Good day ladies and gentlemen, thank you for standing by and welcome to the Niu Technologies third quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session and instructions will follow at that time. As a reminder, we are recording today’s call. If you have any objections, you may disconnect at this time. Now I will turn the call over to Mr. Jason Yang, Investor Relations Manager of Niu Technologies. Mr. Yang, please go ahead.

Thank you, Operator. Hello everyone. Welcome to today’s conference call to discuss Niu Technologies’ results for the third quarter of 2020. The earnings press release, corporate presentation, and financial spreadsheets have been posted on Niu’s Investor Relations website. This call is being webcast from the company’s IR website and a replay of the call will be available soon. Please note today’s discussion will contain forward-looking statements made under the Safe Harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks, uncertainties, assumptions and other factors. The company’s actual results may be materially different from those expressed today. Further information regarding the risk factors is included in the company’s public filings with the Securities and Exchange Commission. The company does not assume any obligation to update any forward-looking statements except as required by law. Our earnings press release and this call includes discussions of certain non-GAAP financial measures. The press release contains a definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results. On the call today are our CEO, Dr. Yan Li and our CFO, Mr. Hardy Zhang. Now let me turn the call over to Yan.

Thanks Jason, and thanks everyone for joining us on the call today. We have had a strong growth in Q3 with total sales volume reaching 251,000 units, a 67.9% year-over-year increase. The sales volume in the China market reached 245,000 units, a 70% year-over-year increase, whereas the volume in the international market reached 560,000 units, a 6.3% year-over-year increase. In the first three quarters, our sales volume reached 451,000 units, an increase of 43% compared with last year. Now our strong growth in China was driven both by the market factors and our operational performance in the new product rollout, marketing, and channel expansion. First, let me quickly comment on overall market landscape in China.Now, the overall electric bicycle market has increased by 30% to 22 million units in the first nine months, according to the Ministry of the Industry and Information Technology. This increase was driven by three factors. First, the post COVID-19 sentiment led to a high demand of individual mobility devices as more people find electric bicycles a more convenient, safer means for their daily commute. Now, second, with the adoption of 2019 China electric bicycle standards, more cities started to regulate this industry with license plates, removal of uncompliant products, and such created a safer environment for the users. And lastly, with lithium ion battery costs continuing to decline, the electric bicycle with portable lithium ion batteries become more affordable. It was estimated that 20% to 30% of electric bicycles this year are lithium versus 10% to 15% in 2019. Amid the fast growth of the electric bicycle market and in particular the lithium ion-based ones, we also accelerated our efforts in new product rollouts, marketing, and channel expansions. As we mentioned in the last earnings call, we introduced the M2 model in Q2 and the…

Thank you, Yan, and hello everyone. Our press release contains all the figures and comparisons you need. We have also uploaded the Excel formatted figures to our IR website for easy reference. As I review our financial performance, we are referring to the third quarter figures unless I say otherwise. All monetary figures are RMB unless otherwise noted. Our Q3 sales volume reached 251,000 units, increased by 68% year-over-year. China sales volume increased by 70% as a result of retail sales network expansion and new product launch. International sales volume increased by 6%, lower than our expectations, mainly due to the result of COVID-19 and the difficulty to fill containers for international shipping. We expect some of these challenges to continue into the fourth quarter. We are currently working on different initiatives in order to deliver continued growth from international markets. Regarding product mix, as we launched a few new products, the mix changed accordingly. N series accounted for 12% of total volume, M series accounted for 23%, Q series accounted for 28%, and the GOVA series accounted for 37%. Out of the 37% from GOVA series, 27% is from the mid-end product G0 model and the remaining 10% from G2 and other GOVA models. The high percentage of G0 sales volume had a negative impact on our Q3 ASP and gross margin. Total revenues increased by 37% to RMB 894 million, in line with the guidance we provided earlier. The increased was driven by higher sales volume growth of 68% partially offset by decrease in revenue per scooter, or ASP of 19%. There are a few drivers for the ASP decline. First, sales of low price model G0 negatively affected ASP by around 11%. Second, the change in product mix to [indiscernible] models, especially lower percentage of sales from…

[Operator instructions] We do have a first question from the line of Roger Duam [ph]. Please go ahead.

Hi Management, thank you for taking my questions. I have three questions. First, there are several international countries in which we have local dealerships have re-entered the lockdown. Can Management share the magnitude of negative impact we can expect from these international markets for 4Q and for potentially first quarter 2021? My second question is somewhat tied to the first one. How should we think about how ASP will trend for 4Q and 2021, given international markets continue to experience pressure and the lower price G series products continue to grow as a percentage of units sold? My third question is with regard to the competition, can Management share any insights on how we’re thinking about competition with industry leaders? In the past, we have largely avoided competing directly with them by offering products in different price categories, but it has somewhat changed after our launch of G series. What is our strategy to continue taking market share from these legacy e-scooter makers? Thank you.

Thank you. I think those are great questions. This is Yan, so I’ll try to cover question one and three, and I’ll have Hardy to cover two on the ASP front. I think on the international market, yes, I think our Q2 was our worst case where we actually see a decline of 50%-plus in Q2, because a lot of stores closed. In April, May, all the stores were closed, and that gives little confidence to our distributors in terms of ordering because you have to keep in mind that a lot of the Q2 sales, the quarterly sales we see on the international, usually there is, like that’s actually the time we ship the product, so in terms of retail, it’s basically a quarter after. Now, what happened in Q2 is most of the stores closed and that for our distributors are actually not ordering anything, that’s where we start seeing huge declines. But starting in May, stores started to open and then that gave distributors a bit of confidence, so we are seeing an uptick in orders in Q3, that’s why we say up to about 60%. But in reality, I think we should have seen more because we had 1,000 orders of scooters not able to out our door because there really is scarcity of international shipping with containers. We are actually quite confident with our Q4. From an order book point of view, actually a lot of orders are coming in. We expect really healthy growth for Q4. Now, the issue is actually booking the international shipping containers. This international shipping, actually, the containers at this point seems to be a scarce resource that a lot of ports in Europe you know, there’s not enough people working at the ports. But from an order perspective, we’re…

Yes, so the ASP, as you’ve already seen the third quarter numbers, the ASP in the third quarter was down by 19% year-over-year. In the fourth quarter, in short we expect the ASPs will compare with Q4 last year, they will decline at a similar percentage; however, we encourage you to look at the ASP by product segment, so the ASP for China scooter sales, the ASP for international markets, and the ASP for accessories and spare parts. [Indiscernible] and they tell a different story. The ASP for China market, if we look at third quarter, the price was down by around 18%. Of that 18%, around 13% was affected by a higher percentage of sales coming from G0. Last year, there was no [indiscernible] G0, this year G0 takes around 27% of total sales volume. That’s affected the China ASP by around 13%. The remaining 5% came from the changing product mix from other models, especially we have lower sales in the [indiscernible] product. If you look at this trend in China going forward, the [indiscernible] will continue to be there, however with [indiscernible] in the other models, we will see some improvement, therefore the ASP for the China market if you compare year over year, we will have some improvement in the fourth quarter. Then if we look at ASP for international markets, if you look at the year-over-year change, actually in this quarter our ASP for international markets increased by 27% [indiscernible] the improvement, mainly because of small sales volume there for the fixed change in the ASP. So the international market, our ASP is relatively stable - it’s always anywhere around RMB 9000 to [indiscernible], so for the international market we do see quite stable, relatively stable pricing. Then lastly on the ASP for accessories and spare parts services, this one of the China market, the price was relatively stable; however, for the overseas market it was significantly impacted by how much spare parts we can sell to the sharing operators. As mentioned in the call, this year we do not have as much orders from sharing operators in Q3 and expected in Q4, therefore we do see some pressure for the ASP going down. However, for next year with the recovery from the international market, we do begin to see some of the new orders coming in for both sharing operators and also from both shared scooters and also for the spare parts. For this part, we do see pressure into Q4, but next year we do see some potential for improvement. So in short, I think if you compare year-over-year in the fourth quarter, ASP will decline a similar percentage, but if you compare quarter to quarter, we do expect the fourth quarter ASP will improve compared with third quarter. If you look at next year, then that means the Q3 and Q4 ASPs [indiscernible] how much we had for next year. This should answer your second question.

Thank you so much, very clear.

Thank you. We have our next question coming from the line of Alex Potter from Piper Sandler. Please go ahead.

Great, thank you guys. I guess my first question is regarding capacity in Changzhou. You mentioned you’re still in the process of expanding the capacity there. What’s the update? How much is left to spend in terms of capex, and what is your annual capacity now versus what it will be next year?

Yes Alex, let me address your question. Currently our design capacity is around 1 million units, and the new capacity the new factory has another 1 million capacity, and we plan to bring the new capacity on board sometime during the second quarter next year, because from the second quarter, the peak season starts. The total capex for this new capacity will be anywhere between RMB 100 million to RMB 120 million, including the land including land. We started construction in October and it’s going to take us around six months, five to six months to complete the total construction. Hopefully this answers your question.

Okay, yes. Thanks very much. Was wondering if you could talk a little bit about the promotions and some of the price discounting you talked about also in the quarter, which was an impact on gross margin and ASP. What were the what products were you promoting specifically, what promotions were you running, and how long do you expect to keep doing that?

Yes, I think very good question. I think for Q3, we have a different format of promotions this year compared with both early years and also from last quarter. We gave cash [indiscernible] to our end customers, and they can use this cash [indiscernible] to deduct the sales price, therefore we spent around RMB 8 million for this promotion with a direct deduction from our revenue and also our gross margin. We have this kind of promotion mainly because with Q3 I mean, because of the COVID-19, people are more sensitive for full price, therefore we gave it directly to end consumers, it’s better than we send money in different ways. However, from Q4 this year, we have no such promotion spend, therefore we more attribute to these kind of promotions, kind of one-off promotions in the third quarter.

Okay, and was this specific for any certain types of products, or was it broad?

No, it’s broad, so it’s basically the customer, the end consumer goes to the store and they pick the model they like, and then it goes to a lottery system. Initially everyone will win, they’ll get something. Someone gets RMB 100 cash that is a direct deduction from their sales price, someone can get [indiscernible] which can be deducted directly from the sale price.

Okay, interesting.

[Indiscernible]

Okay, and then the last question from me is on the regulatory change. Can you remind us when exactly the new regulation will be enforced, and it sounds like you do think that you’re getting some demand because I know people are obviously going to be forced by the new regulation to replace their scooters. Do you think that people are doing that now? When do you expect the most of that demand to materialize?

Alex, it depends on city by city. First of all, the new regulations, basically the temporary new regulation was announced in 2018. It started being enforced on April 15, 2019, and different cities actually did different years. For example, a city like Beijing, they gave temporary license plates in 2018 and they said basically the temporary license plate, you can have a you can use the scooter for three years, which essentially means some of the scooters will be out of use by end of 2021 or, I think, early 2022, so which we won’t expect to see, what do you call a you know, the replacement of incompliant temporary license scooters actually starting next year. I think this is also an indicator I think this is actually a driver for us to quickly expand you know, add more stores in those cities, in highly regulated cities. The good thing for us is actually our market share and our presence is actually much, much stronger in the highly regulated cities, because most of the highly regulated cities are the Tier 1, Tier 2 cities, where in the Tier 3, Tier 4 cities I think the regulations still being enforced very in some places, very loosely, where you won’t see this uptake into model replacement yet.

Okay, great. Thanks very much guys.

Thank you. We have our next question coming from the line of Bin Wang from Credit Suisse. Please go ahead.

Okay, thank you. I also actually have three ones. The first one is about a very top-down angle, about the overall market, because [indiscernible] in number three quarter, the overall production in China increased by 61% year-over-year. For you actually outperform, yes, but if you really excluding the G series actually in the high end, it’s only around 11% growth, so can I come to the conclusion is that in the high end markets [indiscernible] slowing down and [indiscernible] is the key driver, can I have that conclusion? Meanwhile, actually because the regulation timing, regulation [indiscernible] have some impact on the high end and [indiscernible] people don’t care, so how to elaborate if understand the different second half, quite a bit of difference growth? That’s number one. Number two is about the guidance. Basically [indiscernible] numbers so bad, and [indiscernible] huge rebound in the growth in November and December, so based on your guidance in the revenue, we cannot get a number, say, 150,000 best guess, so it means November-December have more than 50% growth, so can you elaborate whether my calculations are correct or not about November-December growth? If was correct, why the reason have such a high growth after big dip in the [indiscernible]? Meanwhile, what’s the guidance for next year 2021 based on the November and December momentum? That’s the second one. The third one is about new growth and new stores, because if you see in the past one year you have been launch quite a few showcase, called MRI and RRI, but it doesn’t see this new product bring any more news, so number one, when will be next product, volume product, and why this [indiscernible] in volume, so how we think about your new product plans for the coming years, meanwhile what’s your store guidance of next year, or maybe end of this year and next year? Thank you.

I think your first question is about all the new [indiscernible]. I think if you look at the information published by the Minister of Information, Industry and Technology, their Q3 electric bicycle volume growth is anywhere between 40% to 50%, depending on which market you’re talking about. Our growth definitely is much higher - we are growing [indiscernible] about 70%. You’re also correct that [indiscernible] is a key driver for us to grow in China, and our high end, the MU series has a growth around 11%. I think one of the key reasons is after the new regulation was enforced, the new regulation says the top speed was going to be limited to the electric bicycles, therefore a lot of the function also, including [indiscernible] other functions, we were not able to add to this electric bicycle. Because of that, definitely customers do not want to pay high price for the extremely high high price models, and I think that’s one of the key reasons why the high price models have lower growth rates compared with the [indiscernible] bicycle categories. For your second question about the sales volume in October-November and December, I think that you have ranged roughly okay. I think in October, as already mentioned in our earnings release, it’s [indiscernible] because of the operational disruption in our factory, because in September we used up to the had full usage of our utilization of our factory because of the huge demand in the third quarter, therefore we have to make some [indiscernible] for our machinery for our factory to make sure we have a safe environment to produce [indiscernible] November and December. Because of that, we did some of the sales work prior to November and also December. This is one reason that’s why you see the…

Okay, thank you.

Thank you. We have our next question from the line of Jing Chang from CICC. Please go ahead.

Hi, thank you for taking my question. Basically, I had two questions. The first one is about the store and channel expansion. What’s our target next year for store expansions? We see other competitors opening stores at higher speed, so I want to know what our major concerns or difficulties in terms of opening stores. My second question is we are going to sell e-motorcycles in Indonesia, so can you share some details on our strategy in terms of production, so whether you export or build a factory there, and our channel and also our product compared to the local brand motorcycles, and also maybe a long-term sales target? Thank you.

Thanks for asking good questions. The first one store openings, so as I mentioned earlier, in Q3 we were able to add about 200 stores, and so keep in mind Q3 usually has been our busy sales quarter where our distributors are not willing to open stores, but this year actually with the effort, we see we actually have the capability to open 200 stores in one quarter. And now we’re actually thinking about up that game in Q4, opening more stores than Q3 and we actually have the higher ambition for next year. So, I guess, it really depends on how we wrap up the Q4 this year, we will have more relative growth for next year. So, I think that’s basically on the store expansion. And more importantly, if we look at the data here, it’s actually we have the capability to open fast and more, because even with Q3, with 200 store adds, our per-store sales still went up by 40%, so that means there is actually a lot of room to open new stores at this point. So you can easily see we can actually get to 200 or 300, 400 stores in Q4, and we’ll see how that it depends on how fast this construction can be finished. That will actually will set the the guidance for next year as well on a quarterly basis. Now with the Indonesian market, I think it’s - yes, one, we will have to - initially it will be local - it will be sort of a CKB method because Indonesia has a huge tariff. If you ship the entire product from China, I think the tariff is about 40%, so that will make the pricing not relevant. We want to actually enter the Indonesian market not - we have a high-end product, but we want to enter sort of at the mass affordable product level, affordable price range product, which actually will ensure we’re not being viewed as the luxury product but more a mass daily commute product. This will actually - right now, we have a basically manufacturing partner in Indonesia, will help us to assemble the product, even with some of the parts being locally sourced, and that will actually get to a lower tariff [indiscernible], less than 8% to 10%, because it’s mostly on parts. That’s what will happen for next year. Later half of next year, we’ll see, depending on how the sales volume goes. We might have to actually invest to build a factory in Indonesia. Hopefully that answers your questions.

Thank you, thank you. That’s all for my questions.

Thank you. [Operator Instructions] We have our next question coming from the line of Sebastian Van Hellen [ph]. Please go ahead.

Hi, good evening. With the upcoming importance of the GOVA series, to what extent do you intend to use after sales to protect your margin? Thank you.

I think even with GOVA series, I think the after sales will be still conducted by our friends in the retail stores. From using after sales to protect margin, I think it’s similar method as with other series. I think the question, if we look at the actual margin of the GOVA series, it’s actually slightly less than our MU series, but not significantly less. It’s probably a couple percentage less, because even though it’s actually marked at lower prices, because it’s using the battery uses, it’s not MCM or MCA batteries, it’s actually LFP batteries which actually it’s an alternative but it’s actually cheaper than the MCM MCA batteries. The lower end of GOVA series doesn’t have the smart IoT - the smart IoT is an add-on, so for people who actually take the series at the base basic level, it doesn’t have the smart IoT, so that actually helped to reduce the cost and reduce the price set as well. But our app does support the product, where the users can actually with or without IoT, the users can download the app and they actually register the scooter on the app, and then being able to receive the same level of after sales services on the app as well.

Okay, thank you.

Thank you. We have our next question from the line of Paul Gong from UBS. Please go ahead.

Yes, hi. Thanks for taking my question. Actually I have only one question. You mentioned the tariff for the Indonesian market is 40%, so that’s why you decide to build a factory over there. In view of the [indiscernible], how should we foresee the tariff going forward, and the local factory, is that still required in your view?

I think that’s a great question. I think we are actually looking we saw the news as well, but we haven’t really got sort of the detailed information yet, so if the actual detailed information, basically like motorcycle, electric motorcycles are actually covered by the treaty, then actually that will solve a lot of our issues as well. Let me put it this way - frankly, we’d rather have everything manufactured in China where we have really tight controls with our own factories, [indiscernible] insurance, everything, and from Management complexity, it’s actually much easier to get manufacturing in China versus shipping parts to Indonesia and having locally assembled and manufactured there. We understood why the tariff was there, because a lot of motorcycle brands are locally manufactured there, so there is actually a local protection there into that industry, but if that opened up where the tariff is being reduced significantly, actually that actually will change our manufacturing planning. That’s one of the reasons right now we don’t actually we decided not to, for example, buy land or build our own factory in Indonesia. We’re simply still watching out of the by using a more flexible, using a partner as assembly option at this point, because that gives us the flexibility, depending on how that whole treaty thing goes.

Okay, thank you very much. Very helpful, thank you.

Thank you. Seeing no more questions in the queue, let me turn the call back to Mr. Li for closing remarks.

Right, so thank you Operator, and thank you all for participating on today’s call and for your support. We appreciate your interest and look forward to reporting to you again next quarter on our progress. Thank you.

Thank you all again. This concludes the call. You may now disconnect.