLY as since after the Spring Festival holiday, we are seeing a rebounding demand for the FIREFLY models. So for the full year, we do have confidence of achieving a year-over-year volume growth of 40% to 50%. The first 2 months of this year is normally a typical seasonal low for the entire industry. But even against this backdrop, we still achieved a year-over-year growth in our sales volume. And for the Q1 guidance, we also target for an over 90% year-over-year growth. So for the full year, we do have confidence to achieve our volume target.

My second question is about the autonomous driving because I think during the opening remarks, William mentioned after the rollout of the world model, the tie of AD usage grew 80% month-over-month in February. So we know that -- what key feedback has been received regarding user experience? Additionally, we noticed several EV peers have or would introduce a more meaningful system model upgrades this year. What would be NIO's key technological highlights and differentiators, especially in the tight Level 3, Level 4 range? That's my second question.

Thank you for the question. Actually, for us, we believe that there are 2 key parameters to showcase if the Smart Driving experience and functionality is the best for our users. The first is the share of the Smart Driving time among the total driving time for users in the real-life driving scenarios. And the second is the number of accidents that are mitigated or avoided under the Smart Driving functionality. As you've mentioned, from January to February this year after the rollout of the version, the usage of the Smart Driving functionality actually increased by more than 80% month-over-month. And this is based on the new world model version with limited computing investments we made last year. And this year, we are going to actually increase our investments into the computing power resources and also be able to roll out more training sessions for our new world model technology. And we are targeting 2 major releases in Q2 and Q4 this year. Overall speaking, with this new version, we have already verified that our architecture, featuring world model and the reinforcement learning is actually capable of achieving good experience. And it also has a lot greater potential for the continuous capability and functionality upgrades. We also see that a huge amount of data is also helping us with the experience improvement. So overall speaking, we will be having these 2 major releases.

Your next question comes from Bin Wang with Deutsche Bank.

I have two. Number one is about the first quarter margin guidance. Based on your volume assumption, what should we look at? Because you're actually facing the rising memory cost, maybe some of the raw material. And recently, we may actually launched some of the subsidy for ESA, about RMB 10,000. So can you provide a first quarter margin guidance? And the second question is more about the receivable from related parties because investors see this number keep increase every single quarter. Can you provide a forecast what's the trend for this receivable from related parties exactly came from your battery swap partners?

[Interpreted] Thank you for the question. Overall speaking, for the vehicle gross margin in Q1, it will be maintained at a similar level as in Q4 last year. In Q1, there were seasonality factors as well as the policy impacts. But overall speaking, we still have ES8 order backlogs. And also since the Spring Festival holidays, we see a pretty good recovery on the order momentum of the ES8 model. So overall speaking, the ES8 model will still be playing a major part in our total deliveries in Q1. So that part is guaranteed. With the product mix largely driven by the high-margin products like the ES8, we will also be able to maintain a relatively flat vehicle gross margin in Q1 this year. But as you've also mentioned, there are other external factors, including the rising raw material costs, rising costs for the chip -- memory chips as well as the lithium carbonate for the battery packs. Those impacts are also going to take effect starting in Q1. But as they have just get started, the current impact on our Q1 vehicle margin is also limited. And regarding your questions on the account payable by the affiliated party, it's mainly the account payable by our battery asset management company, [indiscernible]. As in the recent months, we are seeing growth in both sales volume of our products as well as the take rate of the Battery as a Service. We also see increasing account payable by the battery asset management company. But for them, they've been keeping a smooth and also diversified financing channel through debt financing, equity financing or the bank backed consumer installment financing. So overall speaking, they've been having a diversified and smooth financing channels. This is also we believe that we will have a good control and organize the control over the account payable by the battery asset management company as well as the payment terms.

Your next question comes from Paul Gong with UBS.

My first question is continuing with the raw material cost inflation. Just now, I think, Stanley has mentioned that the pressure is just beginning to be felt in Q1. And I think probably in Q2 that some more pressure could be felt. Given NIO is positioned at relatively high end and still have a relatively strong demand and new orders compared to the peers, do you think you can pass this part of the cost inflation to the downstream to the customers? That is my first question regarding the raw material cost inflation pass-through.

[Interpreted] I will follow up on my previous answer. For this year, we do face pressures coming from the vehicle cost structure. And also because of the trend on the AI and computing power as well as the tensions on the geopolitical side, we do see the rising material costs or the volatilities in the prices regarding memory chips, copper or lithium carbonate and all kinds of raw materials. So we do have pressure regarding our cost structure as well as the vehicle margin. But for the full year, so far, we don't have a clear picture regarding the implication of all these volatilities and uncertainties. But in the meantime, we will keep working with our supply chain partners to improve the supply chain efficiency and to mitigate the negative impact of such uncertainties as much as possible. Also as introduced by William, this year, we are going to launch 3 new large models. So together, we will be having 5 large SUV models in our lineup, and they will be making major contributions to our sales and delivery volume as larger vehicle models normally have higher margin and they are more resilient towards this raw material volatilities and uncertainties. In that case, we will -- we do have confidence to try to mitigate or offset the impact brought by the rising raw material costs and try to maintain our vehicle gross margin within a reasonable range for full year this year.

If I may have my second question that is regarding the expense. We have seen that the cost control has taken quite some effects, especially from the R&D that has reduced from RMB 3 billion in Q2 into RMB 2 billion in Q4. Given Q4 is traditionally the strong season with the expense, so moving into Q1 and Q2, do you foresee further optimization on the expense side? Or do you think the RMB 2 billion per quarter is going to be the new low?

[Interpreted] Thank you for the question. In 2026, on a quarterly basis, we will be maintaining our R&D investment at the level of around RMB 2 billion to RMB 2.5 billion per quarter. So for the full year, the R&D expenses will be at a similar level as we spent in 2025. But in the meantime, as now we have the cell business unit mechanism in place, we will use that mechanism to keep improving the R&D efficiency to eradicate the low efficiency items among our R&D activities and also to keep improving the return of all the R&D activities. And in the meantime, in this year, based on our business performance as well as the overall return on investment analysis, we will keep a dynamic tracking and also management of our R&D expenses to make sure that we can adapt the pace and intensity of our R&D activities based on all these changing factors so that we don't compromise on the investments into key products and also technologies or the long-term competitiveness of the company.

Your next question comes from Nick Lai with JPMorgan.

I'd like to follow up previous question on profit and also cost. Given William, you talked about very strong volume outlook, yes, for '26 also, we have a lot of new model coming higher pricing, higher margin products from second quarter and onwards. But at the same time, the cost inflation pressure kicking in from second quarter as well. So I mean, putting all this together, can you help us understand how should we think about the ability maybe for second half or second quarter? Or should we think -- or should we expect NIO can be potentially reached a non-GAAP profit or breakeven sometime in second half or maybe in the second half? And what does that mean for our free cash flow position for the full year?

[Interpreted] Thank you for the question. Regarding the sales volume, we still keep track -- keep on track of the target of achieving 40% to 50% year-over-year growth in our sales volume. As we've introduced this year, we are going to launch 3 large models. That give us a confidence in the volume target. And in the meantime, regarding the vehicle gross margin, we do have pressure on the margin and also the vehicle cost structure. But as mentioned, we will be having more large models introduced this year as they will be contributing more significant margin. Like for the ES8 in Q4 last year, its vehicle gross margin was close to 25%. So overall speaking, large models are more resilient towards the price volatilities in the market. With the volume and also the vehicle margin outlook combined, we still have the target of achieving full year non-GAAP operating profit breakeven in 2026.

My second question -- if it's okay, my second question is really about the Shenji self-design chip. And after recent successful fundraising of $300 million, can you share with us our chip strategy in the medium term? Aside from supporting internal sales, is it fair to say that Shenji will also try to explore external customer like other OEM or other supplier?

[Interpreted] Thank you for the question. For Shenji, it has just completed the first round of equity financing where during the fundraising, it has also received a wide recognition by the professional institutions as well as the industry institutions. And they all speak highly of the capabilities and R&D of the Shenji company. And for the ongoing R&D activities of the Shenji company, it will be developing our next-generation high-performance chips for our products. But in the meantime, they are also planning and exploring mid-end chips that are more approachable by more clients in the industry, including potential partners and clients in robotaxi or embodied AI applications as we do see a good fit of our products in such areas and industries. Actually, in the meantime, we are already exploring possibilities with some external clients, including some automotive companies who have also shown interest into our chip products. Actually, the second chip product from Shenji, which is actually a chip still made of high-end and advanced processing that can be used by a broader client base has already achieved a successful tape-out and is also preparing for the mass production. And this is a very competitive chip product.

Your next question comes from Jing Chang with CICC.

Okay. My first question is about our upcoming NIO model, which is ES9. So compared with ET9 released last year, so could you elaborate on its new capability enhancements? And also how is our pricing position for this new vehicle?

[Interpreted] Thank you for the question. NIO ET9 is our executive flagship. It is also the most premium and advanced product in our lineup. Recently, we have also released the Horizon Editions for the NIO ET9, and it's well received by the users. And for the ES9, definitely, it carries over advanced technologies and also features from the NIO ET9, but it also comes with its unique tech innovation. Positioning and product type-wise, these 2 products are quite different. ET9 is an executive sedan, where ES9 is actually a tech flagship as well as a flagship SUV model.

My second question is about the energy replenishment method. There has been more market discussion recently. So against the -- on the background of the rapid development of fast charging, so could you elaborate on the advantages and also necessity of battery swapping, especially from infrastructure construction and also as long as our mid- and long-term charging and swapping construction plan.

[Interpreted] Thank you for the question. Actually, we are happy to see that more automotive companies are participating into the construction of the charging and swapping network. As more players coming into the joint development of the infrastructure network, it can help accelerate the adoption of the battery electric vehicle as well as the acceleration of the conversion from the ICE cars, REEV and [indiscernible] to the BEV models. So we are happy to see such trends. But charging and swapping, they are not contradictory. We also have developed more than 28,000 power chargers and destination chargers. We are also one of the most active Chinese car companies in terms of the charging network development. For swapping, home charging and supercharging they come at different benefits and they serve different purposes for users in different use cases and scenarios. And for us, we always offer this holistic solution featuring charging, swapping and upgradability. And also, we see some industry peers they have announced advanced technologies in terms of the charging and the charging speed. We are also happy to see such technological innovation and development. But in the foreseeable future, no matter how fast the charging becomes, it will never outperform the speed or the experience of power swapping. And also, there are additional benefits brought by the swapping that charging will never offer. We believe that swapping is also a systematic solution to solve the problems regarding the mismatched life cycles between the vehicles and the batteries. In the Chinese automotive industry, the warranty period for the battery pack is normally 8 years, 160,000 kilometers or at 70% state of health after use. For the vehicles, for the business and commercial purposes, normally their duration is shorter. But for the private sectors, the vehicle can be used for up to 15 years. In that case, the battery life cycle is significantly shorter than that of the vehicles. But if the battery and the vehicles are tightly coupled with each other, after 9 or 10 years, this mismatched life cycle will become a major problem for the users and industries. And for that, we believe that power swap enables a flexible solution or an innovative solution to solve the mismatched life cycles between vehicles and batteries. And also under our power swap system, together with our long life battery, our charging and discharging strategy as well as our life cycle monitoring and also inspections on the battery health. All these measures come as a very systematic and holistic operational approach for us to keep monitoring the safety of the battery and also maximize the longevity of our battery product. And this requires systematic thinking and systematic design. So it's one a matter of charging were swapping speed, it actually provides the industry as a magic solution. And also for the power swap system, it is also a distributed energy storage system. As with renewable energy and green electricity generation, the storage and consumption of such renewable energy is a big challenge. This is also why the Chinese government is now building up the new power system to be able to digest all this green energy. And the power swap station is also a type of a NIO power system as it can help with energy storage, energy consumption as well as the interaction with the power grid. In that case, we do see opportunities as well as the value the business side brought by our power swap system and also different from the supercharging requiring energy storage, we actually only need to charge and discharge the battery once, which can help to reduce the secondary energy loss that can contribute to an efficiency improvement or benefit of around 6%. So economic-wise, power swap is also more efficient and viable. And for the charging -- for the swapping network, now so far in China, we already have installed more than 3,800 power swap stations. If every station comes with a full battery pack installment, it will be a total energy storage volume of around 6 to 7 gigawatt hour, which is already pretty sizable from the energy storage perspective. So overall speaking, power swap not only provides better charging or recharging experience for our users. For the long term, it is also helping with our business development and also success. So this is also bringing us a long-term business success and it's highly defensive.

Your next question comes from Ming-Hsun Lee with Bank of America.

I have follow 2 questions. So my first question is related to the chip business. So I think previously, you already mentioned that the second chip will be more powerful, more competitive compared to your first chip. So could you give a little bit guidance on this chip? So in the future, will you only focus on autonomous driving and human robot for the chips in the future? Or you will also develop the smart cabin used chip? And also, I think you save a lot of cost because you start to adopt your chip. So could you give some guidance about the vehicle model coverage for your chip? How much percent of the cost can be saved?

[Interpreted] Thank you for the question. So the second chip product from Shenji will also be a 5-nanometer automotive grid chip, but it comes with a more competitive and efficient cost structure. Performance-wise, it will be on par with [indiscernible]. Cost-wise, it will also be more approachable and efficient than our first generation Shenji 9031 chip. So in terms of the utilization, it can be used for autonomous driving, smart driving as well as all the AI applications and embodied AI. In terms of the average chip product, we will not do the training chip, but focusing more on the on-device inference chip and our chip product will be also qualified to be as an on-device inference chip. And also, it has a lot more potential to be applied across different scenarios and products. In terms of which vehicle models will be equipped with our second chip product, so far, we cannot disclose such information, especially if it's related to our external clients but we do have some industry peers and also clients showing strong interest into this chip product.

And my second question is related to your service business. So in 4Q, your service revenue gross margin reached 11.9%. Is it mainly because the utilization of your swap station continue to increase? And looking into 2026, do you expect the gross margin of the service business will continue to improve because -- based on your projection?

[Interpreted] Thank you for the question. Regarding the revenues from other sales, it's mainly our service revenues as well as the revenues from community-related businesses. And in 2025, as our user base growth and the operational efficiency growth, we have also achieved the growth in our other sales revenue, more than RMB 10 billion last year, which is also a growing part in our total revenue. And for this year, as we continue to grow our user base, we also are expecting the growth in our other sales revenue and also it will continue to make a positive contribution to the group level gross margin. And regarding the charging and the swapping business as we will continue to develop and deploy our infrastructure network, especially our power swap network at the pace of around 1,000 new stations every year. With all this upfront investment in the infrastructure for the near term, we will still see operational losses on the charging and swapping network side. But the profit from other sales can basically cover the losses on the power and -- on the power side. So this -- the overall business development will be actually conducted in a controlled pace. And also, I would like to add a comment here. In 2025, we have achieved the profitability on our other sales, mainly our services and community-related businesses. And in 2026, we also believe that we will continue to enhance the profitability of this part. Even against the precondition that we are going to install 1,000 new power swap stations this year, we will still target to achieve improved profitability for this part of business.

Your next question comes from Yuqian Ding with HSBC.

I have 2 questions. The first is to follow up on the OpEx optimization. We talked about R&D guidance before. Could we share more color in terms of SG&A? So fourth quarter, we hit SG&A absolute value at RMB 3.5 billion. So can we extrapolate to understand that's the baseline, if we multiply it by 4, that's the baseline or range we can understand 2026.

[Interpreted] Thank you for the question. In Q4 2025, as we have seen growth both in sales volume as well as sales revenue, the percentage of SG&A to the sales revenue has also falls into a reasonable range. That is also driven by our CBU mechanism as well as the continuous efforts in the organizational efficiency improvement. And also, it's partially because that in Q4, we didn't introduce or launch any new models. So we didn't have much expenses on the marketing and relevant activities and events. And for 2026, we will also continue our CBU efforts to make sure that our SG&A expenses are of the highest efficiency and good return. The absolute amount of the SG&A expenses this year will be growing. But proportionally to our sales revenue increase, we would like to control that to be within 10% of our sales revenue.

The second question is to ask about the volume and margin breakdown by brand. We talked about our volume target, and we also talked about a reasonable margin. So could you help us to understand between like 3 portfolio brands or between the core 5 big SUV portfolio versus rest? Just give us a bit of a sense to understand the dynamics between the brand or how do we cluster our volume mix so that can support sustainable margin expansion?

[Interpreted] Thank you for the question. Regarding the sales volume and the vehicle gross margin breakdown, as we've mentioned, the market will be still highly dynamic in 2026. So at the moment, it will be very difficult for us to give a specific or precise breakdown on the volume or margin contribution by model. But to give you some high-level information, for the 5 large SUV models that we've mentioned, they will be playing a major role in our sales volume. That's one. And secondly, for the FIREFLY, as since after the Spring Festival holidays, we also see a quick rebound of its volume and order momentum back to the level -- back to the stable level as it has last year. So this will also be another indicator regarding the volume driver. And regarding the vehicle gross margin, as we've mentioned, for all 3 brands, they will be under cost pressure due to the external volatility reasons. But in the meantime, we will still keep improving the vehicle gross margin across all 3 brands. At the moment, we cannot give you a specific margin outlook or assumption for each brand, but put that against a longer time spectrum, we always target to achieve 20% to 25% vehicle gross margin for the NIO brand, above 15% vehicle gross margin for the ONVO brand and above 10% vehicle gross margin for the FIREFLY brand. So that is our margin target for all 3 brands against a longer time spectrum, and it has also been our internal target. In addition to that, our management mindset has also made a switch since last year, where before it was purely sales volume driven. But now we are trying to find the optimal balance between sales volume, vehicle gross margin and the overall business performance. This is also driven by our CBU mechanism. As for each vehicle model, we have established a dedicated vehicle strategy team that will be taking the overarching responsibilities for the vehicle's business performance, finding balance between the margin and also the volume of the product. That is a major change we have made since last year when we had the CBU in place. This is also reflected in our business performance improvement from Q4 to Q1 this year.

As there are no further questions now, I'd like to turn the call back over to the company for closing remarks.

Thank you again for joining us today. If you have further questions, please feel free to contact NIO's IR team through the contact information on the website. This concludes the conference call. You may now disconnect your lines. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]