EHang Holdings Ltd (EH) 2023 Q4 法說會逐字稿

Good day, ladies and gentlemen.

Thank you for standing by, and welcome to the EHang fourth quarter and fiscal year of 2023 Earnings Conference Call.

As a reminder, we are recording today's call.

Now I will turn the conference over to on Anne Ji, EHang's Senior Director of Investor Relations.

Ms. Anne, please proceed.

Hello, everyone.

Thank you for joining us on today's conference call to discuss the Company's financial results for the fourth quarter and fiscal year of 2023.

The earnings release is available on the Company's IR website.

Please note the conference call is being recorded and the audio replay will be posted on the Company's IR website.

On the call today, we have Mr. Huazhi Hu, our Founder, Chairman and Chief Executive Officer; and Mr. Conor Yang, Chief Financial Officer and Director of the Board.

The management team will successively give prepared remarks.

Remarks delivered in Chinese will be followed by English translations.

All translation is for convenience purpose only.

In case of any discrepancy, management's statement in the original language will prevail.

A Q&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 US Private Securities Litigation Reform Act of 1995.

Forward-looking statements involve inherent risks and uncertainties.

As such, the Company's actual results may be materially different from the 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.

Also, please note that all numbers presented are in RMB and are for the fourth quarter and fiscal year of 2023, unless stated otherwise.

With that, let me now turn the call over to our CEO, Mr. Huazhi Hu.

Please go ahead, Mr. Hu.

(Spoken in foreign language)

This is the English translation of Mr. Hu's remarks.

(interpreted) Hello, everyone.

Thank you for joining us on this conference call.

In the fourth quarter of 2023, we have achieved remarkable results across various aspects.

In October last year, our EH216-S pilotless passenger-carrying aircraft system, an innovative product independently developed by EHang, obtained the Type Certificate (TC) from the CAAC.

This milestone marks the world's first TC for a passenger-carrying eVTOL aircraft, signifying our qualification for commercial applications of pilotless passenger-carrying eVTOL aircraft.

In December last year, our first certified EH216 rolled off our production line and obtained the world's first eVTOL standard airworthiness certificate, which is AC.

As a result, we commenced the delivery of the certified EH216-S aircraft.

Following the TC and AC, we are delighted to see a substantial surge in market demands for our EH216-S pilotless passenger-carrying eVTOL, resulting in significant sales volume growth in the fourth quarter, with a total of 23 units of EH216 series products delivered.

Notably, this represents the highest number of deliveries in a single quarter in the past three years.

The revenue of the fourth quarter surpassed RMB56 million, marking a year-over-year growth rate of over 3 times and nearly doubling quarter over quarter.

Moreover, we generated positive operating cash flow in the fourth quarter as demands for our products is strong and the Company's operations continue to steadily improve.

Our strong growth was attributed to the proactive policies and support from local Chinese municipal governments that are actively fostering the high-quality development of the low-altitude economy.

Since the Central Economic Work Conference chaired by President Xi in December last year, when the low-altitude economy was elevated to a strategic emerging industry, nearly 20 provinces in China have incorporated the low-altitude economy into their 2024 government work reports.

Furthermore, during the "Two Sessions" recently held in China, the central government's work report included the low-altitude economy for the first time.

This recognition underscores the expectation that the low-altitude economy will serve as a new growth engine for China, a globally competitive emerging industry, and a vital sector for nurturing and advancing new high-quality productive forces.

According to research institutions' estimate, the market size of China's low-altitude economy surpassed RMB500 billion in 2023 and is expected to reach RMB2 trillion by 2030.

This represents a substantial emerging market, and pilotless passenger-carrying aerial vehicles like the EH216-S are poised to play a leading role in propelling the industry forward.

Capitalizing our first-mover advantage in obtaining airworthiness certification and benefiting from favorable policies, we have witnessed a surge in market demands and enthusiasm for our EH216 series products.

In the fourth quarter, we received hundreds of pre-orders from domestic and overseas customers in China's Guangzhou, Hefei, Wuhan, and the UAE and other regions.

Furthermore, we have recently formed a partnership with the government of Wuxi City in Jiangsu Province, resulting in pre-orders for at least 100 units of EH216-S.

Through these collaborations, we are actively planning to create low-altitude economy demonstration applications in the area.

The strong market demands from our customers give us great confidence in our future growth prospects.

We have also announced the pricing of the EH216-S pilotless passenger-carrying aircraft system in both the domestic Chinese market and overseas markets.

The pricing has been set at RMB2.39 million for the Chinese market and US$410,000 for international markets.

We believe these prices are highly competitive when compared to other eVTOL products worldwide.

Moreover, this pricing strategy aligns with market demands and contributes to the development of the low-altitude economy.

In preparation for the next stage of mass production, our efforts to obtain the Production Certificate, which is PC, is almost completed.

Currently, the CAAC review team has conducted all the on-site inspections and all the required quality system documents have been submitted to the CAAC for the final process.

The PC is expected to be obtained in the near future, offering a robust assurance and support for the production quality of newly-produced EH216-S under the supervision system of the CAAC.

During the fourth quarter, we developed several low-altitude economy demonstration sites in Shenzhen, Guangzhou and Hefei, and our EH216-S completed the first commercial flight demonstrations at the UAM operation center in Shenzhen OH Bay, Jiulong Lake Park in Guangzhou's Huangpu District, and Luogang Central Park in Hefei.

The Hefei municipal government has reached a strategic cooperation agreement with EHang in the low-altitude economy, planning to extend support to EHang in various forms with a target amount of US$100 million, while the Guangzhou municipal government announced 10 major supportive policies to stimulate the low-altitude economy.

Currently, we are actively conducting a series of crucial preparations for commercial operations, including operator training and the development of our operation systems.

By leveraging our distinctive and pioneering expertise in pilotless eVTOL operations, EHang continues to strengthen collaboration with the CAAC, to establish the world's first regulatory system standards for eVTOL commercial operations by the second quarter of this year.

These efforts will set reliable regulations and benchmarks for the safety operations in eVTOL industry.

In 2024, we will coordinate with multiple governments to complete the construction of infrastructure such as eVTOL vertiports, shape benchmark cities that exemplify the potential of the low-altitude economy, and launch commercial operations ceremonies in key use cases, such as aerial tourism and urban air taxis.

This will allow the scenes from science fiction movies to officially step into the public eyes.

In terms of industry chain, we have been actively cooperating with outstanding suppliers and partners, striving to expand opportunities within the low-altitude economy sector.

In January, we entered into a strategic partnership with Gotion, a leading global provider of new energy solutions, to jointly research and develop battery cells, battery packs, energy storage systems and charging infrastructure especially designed for pilotless aerial vehicles.

In February this year, we partnered with Guangzhou Automobile Group (GAC in short), which will capitalize on GAC's extensive experience and well-established industrial chain in intelligent manufacturing, to accelerate the smart production, application, and market expansion of our pilotless aerial vehicles.

Regarding product development, we will continue to enhance our EH216-S' performance to unlock its full potential for various applications.

To this end, last year we strategically invested in InX, a solid-state lithium battery company based in Shenzhen, to strengthen the supply chain for solid-state lithium batteries in eVTOLs.

Lithium metal solid-state batteries offer significant advantages over liquid batteries in terms of safety, energy density, thermal stability, cruising range, charging and discharging performance, etc. As a result, we believe that the flight range and many other performances of our EH216-S product will be greatly enhanced in the future.

Furthermore, this year, we will devote more R&D efforts toward testing and certification of our VT-30, another pilotless passenger-carrying lift-and-cruise eVTOL model.

This is a long-range aircraft designed for inter-city transportation.

We will conduct rigorous testing on all systems of the VT-30 and full transition flights in the near term.

Based on the test results, we will thoroughly analyze and actively iterate improvements to ensure that all the performance indicators meet design requirements.

Myself have experienced a flight with VT-30 in person, and it feels amazing.

Meanwhile, we are also doing preparations for the TC application for VT-30.

Just a few days ago, we commenced another tour of passenger-carrying flights across several cities in Japan.

I would like to extend my thanks to our COO, Mr. Xin Fang, who is currently at our Japan events and thus unable to attend this earnings call.

Next, I will turn the call over to our CFO, Conor, thank you.

Thank you, Mr. Hu.

Hello, everyone.

This is Conor.

Before I go into details, please note that all numbers presented are in RMB and are for the fourth quarter and the fiscal year of 2023, unless stated otherwise.

Detailed analyses are contained in our earnings press release, which is available on our IR website.

I will now highlight upon some of the key points here.

Having obtained the TC and AC for our proprietary EH216-S, our total revenues reached RMB56.6 million in Q4, a significant increase of 260.9% from RMB15.7 million in the same period last year, and a remarkable increase of 97.8% from RMB28.6 million in Q3.

The increases were primarily attributed to the increase in our sales volume of EH216 series products.

We delivered 23 units of EH216-S, up 283% year over year, and 77% quarter over quarter.

For the fiscal year 2023, total revenue were RMB117.4 million, a significant increase of 165% from RMB44.3 million in 2022.

The EH216 series of AAV deliveries in 2023 were 52 units, up 148% from 21 units in 2022.

Gross margin remained stable at a high level of 64.7% in Q4, flat from 64.6% in Q3.

Gross margin was 64.1% in 2023 despite a slight decrease of 1.8 percentage points from 65.9% in 2022, primarily due to changes in revenue mix.

These represent the continued high gross margin levels as a result of our competitive strength and first-mover advantages in the global UAM and eVTOL industries.

In Q4, our adjusted operating expenses, which are operating expenses excluding share-based compensation expenses, were RMB64.2 million, down 12.4% from RMB73.2 million in the same period last year and up 18.8% from RMB54 million in Q3.

The quarter-over-quarter increase was primarily driven by the expansion of sales channels and intensified marketing efforts in enhancing brand awareness.

On an annual basis, the adjusted operating expenses were RMB226.3 million in 2023, down 6.6% from RMB242.4 million in 2022.

As a result, our adjusted operating loss in Q4 was RMB24.9 million, a 59.4% improvement from RMB61.3 million in the same period last year and a 27.3% improvement from RMB34.2 million in Q3.

For the fiscal year, adjusted operating loss was RMB144.8 million, a 30.1% improvement from RMB207.1 million in 2022.

Adjusted net loss in Q4 was RMB22.1 million, a 62.8% improvement from RMB59.4 million in the same period last year and a 29.4% improvement from RMB31.3 million in Q3.

For the fiscal year, adjusted net loss was RMB138.8 million in 2023, a 32.7% improvement from RMB206.2 million in 2022.

Thanks to our stringent approach to cash and liquidity management, I would like to highlight that we achieved positive cash flow from operations in Q4, further strengthening our balance sheet.

As of the end of Q4, we had RMB334.1 million of cash, cash equivalents, short-term deposits, short-term investments and restricted short-term deposits balances.

We are also actively in discussions with several commercial banks regarding the expansion of credit facilities, although our current cash position and expected cash flow from operations would be sufficient to fulfill our cash needs for us to reach profitability in the near future.

Looking ahead with our steady progress towards obtaining PC for mass production and deliveries, we anticipate achieving revenues of about RMB58 million in Q1 this year, representing an increase of 161% year over year.

That concludes our prepared remarks.

Let's now open the call for questions.

Operator, please go ahead.

Thank you.

(Operator Instructions) The first question comes from the line of Rong Zhao from TF.

Hi, management.

Thank you for taking my question.

My first question is really about the order size.

With large-scale deliveries becoming possible after obtaining the TC, have you seen an increase in customer interest that has actually converted into more orders compared to before?

Thank you.

Yes.

Thank you for your question.

As the low-altitude economy industry grows rapidly, we have seen an increasing demand for our EH216-S from both government-related and scenic spots operators.

In the first quarter, we received an intentional purchase order of 100 units from the Wuxi Municipal Government, with deliveries by stages and with a more similar purchases order to come.

With the supportive policies and growing demand, our EH216-S is poised to demonstrate our first-mover advantage in the global market this year, contributing to EH's stable growth.

Other than Hefei, Shenzhen, Guangzhou, Wuxi, we also see similar demand from Shanxi, Henan, Wuhan, Zhuhai, Hainan, and many, many other orders to come.

Thank you.

All right, thank you.

My second question is about the competition landscape.

Could you elaborate on your target customers and how you differentiate yourself from competitors?

Also, could you provide further insights into the competitive landscape?

Thank you.

Yes, October last year, we have obtained the first TC and the end of last year, we have obtained the first AC.

This is the world's first of its kind in this industry.

While many other eVTOL companies and peers in China and overseas are still undergoing prototype testing and also the application for the TC.

In the next year and half to two years, basically, we will be the only company that can commercialize for eVTOL.

Compared our product to other EVTOL products, we have several advantages.

Firstly, we have a very compact fuselage, measuring around 6 meters in length, and very lightweight design.

That means we have the lowest demand on urban infrastructure, making our product highly adaptable and very easy to deploy within the city.

Secondly, our EH216-S is a two-seater without pilot.

With the pre-determined routes, that will eliminate the need for pilot training, hiring costs, and potential safety issues related to human errors in piloting.

Also, by utilizing our autonomous technologies and command-and-control system, fleet management can be achieved.

So that will enable us to operate in a mass scale in the future.

And also, our price is very very competitive with a domestic selling price of RMB2.39 million and international selling price of US$410,000.

In comparison, as far as we know, our other global peers will be selling at between US$3 million to US$10 million.

From customer's point of view, we think that our customer can be profitable with that or enable our business to sustain in the longer term.

With all those advantages, we think we are very very competitive.

EH216-S is for intracity, the short range.

For the long distance, we also have a product line of VT-30 that Mr. Hu has mentioned earlier that we plan to send for TC application sometime this year.

Thank you.

All right, thank you.

That's very clear.

Rongyan Zhou from CITICS.

I have two questions.

The first question is about the eVTOL market size.

How big do you think it will be in the future?

Which application scenario is likely to be the first for launch?

What is management's outlook for the total market size?

(interpreted) At the end of last year, the central government at the very top level of China had a central committee meeting.

After this meeting the top authority of China has indicated that the low-altitude economy is one of the strategic industries that the government is going to focus on for this year.

Through the central economic meeting, currently, there are more than 20 provincial governments that have formally listed the low-altitude economy as their focus for this year.

Through the focus of the central and local governments that autonomous passenger-grade aircraft will be applied to not only for tourism but also for urban transportation as integrated as part of the city's transportation system.

Also, as in the future that's not very long, the air taxi scenario will come true.

Some institutions estimated that the total market size of the low-altitude economy in 2023 in China has reached RMB500 billion, and expected it to grow to RMB2 trillion by 2030.

We expect to operate the air taxi, make it a real scenario, sometime this year.

Air taxi is a transportation vehicle that the people can use and transfer from their regular transportation from one dimension to three dimensions.

This will greatly enhance the total market size of eVTOL.

Okay, thank you.

Thanks very much for the answer from CEO, Mr. Hu.

My next question is about our expense.

In fact, as a company grows, the company's sales and operation costs will be managed more precisely.

Would you mind sharing more details regarding the expenses in the future just for our company?

Thank you.

Yes, regarding to our operating expenses, which are composed of sales and marketing, G&A and also research and development, as we ramp up our revenue, you can see that the fourth quarter 2023, for example, we have reached revenue of RMB56 million with a year-on-year growth rate of 260%.

When the revenue growth at such a speed, our adjusted operating expenses at fourth quarter last year was 113% of total revenue.

That compared to one year ago, our adjusted operating expenses were 466% of revenue.

You can see the rapid drop of OPEX due to rapid increase in our revenue.

We believe that our growth on the revenue will continue to grow at a very high growth rate in the next several years.

We hope that we can manage our adjusted operating expenses in three years' time, from current 113% of revenue drop to about 40% of total revenue in three-year-time.

Thank you.

Okay, okay.

Thanks very much for your answer, and thanks to all of you at the company that helped the low-altitude economy in China's development in future.

So that's all my question and thank you, all of you, and have a nice weekend.

Thank you.

Thank you.

Ting Song from Goldman Sachs.

Thank you for taking my question.

EHang has announced a launch of UAM operation demonstration center with Shenzhen government in December.

My question is, do we expect to see any revenues from UAM operation this year besides the sales revenues from shipment of EH216-S?

Thank you.

Yes.

As Mr. Hu mentioned earlier, the Company plans to kick off the commercial operations this year with pioneering UAM projects in some selected cities in China.

For use cases like aerial tourism, sightseeing, air taxi and so on.

Therefore, we expect to receive some initial revenues from operational flight services, but it may not be significant this year.

In the current and initial stage, the majority of our revenue will still coming from sales of our EH216 series for the time being.

Looking forward, as we expand flight services to more areas, recurring revenue such as operational revenues will grow gradually.

We have been receiving orders, domestic and overseas, and we also receive a lot of requests from our customers to form a joint venture for the future operation.

We expect that next year and going forward, the revenue coming out from operation will gradually increase in the percentage of our total revenue.

Thank you.

Thank you.

My other question is about overseas revenues.

I see the Company has a partner with overseas companies in Dubai and also some governments in European countries.

Do we expect any progress in the overseas market this year or next year?

Thank you.

Yes, after we obtained TC, we also received a very strong demand from overseas markets.

As we have announced that we have formed a strategic relationship and also received orders from UAE customer, Wings Logistics.

They intend to purchase 100 units.

Actually, we will start to deliver the first batch in first quarter of this year.

As of fourth quarter last year, we also sold our product, EH216, to many places like Colombia, Saudi Arabia, and Qatar, and we also performed drone light shows in Japan and Spain.

In the fourth quarter last year, the revenues derived from overseas market was 26% of our total revenues.

This year, we also expect a fairly good amount of our revenue will be coming out from overseas markets.

Thank you.

Yu Chen from Haitong Securities.

Okay.

Thank you, management.

I have two questions.

The first one, following the previous one, we would like to know the detailed progress regarding obtaining the overseas AC because if we move to enter the overseas market, we think that the first step is to obtain the overseas AC first.

The second one is about our production capacity.

We would like to know the capacity regarding EH216 this year and in the following three years, as well as the new VT-30.

That's two questions.

Thank you.

Yes, regarding to overseas TC, as I mentioned earlier, we have seen strong demand from overseas markets, especially in the Middle East, South Africa, and ASEAN countries.

For those places, we will rely on our local partner to obtain the local TC.

We already obtained the TC from CAAC, so when we apply the overseas TC, we can do a streamlined process called validation of TC, validation of Type Certificate, with the overseas aviation authorities.

And this is expected to be a simplified procedure.

Consequently, this approach enables us to expedite market entry and expansion in these countries.

In terms of the order and the production, we are currently receiving a substantial number of orders and pre-orders, which will be fulfilled according to our customers' specific requirements.

Typically, the government and customers commit to preorders, or intentional orders, for example, up to 100 units with an initial purchase of 5 to 10 units for trial operations at local sites.

As their operations expand and demands increase, then they will acquire additional products.

The favorable policies throughout in the low-altitude economy have provided us an attractive environment for growth.

Consequently, we anticipate a substantial increase in delivery volume throughout 2024.

This quarter, we have given our guidance at RMB58 million, slightly increased quarter over quarter because the first quarter is the Chinese New Year.

Typically, there's a long vacation during the quarter.

So far, I look forward that we have seen a very strong demand for orders for this year.

Currently, our production in Yunfu facility has an annual capacity of 600 units of eVTOL.

We are exploring opportunities to establish other facilities to further support our production capacities as market demand grows.

Thank you.

Thank you for answering.

Have a nice weekend.

(Operator Instructions) Laura Li, Deutsche Bank US.

Hey, thank you for taking my question, and congratulations on the robust quarter.

My first question is about the VT-30, our new product.

You mentioned you are already preparing for the testing and the certification now.

Are there any specs you can talk about now?

Do you expect the client base will be similar to the EH216 or the new product would bring us more applications scenario?

Thank you.

(interpreted) Actually, we are doing the R&D work for the VT-30 during our certification in the past few years.

We have done some internal testing flights.

For the traffic volume, as we know, the air taxi within the urban area is the most of traffic demand.

That's why we are doing the certification for EH216, this type of model.

Now we have completed all the configuration design and internal testing for the VT-30.

In this year, we will put more efforts into the testing for the VT-30, and we will release more videos about the flights.

Actually, the VT-30 will do a lot of practical flights.

Our CEO personally has taken a flight within VT-30.

It's a very stable flight experience.

Later, we will release our CEO's flight video with the VT-30 and we will submit the TC application for VT-30 within this year.

The EH216 and the VT-30 almost cover all the application scenarios for the urban air mobility.

That is why these two models are our main products.

We have accumulated the most flight data for EH216 and soon we will release more updates and progress for the VT-30.

Thank you.

Okay.

Thank you so much for the color.

My second question is about -- as you mentioned, you recently reached a cooperation agreement with the GAC Group.

Could you give more details about this?

How does it work?

Will you share the R&D or manufacturing collectively?

What kind of support will you provide to each other?

(interpreted) There was a strong favorable policy and trend in China about the low-altitude economy.

Under this background, a lot of governments are working with us.

It's our pleasure to work with some state-owned enterprises, such as the GAC Group.

The first thing that pop up into people's mind about our collaboration is mainly about the production.

Actually, on the other hand, we will also help the GAC Group to develop their flying taxi product.

Now we have selected a production site within Guangzhou under our cooperation with GAC Group and we are going to establish autonomous production line with GAC.

Through our collaboration, we will continue to improve the product quality of our eVTOL product and to ensure the safety of our eVTOL flights.

Okay.

Thank you.

Okay.

Thank you so much.

Thank you.

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

Okay.

Thank you, operator.

Thank you all for participating on today's call.

If you have any further questions, please contact our IR firm by email or participating or following investor events through the calendar information provided on our IR website.

We appreciate your interest and look forward to our next earnings call.

Thank you.

This concludes today's conference call.

Thank you for participating.

You may now disconnect.

Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call.

The interpreter was provided by the company sponsoring this event.