Niu Technologies (NIU) Q3 2022 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to Niu Technologies Third Quarter 2022 Earnings Release Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Ms. Wendy Zhao, Senior IR Manager. Thank you. Please go ahead.

Thank you, operator. Hello, everyone. Welcome to today's conference call to discuss Niu Technologies results for the third quarter of 2022. The earnings press release, corporate presentation and financial spreadsheets have been posted on our – at Investor Relations website. This call is being webcast from the company's IR website as well, 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 U.S. 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 include 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 with me today are our CEO, Dr. Yan Li; and CFO, Ms. Fion Zhou. Now let me turn the call over to Yan.

Thank you, Wendy. And thanks, everyone, for joining us on the call today. In Q3 2022, our business faced challenges from risk from rising raw material prices, market demand fluctuations and aftermath of the COVID resurgence in China. All those factors brought serious disruptions to our operations. During this quarter, we delivered a mixed result in China and international markets. Total sales volume was down by 19.2% year-over-year. Total sales volume in the international market reached nearly 58,000 units attributed to the growth in the kick-scooter category, bringing the biggest year-over-year dip [ph] in the sales in the new overseas market. In China market, we experienced a decrease in sales. Sales volume in China market was 263,000 units, down by 32.9% year-over-year. Now I'll go over to challenges and opportunities in each market in detail. First, for the China market in Q3 2022, we continue to experience difficulties due to the impact of the high lithium battery cost, the sporadic COVID lockdowns and the delay of new product rollouts. The raw material price for the lithium-ion battery has a sharp increase since the beginning of the year, the increase had slowdown the penetration rate of lithium-ion battery electric scooters across the entire China market. We observe demand in Tier 2 and Tier 3 cities that asset-based scooter percentage increase in the market as the price gap between the lithium and acid batteries widen. This has impacted us significantly since the majority of our e-scooters are lithium-ion battery based, especially in our entry-level products, which accounted for over 90% of the volume loss year-over-year. We just also actively optimize the product portfolio to reduce the entry level percentage as under the new lithium-ion cost, those product lines produced part gross margins. The replacement height of the replacing old standard scooters with new national standard scooters has also declined Q2 and Q3 for our targeted market of Tier 1, top Tier 2 cities. For example, the overall market of Beijing declined by 60% of most of the replacements were completed last year. Given our sales are still more concentrated in the top-tier cities, our sales volume was also impacted this year. Last, but not least, our main products rollout has been significantly delayed this year, partially due to the COVID resurgence lockdowns in Shanghai and vicinities where our R&D center is based. Although the high-end product like SQi was released in August, they won't be able to ship until December. And our new U+, our high-end Gova series like G6T and B2 were shared in late August or early September. Those core products this year we launched have missed the key sales seasons has provided not enough fuel for the 2022 sales. Now despite the sales volume drop and delay in the new product rollout, the newly rolled out product received overwhelming positive responses from the media and the consumers. This helped to re-strengthen our brand as the high-end lifestyle brand in China, but also lay out a strong foundation for 2023. First, we pre-released the revolutionary SQi e-bicycle in August priced at RMB 8,999 to RMB 9,599 which I have briefly talked about in my last quarter's earnings call. With this innovative look and customed aerospace mechanism material, the evolution of SQi was well received by the market. We received more than 15,000 pre-orders for the pre-release. Another high-end product we launched around the same time is our new U+. The new U+ has inherited a classic design for over time, most popular U series, but designed with improved light designs, smart controls and riding economics and additional personalization functionality. The new U+ has nearly 50,000 shipments within the first 30 days of its rollout. During the Double 11 shopping festival, our new U+ has ranked number one best seller products in the electric scooter category by Taobao. Together with SQi, those new products helped Niu to number one in the transportation category on top of. With the record-breaking sales of SQi and the new U+, we reconsolidate our position to lead in the premium electric 2-wheeler market in China. Now along with the launch of the new product, we initiated market events via PR, social media marketing, PR collaborations of off-line product launches and user events. The marketing campaign around the new product launch has gained a total of 1.4 billion views across all platforms, 3x of the view we had a similar campaign in 2021. Those marketing activities again strengthen our brand messages as a lifestyle brand in China, urban mobility industry. Now amid the lithium price increase, we took a step to optimize our product portfolio towards the premium to high-end product to improve our gross margin as well as the re-strengthen our brand as a premium brand in China. For the first three quarters, our premium new series product percentage continued to increase from 31% to 39%, while our entry-level 0 series [ph] product reduced from 28% to 15%. During Double 11 shopping festival online, 83% of our e-scooter orders came from product over RMB 5,000. So despite the rise in raw material costs, we managed to improve our gross margin in China significantly by 300 basis points. Now coming to the international market, we faced challenges in the electric 2-wheeler markets from the temporary shutdown of the sharing market demand as well as the macroeconomic headwinds in the rising euro and U.S. dollar exchange rate and increased lithium prices. First, the market for the sharing electric motorcycles has temporary shutdown this year as the sharing operators has not raised additional capital for expansion, but merely focused on current CapEx deployment. The sharing sales accounted for one third of our sales in the international market last year. So this year, we experienced a zero sales from that. Now the right - second, the right in the lithium prices, coupled with the weak euro forced us also to increase the prices in the European market, which impacts our sales of electric motorcycles in the consumer segment. So at the end, the total sales of electric motorcycles in Q3 in overseas market went down by 34% year-over-year. However, during this quarter, we had a significant 166.5% year-over-year growth in the sales of Southeast Asia market, mainly from the growth of Indonesia and Thailand market. During the G20 Summit in Bali, Niu provided the electric scooter to be used by the Indonesian National Police officials to support the local government's effort of green transportation. We have continued effort in expanding the Southeast Asia market as we hope to grow with the trend of transition from traditional gas-filled 2-wheelers to electric 2-wheelers as it happens. We have also started exploring battery swapping solutions to aid adoption of electric motorcycles with the first trial in Singapore. Contrary to the decline of the electric motorcycle market, we experienced a tremendous growth in the micro mobility market. For the kick-scooter category, we had a significant quarter in growth of sales from kick-scooter category during autumn [ph] soft season for the electric motorcycles. The sales of kick scooters rocketed to 55,000 units during Q3, a growth of 162% quarter-over-quarter. Since Q4 2021, we have strategically rolled out our kick-scooter product to cover a wide range of market needs. The first launched K3 and K2 are proven to be successful in the market. During the Amazon Summer Prime Day sales in July, these 2 kick-scooter models were ranked number one, number two on Amazon Best sellers in the kick-scooter category in French, Spanish and Italian market. The kick-scooter products gain not only popularity among customers, but also recognition from the industry. Our K3 MAX received outstanding coverage from U.S. big tech media, including Tom's Guide and TechRadar [ph] It was ranked number one of the best overall electric scooter by Tom's Guide and awarded a perfect scooter by TechRadar. The K3 Pro model was also awarded a second place for the best sustainable mobility device by [indiscernible] a Spanish top medium in their annual awards. Now during Q3, we continue to expand our product offerings. We launched our K1 kick-scooter and KU's [ph] to add kick-scooter product portfolio. K1 is entry-level kick-scooter product where KU's is the kick-scooter for 6 to 14-year-old. With those two product added, we now have a complete product offerings with price range from $300 to $900, covering both children and adult kick-scooter products. Also along with the kick-scooter product, we also pre-launched our first e-bike product, C3 recently. It's a two battery – two lightweight swappable batteries offering a long drive range of 62 miles. Now besides the product launches, we have also built our sales channel for our new micro mobility products. Through a focused effort, we have achieved a solid presence on online channels, building not only sales, but also brand image and brand awareness through our shops arms [ph] on craft markets. Meanwhile, riding the momentum from the recognition we gained from our online shops, we started to expand our off-line sales point by working with retail store like Best Buy and Media Mart. But end of Q3, our kick scooter was sold in more than 750 retail shops across Europe and North America, and we expect to grow this number to over 3,000 by next year. Now along with the expansion of growth of product portfolio and sales channel is our effort in PR and marketing. In 2022, we published over 700 articles to cover our product plus all media platforms. The PR articles that has gained more than 100 million views until our marketing to support coming Black Friday sales, we collaborate with influencers with big fan bases to create content featuring our product. Those content generate a total over 2 million views on YouTube and TikTok. I believe the expansion of our product portfolio, developing sales channels and exposures from PR marketing activities, our micro mobility category has a much larger potential in bringing exponential growth in 2023. Now for Q4, we remain a cautious outlook. In China market, the fourth quarter has always been a low quarter in terms of market demand. Now on top of the demand, the impact of the price increases will be continuous. In addition, the sporadic COVID resurgence also add additional uncertainty to our key markets. Now in the overseas market, we haven't seen a bounce back in the electric 2-wheeler sales for the sharing business and the increased price will continue to exist and have an impact on our sales on electric motorcycles. We saw a positive trend in the international kick-scooter market, but since Q4 is traditionally a low quarter, we expect a moderate growth from that category. So overall, 2022 has been a tough year for our business in operations as we face headwinds from raw material price increase and the macroeconomic uncertainties bringing negative impact to our financials. In the face of mounting challenges, however, we made quite a few crucial operational adjustment and lay out a strong foundation for a promising 2023. Now since the formation of the company Niu has the ambition to become a global mobility solution provider and a well-recognized lifestyle brand in urban mobility. Leveraged our design strength and technology innovation capability, we created a smart lithium-ion scooter category in China was able to quickly establish our brand name in the electric motorcycles globally. Now facing the recent market shift, we focused on increasing R&D effort on our premium new series and high quality Gova series as opposed to low-end entry-level product this year. The two premium products, SQi and U+, have received overwhelming positive feedback and proven to lift our brands in just three months of debut. The SQi was recognized as a revolutionary first of its kind by the media with the innovation in material technology and design. The new U+ has generated a widespread trend on social media. Also, the high-quality Gova series like B2 and G6T are also well received in the market accounted for nearly 80% of our mid-end products in the first 30 days of their debuts. Those are the proven testimonials of our brand leadership, as well as our capability in product creation. Those new products the first teaser is to offer new product series, and there are a series of premium new products and high-quality Gova products in R&D drilling out in time next year to regain the growth in the China market. Now on the global mobility solution provider front, we have made significantly progressed in 2022 through expansion of product categories and different solutions according to the different regional needs. We observed that micro mobility market continued to rebound and show great resilience since the pandemic. The urban transports like kick-scooters and e-bikes gain popularity after COVID when people prefer to commute with personal transportation method. We have established ourselves successfully recognized brand and player in the kick-scooter market within just 1 year entry, drilling our four products always positive response from market, gaining leadership in online channels first. Now as 80% to 90% of sales in this market from off-line channels, we see a huge growth potential for our kick scooter market, as our off-line channel is still in its early stage. We have planned to take a similar approach in the e-bike categories to repeat the success of the kick scooters. As we plan to officially launch the first e-bike product in Q1 next year, we are also actively marketing the e-bike product, building online shops, attracting customers and also bring up the brand awareness. Meanwhile, after the online presence, we plan to expand into the specialized e-bike stores and other offline channels, in order to bring a wider traction. Now for the electric motorcycle market, although we took a setback this year in the sharing market, I believe the replacement demand is still there as our nearly 30,000 sharing vehicles are still in operation. We expect some of them will be replaced in 2023 after 4, 5 years in operation. In addition, in the Southeast Asia market after several years of planning the seed, we're able to achieve meaningful growth this year. We are also investing in R&D and have product ready for the battery swapping solutions to lower the upfront cost for the consumers, which could be a game changer in the years to come. Now with those focused strategy and our determined mindset and execution, we're very optimistic that we will recover from the temporary downturn in 2022 and then re-strengthen our brand and regain growth and profitability in 2023. Now I will turn the call over to CFO, Fion, to discuss our financial results.

Thank you, Yan, and hello, everyone. Please note that our press release contains all the figures and comparisons you need, we have also uploaded excel format figures to our IR website for your easy reference. As I review our financial performance, we are referring to the third quarter figures unless I say [ph] otherwise, and that all mandatory figures are in RMB if not specified. Total sales volume, including China and overseas market for the third quarter was 321,000 units decreased by 19% compared to the same period of last year, as our overseas business continued to gain traction. Sales volume from the international market has been growing fast and this quarter contributing 18% of our total sales volume. And if we're looking at the 9 months, it contributed 15% of the total volume. China market sales volume was 263,000 units, representing a 33% of year-over-year decrease. While most of the sales volume decrease was contributing to the decline of our lower-end Gova entry-level series. Total sales volume of our premium series remain at the same level, 224,000 units in the third quarter versus 230,000 of the last two [ph] year. And those premium models together accounted for 85% of the total sales volume in China market compared to 59% in the same period of 2021. International markets continued to see high-speed growth, thanks to kick-scooter sales ramp up. The total sales volume reached to 58,000 units among which the kick-scooter sales volume was 55,000 units, more than doubled compared to last quarter and e-motorcycle sales volume decreased by one third to 3,000 units, mainly due to the temporary headwinds from defining to be sharing others. This year, the sharing business companies in Europe are facing challenges raising new capital, which in turn, impacts their budget for expansion. The first quarter, our total revenue was RMB 1.15 billion, decreased by 6% compared to the same period of last year and branded scooter ASP was 3,287 increased by nearly 17%. To break down the revenue by ranging, the e-scooter revenue from China market was RMB 859 million, decreased by 20%, and the ASP in China market reached to RMB 3,265, 19% higher on a year-over-year basis as product mix was more concentrated on premium autos as mentioned ahead. Overseas scooter revenue, including kick-scooters, e-motorcycles were the RMB 195 million in the third quarter increased by more than threefold year-over-year. In the third quarter, overseas scooter revenue accounted for 19% of our total scooter revenue. Branded scooter ASP of the overseas market decreased by 61% since lower price kick-scooter, which ASP is only 25% to 30% of the e-scooters are now taking greater share of the total scooter revenues. But looking at each category separately, both e-moped and kick-scooters saw a year-over-year ASP improvement of 30% to 35%. In addition, accessories, spare parts and services revenue were RMB 99 million, decreased by 7% due to the less overseas demand for extra battery packs. Gross margin of this quarter was 22.1%, 2.1 ppt higher compared the third quarter of 2021 and 1.2 ppt higher than the previous quarters. Out of the year-over-year 2.1 ppt increase, 2.5 ppt was due to better product mix in the China market, 1 ppt due to the increase in U.S. dollar exchange rate and minus 1.4 ppt due to the higher proportion of kick-scooter sales with lower gross margin. Our total operating expenses for the third quarter was RMB 263 million, 72% higher than the same period of last year. The operating expenses as the percentage of revenue was 23% compared to 13% year-over-year. Going into details of our expenses. Total selling and marketing expenses were RMB 170 million [ph] RMB 81 million higher year-over-year, including around RMB 54 million in marketing and promotions for kick-scooters and domestic new products and the rest is RMB 27 million in depreciation and amortization expenses of the new stores and stock-related costs. Despite being a global leader in e-motorcycle, we are still new to the kick-scooter market. To quickly gain product popularity, we put lots of resources and efforts into the online e-commerce platform like Amazon, Shopify and et cetera. We are glad to see those inputs have already paid off excellent online customer feedback help us enter into more off-line channels, which we believe is crucial for us to further expand our kick-scooter market share and bring us to the next level as the global leader in micro mobility, and we believe those online promotion expenses as a percentage of revenue will become lower going forward with our market share increasing. Starting from August and lasting to the end of October, we held a series of events in downtown areas in more than 20 cities in China, showing the new products, setting up top of stores, offering test rides and providing a platform for new fans to sharing their riding experiences and celebrate with each other. More importantly, we keep being committed to the user and core fans community. To summarize, we invested RMB 54 million more in marketing expenses to those overseas and domestic marketing promotions altogether in this quarter. In addition, last year, we expand our retail channels by adding nearly 15,000 new franchise stores. Those new store depreciation and amortization expenses will have a continuous 3-year financial impact on selling and marketing expenses. R&D and G&A expenses together are RMB 94 million in the third quarter, an increase of RMB 30 million compared to the same period of last year, among which staff-related expenses were RMB 17 million [ph] higher. Design and testing expenses was RMB 7 million higher, as we expand our product portfolio and global footprint, we will continue to invest in talent, professionals and other resources to support our technology and technology development and organizational upgrades for a global pioneer. The total operating expenses exclude share-based compensation were RMB 247 million, increased by 73% year-over-year, representing 21% of revenue. This quarter, we had an income tax benefit of RMB 6.6 million compared to RMB 17 million income tax expenses last year. Since we were identified as a Jiangsu provincial high-tech enterprise, we will qualify for a lower corporate [ph] income tax, and the tax refund was booked in this quarter same as in last quarter. The fourth quarter net income was RMB 2.9 million compared with RMB 92 million in the third quarter 2021 and the net income margin was 0.3% compared with 7.5% in the same period of 2021. Adjusted or non-GAAP income was RMB 20 million, net margin of 1.7%. Turning to our balance sheet and cash flow. We ended the quarter with RMB 1.48 billion in cash, restricted cash, term deposits and short-term investments. Our operating cash flow was positive RMB 73 million, mainly due to the payment term benefits from the suppliers. Inventory slightly decreased on a sequential basis and increased by RMB 170 billion on a year-over-year basis, mainly because of the international kick-scooter sales ramp-up since we need to stock up locally to ensure a fast turnover when orders came in, as mentioned in our previous calls. The CapEx for the third quarter was RMB 80 million [ph] compared to RMB 76 million in the same period last year. The decrease was mainly due to the new store openings slowed down. Now turning to the guidance. In light of the volatile domestic market and our strategy focused on the premium market, we expect the fourth quarter revenue to be in the range of RMB 789 million to RMB 986 million, no change to a decrease of 20% year-over-year. Please be aware that this outlook is based on information available as of the date and reflects the company's current and preliminary expectations, which is subject to change due to the uncertainties related to various factors such as the peso and the COVID-19 pandemic recovery among others. With that, let's now turn - open the call for any questions that you may have for us. Operator, please go ahead.

Hi. This is in Jing Chang from CICC. Thank you, Yan. Thank you, Fion your detailed explanation. I have two follow-on questions. The first is about our selling and marketing expense. We see that our selling and marketing expense in the third quarter reached a historic high. And Fion just mentioned from breakdowns what about looking ahead? So which part is expected to be sustained and which part is expected to decline? And what is the expected steady state level of our quarterly selling and marketing expense? And do we have some methods to promote - to reduce the expenses? And my second question is about our product pipeline. At present, we can see the cost of lithium battery is still very high. So as for the product strategy for next year, especially in Chinese domestic market, so what market segments should we focus more on for our new product? Is the premium market or some lower-tier city market as we want to achieve positive sales growth. This is my two questions. Thank you.

Thank you, Jing. This is Fion. I will answer the first question. Regarding to your questions about the selling and marketing, for sure, as you said, that I already gave the breakdown. And I think the depreciation and amortization expenses related to the new stores will continue at the same level for the next 2 years. Since we opened more than 14,000 new stores starting from 2021, and those depreciation and amortization expenses will last for at least 36 months. So that means that for the next 2 years, we still have those kind of expenses in the selling and marketing expenses. And in addition for the new stores we opened this year and for the following years, we will amortize those expenses in the same way. So this is the – a major part of the expenses will still remain in the selling expenses. And the other part is our marketing expenses for the daily operations, which we will reduce at the lowest level. But for the kick-scooters, as I mentioned, since we are still using the expansion strategy for the next 2 years, unless t our market share increase at a very significant level, which I mean it should be around 1 million or around 800,000 units globally. Otherwise, those are promotion expenses, especially the online traffic expenses which are huge or by the efficiency. Those online promotion expenses were still at a significant level, along with our market share increasing in the kick-scooters. For the reduction of the selling expense, since we already made the - we already made the cut of the - of the staff cost, which means we merged several teams, and we increased the staff efficiency to increase the whole company's staff cost. Those will make the benefit beginning from next year, I think, since those staff costs will only reflect on the financial statements later for at least 1 or 2 quarters, then we would see the obvious impact on the financial statements. But for sure, we already did several execution improvements to maintain the lowest level of the expenses and to improve the whole company's efficiency. And to summarize, I guess - I think for the next two to three quarters, the selling and marketing expenses altogether will remain - at the quarterly level will remain around RMB 100 million to RMB 130 million for the next two to three quarters. And after that, you will see at least a 20% decrease on quarterly basis. This is the answer for your first question. I'll pass the second question for Yan.

Sure. I think just to little bit add on the first question, right? So I think in terms of absolute value, if you look at that number, but if you look at it as a percentage of sales, so we'll definitely go down. If you look at Q3 this year, we look at the sales and marketing its almost like 14%, 15% of the revenue. I think partially as what Fion just mentioned in terms of up number, that's what you see on the numerators, right, on the denominator, the revenue growth was obviously is not as it's below our expectation. So a lot of fixed overheads, for example, we have like marketing activities or product rollout, right? It's a fixed cost divided by revenue amount. That's why you guys see a high percentage. But if you look at you know, in our - nothing in 2022, but if you look like 2021 or 2020, our sales and marketing roughly as a percent of revenue, we keep it basically somewhere between 7% to 9% fluctuate. I think that's what we're trying to - we target to get in 2023. But obviously, the absolute dollar amount is probably similar. But I think that's just on that note. I think the second part, you asked about the product investment. I think the issue is actually where we focus on premium also what we call the mass premium product basically, the premium product will be our new series, anything above RMB 5,000 for China market, the mass premium product will be something basically anything above RMB 3,500 to RMB 5,000, which what we call the high-quality Gova product. I think those will be sort of the focus, at least that will be focus for 2023, partially because when we actually did a deep diagnostics on our entry-level product, the 0 series [ph] after the lithium price increases, it's - basically, it's gross margin contribution almost become insignificant you know, nothing, it's almost zero, but if you actually take into consideration of the as a sales [ph] costs, all the stuff. Those products is not making value for the company at this point. So that's the reason that we're focusing on the - what we call the premium and our mid end. Having said that, I think if you look at the entire market, the entire market for that product is still high. Given our sales volume at this point, it's below 1 million units. You will pay entire market that for the product above RMB 3,500, we're still looking at that market is probably at least about 200 units [ph] not more. So I think the total addressable market is still so large for us to attack. So to this point, we feel like there is no point to spend additional R&D dollars product that actually makes zero very small attribute of gross profit contributions.

Okay. Get it.

So hopefully that address the question.

Thank you for your answer.

Our next question comes from the Xue Deng [ph] of CICC. Please proceed.

Hello. I'm Xue Deng from CICC, and there are three questions. The first question is I'd like to know what's your product strategy for overseas markets in 2023? And do you have sales volume growth in Malaysia? And the second question is, what's your channel strategy next year domestically? Will use this channel - will you reduce the channel stores or what will you focus more on? And the second - the third question is I'd like to know the gross margin of e-scooters in the Gova series or if you can share with us? Thank you.

Sure. So I'll start the first two, and then I'll let Fion address the gross margin question. So first, on the overseas strategy, we're looking at again, we divested the market into sort of what we call the motorcycle market and the micro mobility market. Within the motorcycle market, I think our bread-and-butter market at this point is Europe and North America market, which annually, we do about anywhere between 20,000 units to 30,000 units of electric motorcycles. As I mentioned in the earnings call this year, we took a set back because the sharing operator orders become zero. Last year, it was 10,000 units, right? So - but they will come back. It's just - it kind of sort of fluctuate, depends on - they haven't raised the capital this year, they focused on internal operation all that stuff. Now then I think this market will grow with the market continuously. The overall market for the electric motorcycle market for the Europe and the United States market is small. At this point, it's probably like 100,000 units a year. So overall, I think it's a small market, but we own like 20-something percent. So we'll actually continue to grow with the market. Now the second electric motorcycle market, which really is still in its very early stage in the Southeast Asia market. So we do see that we grow in Southeast Asia market. We probably double our sales in Southeast Asia market, even by doubling we're still looking at just 6,000 to 7,000 units. It's still a small market. I think we're trying exploring different models like battery swapping solutions in that market. The issue with that market is actually the electric motorcycle, economics electric motorcycles is still - the price is still too expensive compared with petrol. So the upfront cost for the users is actually difficult. So we're working with partners there to see on the sort of a battery swapping solutions than actually sort of lower the upfront cost for the consumers. So some of the early trials already done in Singapore, but also early trials in Thailand. So I think those are something that we're exploring. Then the next is sort of the micro mobility market, which this year, we see a huge volume growth first being the kick-scooter market, which the entire market on an annual basis is probably like 4 million units. We're still very - I think we have a strong - this year, we have been able to achieve a name. Basically, people would recognize us on Amazon, on online website saying, hey, this is a brand that can produce high-quality product in kick-scooters. But you know, even with this year's volume, like the first three quarters, you added together, we just did about 80,000 units. All of that 4 million units market were very, very small. The reason being that we haven't really sort of entered bench of the off-line stores yet. And historically, 90% of the sales are actually conducted offline. So those are some things we're working on, which we actually have made a significant progress, but it just takes time. I think usually for any of those offline chains, it actually takes 6 to 9 months to enter the store and actually be able to start to make sales. So I think that's on the kick-scooter market. And the last 1 is the e-bicycle market, which is actually - it's gaining traction - been getting tractions in the last few years. So we have a product out next year, which actually will help us to make a name in that market. I think we're going to follow a similar strategy that we took on the kick-scooter market, basically making the name on online, gather enough interest online, gather enough early user adoptions and then start going to offline. And on top of that, so any sort of - I think even with the previous questions on the operating – on sales expense, right now, the micro mobility business unit has a high sales expense. That's because a lot of stuff are done online, where you see a high sales expense in terms of purchasing the traffic, all that stuff. We - actually 90% of the sales coming - become offline, you can see a significant decline in terms of sales expense. So I think that's sort of the - the strategy for overseas market. We don't have the volume target yet. I think its too early for this call to us to give volume target. I think on the domestic channels in China, we have about 3300 stores right now so far in domestic channels. I think we're taking a very slow stage this year to expand the stores because I think with the current market shift, especially with the lithium battery price went up. I think right now, the number of stores is enough for us to sustain our growth. I think the focus is merely for to improve the per store sales or same-store sales in 2023. So we're not looking at expanding more stores, but really focused on improve the per store sales by 10% to 15% next year. I'll let Fion to take the gross margin part, sorry.

Yeah. I'll take third question regarding to the gross margin of Gova series, let me rephrase the definition of our accounting rules since the gross margin when we account for our financial statements. It's contained - it not only contains the bond cost, but also it contains all the discount, the rate base of the sales and also the logistics expenses and all the selling expenses related to the sales volume. So that means all the direct expenses and costs related to the sales unit will all accounted at the cost of the goods sold. So this is above our gross margin.\ And when we counted all the cost and expenses all together, our gross margin of the Gova series including the entry to the premium models, the gross margin range is around 15% to 22%. So that means the cheapest or the lowest level of our Gova series. The gross margin will still above 15%, which is the average level of our competitors. And this quarter, when you see the gross margin improved since our product mix improved, the entry level only contains of the 10% of our sales volume. For sure, the weighted average gross margin of the Gova series will improve to around 20%. So this is everything about the Gova series gross margin. I hope this will address your question.

Thanks a lot.

Thank you for the question. [Operator Instructions] At this time, there are no further questions from the line. May I hand the call back to the management for closing?

All right. 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 supporting to you again next quarter on our progress.

Thank you, management. Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.