EHang Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 22, 2024

There are 11 speakers on the call.

Operator

Good day, ladies and gentlemen. Thank you for standing by, and welcome to the Ehang quarter of 2024 Earnings Conference Call. As a reminder, we are recording today's call. Now, I will turn the call over to An Ji, Ehang's Senior Director of Investor Relations. Ms.

Operator

An, please proceed.

Speaker 1

Hello, everyone. Thank you all for joining us on today's conference call to discuss the company's financial results for the Q2 of 2024. The earnings release is available on the company's IR website. Please note the conference call is being recorded and an audio replay will be posted on the company's IR website. On the call today, we have Mr.

Speaker 1

Huazhi Hu, our Founder, Chairman and Chief Executive Officer Mr. Zhao Wang, Chief Operating Officer and Mr. Connor Yang, Chief Financial Officer and Director of the Board. The management team will successfully give prepared remarks. Remarks delivered in Chinese will follow by English translations.

Speaker 1

All translation is for convenience purpose only. In case of any discrepancy, the management statement in the original language will prevail. A Q and A session will follow afterwards. Before we continue, please note that today's discussion will contain forward looking statements made pursuant to the Safe Harbor provisions of the U. S.

Speaker 1

Private Securities Litigation Reform Act of 1995. Forward looking statements involve the inherent risks and uncertainties. As such, the company's actual results may be materially different from the expectations expressed today. Further information regarding these and other risks and uncertainties is included in the company's public filings with the SEC. The company does not assume any obligation to update any forward looking statements, except as required under applicable law.

Speaker 1

Also, please note that all the numbers presented

Operator

are in

Speaker 1

RMB and are for the Q2 of 2024, unless stated otherwise. With that, let me now turn the call over to our CEO, Mr. Huazhu Hu. Please go ahead, Mr. Hu.

Speaker 1

This is the English translation of Mr. Hu's remarks. Hello, everyone. Thank you for joining Yihang's earnings call. Since the Q2 of this year, as a leading company in the e vapor industry, Ehang has achieved remarkable results in multiple aspects, including financial performance, orders and deliveries, production ramp up, industry standards and certifications, operation sites deployment and R and D of next generation technologies and products.

Speaker 1

This is enabling us to continue leading the global urban air mobility industry. This April, we successfully obtained a production certificate, which is the PC for our EHANG 216S. We are proud to be the world's only Ibero designer, developer and manufacturer to possess 3 certifications for the pilotless passenger carrying Ibero aircraft. With these 3 certifications in hand, we have also benefited from China's favorable policies that bring strong support for the development of the low altitude economy as a national strategic emerging industry. Driven by the widespread development plans across the country and our strong market demand for innovative low altitude aircraft.

Speaker 1

Our Ibero product, as representatives of the new quality productive forces promoted by the nation, have garnered a large number of customers and bulk orders. Our delivery volume and revenues both reached record highs in Q2. We delivered 49 units of EHAN216S, a ninefold increase year over year. Quarterly revenues surged to RMB102 1,000,000, also a 9 fold increase year over year and a 65% increase quarter over quarter. Moreover, we achieved quarterly adjusted net income earlier than we expected, which marks a very promising start.

Speaker 1

The company's Q2 gross margin was as high as 62.4 percent with both year over year and a quarter over quarter increase. Since Q4 last year, we have received over 1100 units in bulk preorders in the Chinese market. This number is continuing to grow. After securing the PC, our infill production facility has started a production ramp up of the certified EHAN216S. We will continue to improve production efficiency, strictly in accordance with aircraft production procedures and quality management systems and steadily increase our production and deliveries according to the customers' order requests.

Speaker 1

To meet the continuous delivery of long term bulk orders, we are also planning for the future production capacity expansion. Based on the 4 party strategic cooperation agreement we signed in Q1 this year with the Management Committee of the Guangzhou Airport Economic Zone, the Administrative Committee of Guangzhou Economic and Technological Development District and GAC, which is Guangzhou Automobile Group. We further signed an MoU with GAC in June with the intent to establish a joint venture. This joint venture will leverage GAC's expertise and advantages in intelligent manufacturing and automated production lines for electric vehicles to produce tireless passenger carrying aircraft in Guangzhou. We look forward to this cooperation to further enhance our future production capacity, which will allow us to respond to the market demand more quickly and lift the efficiency and scale of our product deliveries.

Speaker 1

Delivery is merely the starting point whether for EHang or our customers. Equally important are the provision of exceptional after sales support, personnel training, site planning, operational standards and system development. Our current customer service and business focus are both sales and operations, while maintaining a steady stream of our product deliveries and ensuring safe operations. As the global pioneer of our pilotless ebito provider, we are taking the responsibility to explore commercial operations through collaborating closely with the regulatory authorities, customers and partners to co create a sustainable ecosystem that fostered the industry's growth and development. With that, we are focusing on 3 key areas in which we have achieved significant progress.

Speaker 1

The first one is talent cultivation. We have developed a customized vehicle aircraft personnel training program and assessment system designed to equip our customers with qualified operational team, ensuring safe operations. Secondly, infrastructure development. We not only actively participated in the formulation of China's first group standards for technical requirements of e beta vertebrates, but also collaborated with local governments and customers to establish Yihan to Seixin as Verde ports and the low altitude urban and mobility operation center demonstration projects in Guangzhou, Hefei, Shenzhen, Zhuhai, Taiyuan, Wenchang and among other locations. Thirdly, operational standards and certification.

Speaker 1

In July, the CAAC accepted the Air Operator Certificate or OC applications submitted by the Yihang General Aviation and Hefeihe Aviation. As the world's first OC project for the pilotless passenger carrying vehicle aircraft, it is paving the way for the establishment of the world's first commercial operation standard for the pilotless passenger carrying vehicles. As an innovative technology company, we will not slow down our pace in R and D for new products and technologies, while pushing forward with sales and operations. Building on the VT30 prototype, we have conducted a comprehensive redesign and technological upgrade of our lift and cruise evildo model, aiming to achieve more exceptional flight performance. We will be releasing this soon, so please stay tuned for the exciting news.

Speaker 1

We are also continuously optimizing the performance of our Eihan 260s in the critical areas of battery technology. We are developing next generation EVO battery solutions that meet the 4H standards, which means high energy density, high cycle life, high instantaneous charge discharge rate and high safety. For example, in April, we partnered with Guiterbei Technology, a battery provider incubated by Guangzhou Automobile Group for the research and development of the world's 1st ultrafast charging battery solutions for iberos. This is expected to significantly improve the ibero operational efficiency and meet the demands of large scale high frequency UAM operations. Furthermore, we are also testing the solid state lithium battery cells developed in collaboration with INX.

Speaker 1

Meanwhile, we are also continuously researching and developing new technologies and solutions for core components such as electric motors, propellers and materials, iterating and upgrading them to achieve sustained improvements. We have also cooperated with more high quality suppliers such as Zhuhai En Power Electric Company, a leading EV powertrains provider into our system. This not only enhances the flight performance of our aircraft, but also helps to strengthen the stability of our supply chain and to support our industrial layout. Also, our newly upgraded R and D laboratories are nearing completion at our new headquarters, designed to support the development and the testing of new technologies and components, such as batteries and electric motors. I'm also delighted to share with you that our new headquarters and supporting facilities located on the banks of the Pearl River in Guangzhou, Huangpu District are currently under construction.

Speaker 1

This complex will feature a state of art exhibition center and a brand new Kim Island and Control Center and a futuristic office space. Furthermore, we will integrate with the surrounding communities and commercial complexes to launch area sightseeing and transportation routes with our EBITDOs, connecting ground, air and water transportation and creating a new urban landmark, EHang Future City, as well as a UEM demonstration area for low altitude economy in the Greater Bay Area. As we celebrate EHang's 10th anniversary, we reflect on our journey from humble beginnings to becoming a global trailblazer and a leader in the UAM industry. Throughout, we have remained steadfast in our commitment to exploring pilotless passenger carrying aircraft and its applications, driving innovations in technologies, concepts and standards. From pioneering the world's 1st pilotless passenger carrying Vero prototype to achieving the safe and reliable flights of a pilotless vehicles.

Speaker 1

From the absence of industry standards to establishing and shipping them and subsequently obtaining the world's first type certificate, production certificate and standard airworthiness certificate. We have consistently pushed the boundaries from 0 to 1 through innovations and perseverance, contributing to shaping this urban air mobility industry. Today, our years of hard work and dedication have led to strong and stable financial performance and the long term growth trajectory. With our passion and the respect for the aviation industry, we will continue to drive over into the next exciting phase of commercial operations, creating greater value for our stakeholders, supporters and shareholders. Next, let me turn the call over to our CEO, Mr.

Speaker 1

Wang to elaborate on our Q2 operational performance. Thank you.

Speaker 2

Thank you, Mr. Hu and hello everyone. Since securing the production certificate in April, we have been authorized for mass production of our EH216S and secure standard airworthiness certificate for each aircraft that we have delivered. Our sales and delivers continue to grow. In the Q2, we delivered 49 units of EH2X-16s generating revenue of RMB102 1,000,000 representing a year over year increase of over 9 times and a quarter over quarter increase of 65%.

Speaker 2

Let me highlight some key examples of customers and partnerships. In June, we partnered with Wenchang Zhejiang Province and received a purchase order with an additional purchase plan for up to 300 units of EH260S. We have already delivered a 1st batch of 27 units in the Q2 and conducted the debut flight at a local city area in Manchung. The customer also made a prepayment for the remaining aircraft and subsequent orders will be placed as the customer expands its operations. Wencheng has become our 1st authorized distributor in East China to obtain provincial level distribution clarifications and will establish a comprehensive sales network for our aircraft across Zhejiang province.

Speaker 2

We also delivered the 1st batch of 10 units of EH-260S to Sichuan Tourism for low altitude terrorism services in Taiwan. In July, EH-260S completed his debut passenger carrying flights in Taiwan, making a milestone for development of the low altitude economy in Shanxi province. This delivery is part of a 50 unit order from Xichuan Tourism that has been fully paid with the customer plans to purchase an additional 4.50 units over the next 2 years. These units will be deployed in landmark scenic areas in Taiwan and create a series of low attitude tourism demonstration products, further advancing the construction of the low ethical economy demonstration area in Shanxi province. Furthermore, in the Q2, Yihan also delivered EH260S to our customers in Guangdong, Hainan, Jilin, Liaoning and Japan.

Speaker 2

In July, we signed the sales and operation cooperation agreement with KC Smart Mobility, our subsidiary of Hong Kong's largest non franchised bus operator, Huizhong Bus Holding Limited. KC Smart Mobility plans to purchase 30 units of EH-260s for development and operations in Hong Kong, Macau and Hubei Province, further boosting market development in Great Bay Area and Mainland China. Our company has received over 1,000 units pre orders for the EH216 series EBITDOs in China market. With the production capacity expansion, we expect to maintain a growing delivery trend in the Q3. We anticipate the revenues of the 3rd quarter will reach RMB 123,000,000 as we continue to receive more new orders.

Speaker 2

The increasing orders also mean a higher demand for production capacity, While ensuring that every aircraft meets delivery standards, we are also actively working with large intelligent manufacturing enterprises such as GAC to establish a joint venture focused on production upgrading to automated production lines. At the same time, we are expanding our Yunfu factory to scale up our production and establishing a new manufacturing base at Yihang East China Regional Headquarters in Hefei City, which will meet the growing delivery demands in the East China region. We are fully committed to ensuring production and delivery, while advancing commercial operation preparations, providing customers with operation training and creating application demonstration projects. In terms of operation personnel training, we provide our customers with sufficient training courses after the delivery, including theoretical learning aircraft safety operation, daily maintenance and emergency management and so on. To ensure that personnel are certified and on duty to ensure operations safety.

Speaker 2

This comprehensive training program ensures that our customers are capable of operating our eVeto aircraft in a proficient and compliant manner and providing safe flight services to the public. At the same time, we also plan to cooperate with domestic aviation colleges and professional institutions to carry out personnel training and jointly establish systems for academy education, license management and so on. For the industry's future large scale, standardized and professional operations, our joint training program with the Civil Aviation University of China is now in a state of curriculum design. On the operational infrastructure front, Yihan collaborates closely by providing technical requirements and design solutions, while the infrastructure construction is managed by local governments and our customers. Operation size in key locations have been launched including Shenzhen OH Bay, Hefei Luogan Central Park, Guangzhou, Jialong Lake, Zhuhai, Tangxia Port and Wenchang Kehinding Lake.

Speaker 2

Each of these sites is equipped with facilities, including dedicated verticals for EH-two sixteen S hangars and the passenger service areas. In addition, many local governments are planning to build operation networks for future air mobility. For example, Shenzhen targets to set up a 1000 of low altitude takeoff and landing platforms and Guangzhou plans to invest RMB10 1,000,000,000 into low attitude infrastructure. This will include over 100 regular use verticals and hundreds of community lending pads. Our 260S is ideally suited for future urban air transportation.

Speaker 2

It's compact, lightweight, can fly autonomously, easy to manage fleets and cost effective. In May, we were actively involved in shaping China's 1st group standard for Evato Vertiport. This will set the stage for future industry standards. Notably, all verticals built in accordance with the standard will be able to accommodate EH-260S. In terms of operation standards and certification, as Mr.

Speaker 2

Hu mentioned, in July, the CAAC accepted the Air Operator Certificate or OC applications by 2 operators. 1 is EHang General Aviation, our subsidiary for UAM Operations. The other is He Yi Aviation, our operation joint venture in Hefei. The CAAC has finished reviewing of He Yi Aviation's application documents and is about to conduct on-site inspection soon. The first OC for pilotless passenger carrying EBITDA is expected to receive within this year, allowing the operator to launch commercial operations with EH216S.

Speaker 2

Afterwards, we will have more customers and partners in applying LC with our accumulated experience and establish 50 standard. This will also help expanding our operation network. In July, we also formed a strategy partnership with China Southern General Aviation, a leading general aviation service provider under the China Southern Airlines Group. Together, we are planning to introduce a range of services, including Evato tourism, cross island flights and cargo transportation at Zhuhan Airport, Qianlong Ocean Kingdom and surrounding islands. Moreover, we are thrilled to see several local governments, including those in Shenzhen, Guangzhou, Hefei and Zhuhai are offering direct subsidies for Iveto commercial routes.

Speaker 2

These subsidies range from RMB100 to RMB300 per passenger per flight, providing robust support for Iveto service operators. In the international markets, we continue to expand into the Middle East market in the Q2. In April, we reached our strategy cooperation with the Abdupi Investment Office and the multilevel group. They will support our development in the UAE and the Middle East region. In May June, our EH216S completed the build flies in UAE and Saudi Arabia.

Speaker 2

Since then, our Evatal footprint has expanded to 16 countries worldwide. In the Q3, we will continue to expand our business in overseas markets such as Africa, the Middle East, Central America and Europe. Looking ahead, we will focus on executing our business strategy on sales and operations and delivering results consistently. Our goal is to play a key role in commercializing China's low attitude economy and the global UEM industry, with safety as our top priority. Next, I will turn the call over to our CFO, Conor Yang, on financial performance.

Speaker 2

Thanks.

Speaker 3

Thank you, Mr. Wang. Hello, everyone. This is Connor. Before I dive into details, please note that all numbers presented are in RMB and are for the Q2 of 2024.

Speaker 3

Unless stated otherwise, detailed analysis are available in our earnings press release on our IR website. I will now highlight some key points. I am pleased to report that our continued diligent execution has led to another quarter of exceptional financial results in Q2 2024. We exceeded our revenue guidance by over 13%, achieved adjusted net income and have generated positive operating cash flow for 3 consecutive quarters. Notably, our OC applications has been formally accepted by CAAC, marking a significant step closer to commercial operations and accelerated growth.

Speaker 3

Now let's dive into details of our 2nd quarter results. Total revenue in 2nd quarter were $102,000,000 representing a significant increase of 919.6% year over year and a 65.3% increase from prior quarter. The increase was primarily driven by higher sales volume of EH216 series products. We delivered 49 units of EH216 series products in 2nd quarter, a significant growth from 5 units a year earlier and 26 units in Q1 2024. Gross margin remains consistently high at 62.4 percent in 2nd quarter, up 2.2 percentage points from 60.2% in Q2 2023 and a 0.5 percentage point increase from 61.9 percent in Q1 of 2024.

Speaker 3

The increase were mainly due to changes in revenue mix. Our high gross margin continued to underscore our competitive edge in the EBITDA sector. In 2nd quarter, our adjusted operating expenses, which are operating expenses excluding share based compensation expenses, were $70,600,000 up 21.6 percent from $58,000,000 in Q2 2023 and up 29.6% from 54.5 $1,000,000 in the prior quarter. The increase was mainly due to higher sales related conversations, expansion of sales channel and increased expenditures on different models of EBITDA aircrafts. 2nd quarter adjusted operating loss was $4,700,000 a notable 90.9% improvement from $51,300,000 in Q2 of 2023 and a 62.9 percent improvement from $12,600,000 in Q1 2024.

Speaker 3

This quarter, we are proud to have achieved adjusted net income earlier than anticipated. Adjusted net income in 2nd quarter was $1,200,000 compared to adjusted net loss of $51,800,000 in 2nd quarter 2023 and adjusted net loss of $10,100,000 in Q1 2024. Thanks to our prudent cash management and improved credit controls, we have achieved positive cash flow from operations for the 3rd consecutive quarter, adding strength to our balance sheet. At the end of Q2, our cash, cash equivalents, short term deposit, the restricted short term deposit and short term investment balances were $988,200,000 Additionally, we have raised more than $76,000,000 from the at the market offering as of today. With the strengthened liquidity position and our confidence in future growing operating cash flow, we will not continue selling ADS under the aftermarket offering in 2024.

Speaker 3

The proceeds already raised will fill the next phase of our development and growth strategy, aforementioned by Mr. Hu, including R and D for next generation Evito Technologies and products, team and product expansions, new headquarters in Guangzhou, upcoming commercial operations and other business purposes. With the EH216 S having secured 3 certificates and our OC applications accepted by CAC, we are well positioned to commence commercial operations, setting the stage for new phase of growth. We expect total revenue for the Q3 of 2024 to be around $123,000,000 representing an increase of 329.8 percent year over year and 20.6% quarter over quarter. Having achieved positive operating cash flow for the 3rd consecutive quarter and adjusted net income in the 2nd quarter, we are confident that this upward trend will continue and ultimately led to full year positive cash flow in 2024 and foreseeable adjusted net income in 2025.

Speaker 3

That concludes our prepared remarks. Let's now open the call for questions. Operator, please go ahead.

Operator

Thank you. And now we're going to take the first question. And it comes from the line of Laura Lee from Deutsche Bank. Your line is open. Please ask your question.

Speaker 4

Hey, thank you for taking my question and congratulations on the strong quarter. So my first question is, thinking about the timeline of commercial operation to overseas markets, when would you expect to start that? Is that like 2025 realistic?

Speaker 5

Here's the English translation. We've been actively extending our presence in the international market, But studying commercial operations in overseas countries depends on getting the local regulatory approvals and the certification. Right now, Ehang is working with CAC in advancing bilateral awareness agreement for the validation of tax certificates or BTC of the Yihang 216F with other countries' aviation authorities such as UAE, Brazil, Indonesia and Thailand, etcetera. The timeline depends on the local regulators' schedule and the progress. And throughout the process, EHA will actively cooperate and provide the required documents to push forward the process.

Speaker 5

And besides, we have already made a few deliveries in overseas markets like the Middle East and Indonesia and conducted a demo flight there. And this helped us not only to expand in the market to educate the public, but also to enhance the communication with local authorities for their recognition of our aircraft and our aircraft safety features, paving the way for the VTC certification. Thank you.

Speaker 4

Okay. Thank you so much. Appreciate the color. And my second question is, I think we get really impressive gross margin of over 60%. I'm just trying to understand what percentage of our supply chain actually would we share or overlap with the EV or the drone business?

Speaker 3

Okay. Most of our procurement are from China domestic with some electric components or chips imported from overseas. And battery design is different than the EV cars. So we design our own battery as well as we design our own electric motors and we outsource to suppliers in China. And so in general, there are certain portion overlapping with the EV cars, but mostly Fusilist of the aircraft.

Speaker 3

So for most part, we produce and reassembly in our own factories in Yunfu factory so far. Thank you.

Speaker 4

Okay. Yes, thank you for the color. Yes, congratulations again for the direct deliveries. Thank you.

Speaker 3

Thank you.

Operator

Thank you. Now we're going to take our next question. And the next question comes from the line of Ting Song from Goldman Sachs. Your line is open. Please ask the question.

Speaker 6

Hi. Thank you for taking my question. So I will ask it together. My first question is about the progress of EHang obtaining the TC of VT30. As we see that the VT30 and EH216 are in different size and features.

Speaker 6

So what are the key challenges of VJ30 where you developed compared to the EH216? And my second question is on the R and D spending. So what's your expectation of R and D spending in next 3 years? And what would your key focus on the R and D investment? Will you spend more on the new model or the enhancement of the existing model?

Speaker 6

Thank you.

Speaker 3

Thank you.

Speaker 5

This is the English translation. Leveraging the BD30 prototype, our R and D team is currently redesigning and upgrading our leased and cruise digital model. We're enhancing the back performance, and we will keep you updated on this. And we will also submit the TC application for our leased and cruise model once it's released. And since the Yihan 216F now has 3 required certificates, so our main focus is on its sales and operations.

Speaker 5

And the EHANCE 1 6S is perfect for the air transportation within the cities because it is compact and it does not need large take over landing areas. While the VT30 series lease and cruise model is meant to complement our current product portfolio and use cases, and it is designed specifically for intercity air transportation. It's another replacement for the EHAN216s that is still suitable for the air taxi uses within the urban areas. Thank you.

Speaker 3

Okay. This is Conor. I'll answer the second question regarding R and D. On the Q2, R and D expenses, it's about adjusted total OpEx of $46,000,000 So going forward, we're expecting that the R and D expenses will be around 45% to 50% of our total OpEx, and we are committed to our R and D development. And for example, if you compare the number of Q1 R and D expenses, actually we have increased about 42% R and D expenses for Q1.

Speaker 3

And our future R and D efforts will focus on optimizing the BH216 performance improvement and developing the long haul EBITDA and other aircrafts for both passenger carry as well as facilities. And that will include expenses on the R and D materials and our R and D team expansion, test flight and air wellness certification expenses. As I said that, we believe our gross rate of revenue will be year over year will be a lot higher than overall OpEx. So even though we continue to increase our R and D expenses, the R and D expenses as a percentage of the revenue will continue to drop in the coming years. Thank you.

Operator

Thank you. Now we're going to take our next question. And the next question comes from the line of Cindy Hwan from Morgan Stanley. Your line is open. Please ask the question.

Speaker 7

Thanks for taking my question and congratulations on remarkable 2Q results. My first question is regarding your order backlog. I think I see Ehan has met significant progress in securing new orders. Could you give us a quick update on how many purchase orders we have on hand and when they will be delivered? And also, could we have a rough idea on geographic mix in terms of the order backlog?

Speaker 7

So that's my first question.

Speaker 5

Currently, our orders and the prebuilt has over 1100 units in China market. We plan to deliver this by back purchase over the next 1 to 3 years for our customers' request and their business development and the pace of their placing orders. We are getting more and more new customers and orders, so we expect the deliveries to keep growing. In the next phase, our focus will be on expanding production facilities, accelerating the deliveries of our existing order pipeline and the new orders. And for this year, we will also help our customers to apply OC, setting up demonstration projects in pioneer cities to exemplify Ibero operations.

Speaker 5

And in the future, we aim to replicate these operational sites and share our experience in more locations in the country.

Speaker 3

To add on your question on the distribution on the geographic mix, The orders, if you recall that Q4 last year and as well as the Q1 this year, our orders over revenue contribute around 20% to 25% of our total revenue. But since the PLC government is promoting no other doing, we're seeing a very rapid growth of our public client. So we're expecting that in terms of geographic mix that will be 90% from China for this year mix and the percentage of the overseas revenue will decrease from last year, even though the international demand is still quite strong. Thank you.

Speaker 7

Thank you. That's very comprehensive. And my second question is regarding gross margin. So how should we think about the gross margin over time, especially after we kick off commercial operations?

Speaker 3

Right. Gross margin, right now, we are the only company that can provide product for commercialization. Therefore, we have the pricing power. Even though as we scale up, we will have a like a leverage in terms of our procurement. But on the other side, we'll continue to improve certain features of our 216.

Speaker 3

So net net after we get the TC, we'll still maintain a percent plus gross margin, that's the current rate in Q3. In terms of the overall net margin, we have achieved adjusted net income on our Q2. And as we have seen that very, very strong revenue growth. So we are expecting with the revenue growth rapidly, the net income margin will continue to improve in many years to come. Thank you.

Operator

Thank you. Thank you. Now we're going to take our next question. And the question comes from the line of Cindy Huang from my apologies, for Yu Chen from Haitong Securities. Your line is open.

Operator

Please ask your question.

Speaker 8

Okay. Congratulations for the company's great business progress and thank you for taking my questions. I have two questions. The first one is, could the management provide some insight into the company's plans for ES-two 16 operations, including the planned flight commercial routes and pricing strategies for each flight on starting commercial operations? My second question is, we noticed that the company is actively promoting the establishment of UAM operation sites and personnel training across various places.

Speaker 8

What is your current operation cooperation model with local governments or customers.

Speaker 5

For your first question, besides the Han General Aviation and Hefei Hei Aviation, Hanner, Xin Guangzhou, Shenzhen, Taoyuan and Luxi among other cities are also actively preparing their OC application. Once the local operators have obtained the TC, they will first start operations at our new headquarters in Guangzhou and Hezei Luogan Central Park and more sites in Shenzhen, we see Taiyuan, Wanqiao. And starting from the area sightseeing use cases. And throughout the process, we will accumulate operational experience and continuously refining our operational menu, which will serve as a reference for new operators to mitigate their operational risks and uncertainties. And for the question on the pricing, Everest I'm seeing is constantly our targeted use cases.

Speaker 5

Compared to the helicopters, our price can be half of them or even lower. It's very competitive because the EH216S acquisition cost and maintenance cost is much lower than the helicopter, and we don't have pilot cost. Moreover, the local government are offering subsidies for Ibero ground operation. For example, in Shenzhen and Hefei, they plan to offer subsidies for Ibero operators for air sightseeing and air transportation within and between cities. And the subsidized range from RMB 100 to RMB 300 per person each flight.

Speaker 5

Thank you. And for your second question, the Ehan General Aviation is our wholly owned subsidiary and serve as our operations platform company to provide operational services to our customers, setting up demo projects and models. We have established a joint venture with the local government for partners through the EHang General Aviation to provide a vital operation services such as He Yi Aviation in Hefei and Peng Chongqing established with our customer boarding group in Shenzhen. So our cooperation model works like this. Ehan provides necessary support including the after sales services, operational guidance, technical specs and personnel training, while the government and customers, they are responsible for planning and building the infrastructure.

Speaker 5

The joint venture form and operational team and the system to obtain the OC for commercial operations. By working together, we can ensure the safe operations and create a commercial model that can be scaled up and replicated and sustained. Thank you.

Speaker 8

Thank you for your answers.

Operator

Thank you. Now we're going to take our next question. And the next question comes from the line of Gareth Securities.

Speaker 9

Okay. So congratulations on company's outstanding performance this quarter. I have two questions. The first one is that so do you expect to maintain the quarterly growth trend? Looking forward, how do you view the company's revenue growth trajectory?

Speaker 3

Thank you for your question. This is Conor. We have preorders over 1,000 units in China, and our production has been ramping up We expect to maintain the revenue growth in the 3rd quarter. So our guidance for the 3rd quarter is RMB 123 million, more than 300% increase year over year and more than 20% growth quarter over quarter. We are confident that our revenue will achieve triple digit growth year over year in the coming quarters.

Speaker 3

And we estimate for the all real sightseeing market in China, there are over 10,000,000 in demand of 216. And what is applied to transportation purpose in various cities in China, that demand will be even larger and together with the international demand. So we believe that we should achieve a very high growth rate for the next 3 to 5 years. Thank you.

Speaker 9

Okay. Thank you. That's very clear. So my second question lies in the overseas market. So we have noticed that you have spending Middle East market recently.

Speaker 9

So what's your competition like advantage in the market like Middle East? Do these countries tend to favor Evito models that can fly longer distance?

Speaker 5

Yes, here's the translation of the answers to your question. Ehang is the 1st Ibeo company to conduct test flights in the Middle East, which our first pilotless Ibeo flight in Dubai was back in 2016 sorry, 2017. In terms of the airworthiness certification, we also have an advantage over our peers. The UAE's General Civil Aviation Authority, or GCAA is moving forward a framework agreement with CAC for mutual recognition of airworthiness certification. We will be conducting some test flights for the GCAA within this year.

Speaker 5

And in May, we conducted the 1st passenger carried flight in Abu Dhabi, making the first of its kind in the UAE with GCAA's approval. It's a very significant milestone that lays the foundation for our future VTC. And AbbVie are planning UEM infrastructure now, including the verticals and the Ibero terminals. We are very confident with the support of our local customers and partners in the UAE and Saudi Arabia. We can be the 1st to commercialize Ibero operations in the region.

Speaker 5

And we believe that the flight range is not the key issue for Iberos. What really matters is to meet the needs of our passengers and the feeder specific use cases. We've been seeing growing interest and demand for our E-160s in the Middle East market, particularly for the urban air transportation. And we will be introduced a new type of aircraft to serve for more diversified needs. Thank you.

Operator

Excuse me, Garos, any further questions? Thank you. Now we're going to take our next question. And the question comes from the line of Rongai Zhuo from Citic Securities. Your line is open.

Operator

Please ask your question.

Speaker 10

Okay. Thank you. So first, congratulations on the company's strong performance and business progress this quarter. Here, I have 2 questions. So for the first, so I mean with the cap state expansion plans underway in Guangzhou, Hefei and other locations, so could management provide more insight into its capital expenditure plans?

Speaker 10

And what can we expect in terms of the capital expenditure over the next 2 years? So that's my first question. Thank you.

Speaker 3

Yes. Thank you. In our current Yunfu facilities, we plan to do more automation. As you know, we have signed a strategic agreement partnership with GAC, and they have lots of experience in automation and supply chain management. So in Guangdong province, we will improve the automation in Yunfu factory, the current one, as well as we plan to build new facilities in Guangzhou together with GAC.

Speaker 3

And on the other side, that Hebei will build assembly plant. That's our plan. So overall, in the next year, we should add some additional 1,000 annual production for next year. In terms of CapEx, we're building our net we're innovating our new headquarters. We're building lots of facilities.

Speaker 3

We're building our R and D labs. We're also building a test supply centers and together with all these factory expansion. So we are expecting now expect the CapEx for 2024 will be about USD 15,000,000 and CapEx for 2025 will be around US20 million dollars Thank you.

Speaker 10

Okay. Thank you for your answers. And my second question is, could management provide more information on recent ATM financing? And as company's financial plans for the future?

Speaker 3

Okay. Thank you. Since April, we have raised US76.2 million dollars to our ATM program without disturbing the market. Our average price actually for all this US76 million dollars average price is $16.5 per share. And right now, with the rapid revenue growth and consistent positive cash flow from operations, We decided not to continue selling ADS under the ATM program for this year.

Speaker 3

And we're always looking for the best financing strategy and also to optimize our capital structure to help the company to build the strategy and also to drive our business growth. Okay. Thank you.

Speaker 10

Okay. Thank you, Matt, for your answer and congratulations again for the company. So thank you.

Speaker 3

Thank you. Operator, please.

Operator

Thank you all. Given the time is limited, let me turn the call back to Ms. Anne for closing remarks.

Speaker 5

Thank you, operator. Thank you all for participating in today's call. If you have further questions, please contact our IR team by e mail or participating in the following investor events through the kind of information provided on our IR website. We appreciate your interest and look forward to our next earnings call. Thank you.

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Key Takeaways

  • In Q2 2024, EHang delivered 49 units of the EH216S—a ninefold year-over-year increase—driving revenue to RMB 102.1 million (9x YoY, +65% QoQ) and achieving adjusted net income with a 62.4% gross margin.
  • In April, the company secured a production certificate for its EH216S, becoming the only eVTOL designer with three major certifications, and has partnered with GAC to form a joint venture for automated, high-volume manufacturing ramp-up.
  • EHang has amassed over 1,100 bulk preorders in China and key contracts (e.g., 300 units in Wenchang, 50 units in Sichuan), forecasting Q3 revenue of RMB 123 million (+329.8% YoY, +20.6% QoQ) as production scales.
  • The CAAC has accepted Air Operator Certificate applications for EHang General Aviation and Hefei Heyi Aviation, establishing the foundation for the world’s first pilotless, passenger-carrying eVTOL commercial operations with supporting infrastructure and training standards.
  • R&D spending remains a priority—around 45–50% of operating expenses—focusing on next-generation models like the VT30, ultrafast charging and solid-state batteries, and upgrading the EH260S, alongside new HQ labs and testing facilities.
A.I. generated. May contain errors.
Earnings Conference Call
EHang Q2 2024
00:00 / 00:00