EHang Holdings Ltd (EH) 2024 Q1 法說會逐字稿

Good day, ladies and gentlemen, thank you for standing by, and welcome to EHang's first quarter of 2024 earnings conference call.

As a reminder, we are recording today's call. Now, I will turn the call over to 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 first quarter of 2024. 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, Mr. Zhao Wang, Co-Chief Operating 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 U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the Company's actual results may be materially different from the 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 first quarter of 2024, 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.

Hello, everyone. Thanks for joining EHang's conference call today. I'm excited to share with you EHang's progress in the first quarter of 2024. We had continued a steady growth in both sales and operations in the first quarter, demonstrating our first-mover advantage and exceptional execution in the eVTOL sector of the low-altitude economy.

Following obtaining the Type Certificate for our EH216-S last year, we have been pushing forward with the production certification, driving sales growth, preparing for commercial operations, and continuously optimizing our products.

After half-year continued efforts since last October, we have secured the Production Certificate, or PC, for the EH216-S from the Civil Aviation Administration of China, or the CAAC. This means our production process and the quality management systems have been validated by the CAAC experts for our capability of sustainable mass production.

As the world's first company to obtain eVTOL Type Certificate, Production Certificate and Standard Airworthiness Certificate, our self-developed EH216-S pilotless passenger-carrying eVTOL has been thoroughly validated and recognized by the CAAC from model design to production, and to the safety and airworthiness of each unit delivered. This gives us a global lead and competitive edge in the eVTOL sector of the low-altitude economy.

The Chinese government has continued rolling out supportive policies on the low-altitude economy, and the domestic market is now poised for an unprecedented boom. In March this year, an Implementation Plan for Innovative Application of General Aviation Equipment (2024-2030) was jointly issued by four ministries in China, which are the Ministry of Industry and Information Technology, the Ministry of Science and Technology, the Ministry of Finance, and the CAAC. The plan outlines a development roadmap focused on unmanned, electric, and intelligent aerial vehicles, and sets the goals to realize their commercial operations in urban areas for passenger transportation, logistics and emergency rescue, with a target market size of trillions of RMB for the low-altitude economy in China by 2030. This fully reflects the Chinese government's great attention on the low-altitude economy as a strategic emerging industry, and injects strong momentum into its sustainable development.

In response to the central government's initiative, nearly 30 provincial and municipal governments have rolled out their own low-altitude economy development plans in China, accelerating the industry's growth. These plans cover multiple dimensions, including urban planning, infrastructure development, supply chain, production, procurement, application scenarios and commercial operations, to empower innovative companies in the low-altitude economy industry like EHang. We have been seeing a steady growth in order demands from governments, scenic spots, and overseas customers, and our deliveries are also proceeding in a steady and orderly manner. In Q1, we delivered 26 units of EH216 series products, a record high for a single quarter in our history, with revenues more than double that of the same period last year.

On the operational side, we are working on multiple low-altitude economy demonstration projects in various cities in China. So far this year, our flight footprint has expanded to multiple domestic cities and overseas regions like the UAE, Costa Rica and Japan. We have successfully completed the EH216-S debut demo flights in Latin America and the Middle East.

At this stage, we are also actively expanding our upstream and downstream cooperation in the industrial chain and continuously optimizing our product performance. In February this year, we formed a strategic partnership with Guangzhou Automobile Company to collaborate on low-altitude economy initiatives, leveraging each other's strengths in intelligent manufacturing and eVTOL mobility products. And in April, we announced a strategic partnership with Greater Bay Technology to co-develop the world's first ultra-fast charging/extreme fast charging battery solution for eVTOL aircraft, which expected to be charged from 30% to 80% in a short 5-10 minutes, with over 2,000 charging cycles. This will significantly boost the performance of our pilotless eVTOLs, enabling them to meet the demands of high-frequency, large-scale operations for urban air mobility scenarios.

Meanwhile, we are also stepping up internal flight testing of our VT-30 lift-and-cruise model and preparing for its type certification. Based on the experience we have gained from the EH216-S certification, the long-range VT-30 product will also boast a comprehensive and commercially available system design and airworthiness.

With EHang's leading technology and airworthiness advantages in the pilotless eVTOL industry, as well as our collaborative industry layout, we are confident in driving the rapid growth of the UAM sector and maintaining our leading position in the promising low-altitude economy.

As we are entering a critical stage for commercialization, we are excited to welcome Mr. Zhao Wang, our new Co-Chief Operating Officer, to join our management team. With over 20 years of rich experience and expertise in business operations for 'technology plus cultural tourism', he will play a vital role in driving our commercial operations forward. Today, he is joining the call with us. Let's welcome Mr. Wang to share some insights on our Q1 operational performance. Thank you.

Thank you, Mr. Hu. Hello, everyone. I'm honored to join EHang as Co-Chief Operating Officer at this pivotal moment when our EH216-S pilotless eVTOL has achieved the three certificates. These certificates mark a critical milestone in our commercialization journey. I'm committed to driving the Company's strategic deployment, market expansion, product sales, and commercial operations with full force. I will work closely with the team to seize the massive opportunities presented by the trillion-RMB low-altitude economy, and ensure that EHang maintains its leading edge in the industry, maximizing the business value for our company.

On the sales front, we delivered 26 units of EH216 series products in Q1, representing a 136% year-over-year increase and a 13% quarter-over-quarter growth of the delivery volume. Notably, as part of the conditional purchase order we had received from the UAE customer for 100 units of EH216 series products, the first batch of 5 units, including EH216-S/L/F, had already delivered in Q1. In March, we partnered with the Wuxi local government for UAM, securing a conditional purchase order for 100 units of EH216-S. As part of it, the initial 10 units had been delivered in Q1, and a debut commercial flight demonstration ceremony is scheduled in May. Additionally, in Q1, our products had been also delivered to Hubei and Shanxi Provinces in China and Brazil in South America. Looking ahead, with the increasing production capacity, we expect our product delivery volume in Q2 can far surpass that in Q1.

Recently, the low-altitude economy has been taking off in China, further fueling the growth of our product demand after obtaining airworthiness certifications. Governments, enterprises, and overseas customers are all eager to introduce our advanced pilotless eVTOLs to their local markets, and are planning to develop comprehensive low-altitude economy ecosystem, including infrastructure, funding, talents, and operations. In order to present the air taxi application scenario as soon as possible, we have been working on site planning and construction work for dozens of eVTOL takeoff and landing vertiports in various places. Currently, our order book is robust, and our factory is gradually increasing production capacity to meet customer demand and support future sustainable growth. We are also actively exploring new customers and markets, and pushing forward purchase orders and operational collaborations with domestic and international customers.

On the commercial operations, we are working closely with local governments in cities like Hefei, Guangzhou, Shenzhen, and Wuxi to co-create low-altitude economy demonstration projects, planning, deploy UAM operation demonstration centers, and plan to launch low-altitude routes for urban air transportation. As we are setting up these demonstration projects, we are also developing a rigorous operational system and rules, infrastructure standards, maintenance system, personnel training and qualifications to ensure safe operations and set industry benchmarks.

We are also expanding our international market. At the DriftX event in Abu Dhabi, we showcased the diversity of our products and application use cases by displaying our EH216-S, EH216-L and EH216-F, and our long-range lift-and-cruise eVTOL product VT-30, which was its overseas debut. With the support of our local partners, the EH216-S successfully obtained the approval from the UAE General Civil Aviation Authority and completed its first passenger-carrying flight demonstration in the Middle East region. Meanwhile, we have also formed a strategic partnership with the Abu Dhabi Investment Office and the renowned fintech group, Multi Level Group, to facilitate our next phase of in-depth development in the UAE. In March, with the support of our partners AirX and Tsukuba Aviation, Japan's first UAM center was established in Tsukuba City, serving as an operational base for EH216-S.

As EHang's Co-Chief Operating Officer, I'm committed to driving our commercial operations full steam ahead.

Next, I'll turn the call over to our CFO Conor. Thank you.

Thank you, Mr. Wang. Hello, everyone. This is Conor. Before I dive into details, please note that all numbers presented are in RMB, unless stated otherwise. Detailed analyses are available in our earnings press release on our IR website. I will now highlight some key points.

I'm pleased with the Company's continued diligent execution, as it led to us delivering stellar financial results for Q1 2024. We exceeded our quarterly revenue guidance of RMB58 million by over 6% and achieved positive operating cash flow for the second consecutive quarter. Most importantly, we secured the Production Certificate from the CAAC, clearing the path for mass production of our EH216-S and setting the stage for accelerated growth.

Total revenues in Q1 were RMB61.7 million, representing a substantial increase of 178.0% year-over-year and a 9.1% increase from the prior quarter. These gains were primarily driven by higher sales volume of the EH216 series products. We delivered 26 units of EH216 series eVTOLs in Q1, over doubling 11 units in Q1 last year and compared with 23 units in last quarter.

Gross margin remained consistently high at 61.9% in Q1, compared with 63.9% in last year, and 64.7% in last quarter. The slight declines were mainly due to changes in revenue mix and increased cost per unit of the airworthiness certified EH216 product. Still, our high gross margin demonstrates our competitive edge as a frontrunner in the eVTOL sector.

Our adjusted operating expenses, which are operating expenses excluding share-based compensation expenses, were RMB54.5 million, up 8.7% from RMB50.1 million in Q1 last year, and down 15.1% from RMB64.2 million in last quarter. The year-over-year increase was mainly due to increased sales-related compensation. The quarter-over-quarter decrease was primarily because of the lower expected credit loss expenses due to improvement in credit controls in Q1 2024.

Adjusted operating loss was RMB12.6 million, a 63.4% improvement from RMB34.3 million in Q1 last year, and a 49.5% improvement from RMB24.9 million in last quarter.

Adjusted net loss was RMB10.1 million, a 69.9% improvement from RMB33.6 million in Q1 last year, and a 54.4% improvement from RMB22.1 million in last quarter.

Thanks to our prudent cash management and improved credit controls, we achieved positive cash flow from operations for the second consecutive quarter, further enhancing our balance sheet. At the end of Q1, our cash and cash equivalents, short-term deposits, and short-term investments balances were RMB323.8 million.

To date, we have received over US$55 million of gross proceeds from recent equity funding through an at-the-market offering. Furthermore, we have unused uncommitted credit facilities of RMB131 million with expirations in April 2025. These further strengthen our liquidity position.

Now that our EH216-S has obtained all three certificates, ready for mass production and sales. Driven by the favorable government policies and the market enthusiasm, we are getting on a fast track to revenue growth and continuing improvement of our financial situation.

We believe our diligent preparation for commercial operations equips us for maintaining this upward trajectory and will further foster ongoing expansion while capitalizing on our core capabilities to propel growth within the UAM sector.

With that, we expect total revenues for the second quarter of 2024 to be around RMB90 million, representing an increase of over 800% year-over-year.

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

(Operator Instructions) Ting Song, Goldman Sachs.

Thank you for taking my questions. I want to check what's our CapEx plan for this year and in the long term. Given that we have received the PC from government this year, do we have any plan to further expand our capacity to drive up our shipment for the long term? Thank you.

Yeah. Thank you. To fulfill the rapid business growth, we plan to expand current production capacity in our Yunfu factory to the maximum capacity. And we plan for a new headquarters also in Guangzhou with multiple functions, including office, facilities, takeoff and landing infrastructure, research labs for batteries, power system, command and control system, all in one place.

With that, our plan for CapEx is around US$10 million for this year for the expansion. Thank you.

Cindy Huang, Morgan Stanley.

Hi. Thank you for taking my questions, and congratulations on splendid results. I have two questions. First, I want to ask about the certification timeline. As we have obtained on TC, AC, and PC, when do we expect to receive the OC to kick off operations?

And my second question is related to the order backlog. Can management update the current order backlog based on binding purchase agreement? And how should we expect the delivery cadence throughout the year? Will there be any constraints or uncertainty on capacity or supply side? Thank you.

(spoken in foreign language)

Thank you for your question. This is the translation of the answers to your first question. EHang as the manufacturer has obtained the TC, AC and PC, while the OC, which is the Operating Certificate, is to be obtained by the air operator by submitting an application to the CAAC and to receive the relevant qualifications. And currently, EHang is in cooperation with the CAAC to formulate the operating standards of the EH216-S. After the CAAC issues relevant regulatory documents, the air operators can formally submit their OC applications based on the rules.

For your second question, the customers with intention for bulk purchases will sign framework agreements and pre-orders with us. And the quantities will reach up to hundreds of units, and these will be converted into binding formal orders in batches, based on the customer's business development needs and market expansion progress, following a planned and paced approach. The 26 units delivered in the first quarter are all part of the initial batch orders from these customers, and the conversion volume of these orders will gradually increase in subsequent quarters.

We will provide quarterly revenue forecasts. Revenues for the second quarter is expected to be approximately RMB90 million. The Company's assessment of the performance guidance is based on the quarterly business progress, the conversion of the intentional orders, and new orders. Currently, the Company has sufficient order book, and the production capacity is expanding in sync with the order quantities.

In terms of the production capacity, we have already obtained the Production Certificate for the EH216-S, qualifying us for its mass production. Regarding the supply chain, we have a relatively mature and sufficient reserve. At present, we do not see any significant bottlenecks or uncertainties in our production capacity and the supply chain.

That's very clear. Thank you.

Yu Chen, Haitong Securities.

Okay. Thank you for taking my questions, and congratulations on the good performance in the first quarter this year. I have two questions. The first one is regarding the operation, I would like to ask a question about the operational routes. How many operational routes we are planning right now?

And the second question is, could management team shed more light on new orders the company received in recent months? Thank you.

(spoken in foreign language)

For your first question, regarding the operational routes, currently we have multiple UAM operation sites under construction in Guangzhou's Huangpu District, Shenzhen's Bao'an and Luohu Districts, Hefei's Baohe District, Wuxi's Liangxi District, and Tsukuba in Japan. And these sites are being prepared for the establishment of commercial operation routes. We are currently engaged in facility construction, test flights, personnel training and certification applications. Thank you.

For your second question, we have received an intention purchase order from the Wuxi government for 100 units of EH216-S in March, and delivered 10 of these in the first quarter. In the second quarter, we have added orders from Shanxi, Hunan, Wenzhou, and Zhuhai, as well as the purchase intentions from Xinjiang, Hainan, Guangdong, along with several overseas intentions. The deliveries will proceed steadily and orderly with a gradual increase. Updates on order executions will be released continuously. Please stay tuned. Thank you.

Rong Zhao, TF Securities.

Hi. Thank you for taking my questions. First, congratulations on the Company's outstanding performance. I have two questions. The first one is that I noticed the Company has received pre-orders from overseas customers, including those from Southeast Asia and Middle East. Could you please update us on the progress of EH216's overseas airworthiness certification? And also how is the local regulatory acceptance?

The second question is, could you please summarize the customer types for Q1 deliveries? Are they mainly government customers? And also, what is the proportion of overseas deliveries? Thank you.

Thank you for your question. I will answer the first question and I will let the COO answer the second question. We are actively pushing forward with the validation of the Type Certificate for our EH216-S in overseas countries, which will enable us to meet the demand from international orders and lay the groundwork for further expansion into local markets. We know that the CAAC has signed bilateral agreements with many countries' aviation authorities around the world. Based on the Type Certificate already issued by the CAAC, we're also coordinating mutual communication between the CAAC and aviation authorities in Southeast Asia, Latin America, and the Middle East, such as Brazil, Thailand, Indonesia, and the UAE. So, the VTC is an administrative process that is simpler than obtaining the Type Certificate from zero to one.

But before VTC is obtained, we can still deliver our products to overseas customers for their local uses for testing, for training, and certification. For example, we have delivered five EH216 series products to the customer in the UAE in the first quarter. We will accelerate the VTC certification process to further expand into international markets.

(spoken in foreign language)

For your second question, we are seeing an increase in negotiations, demand, and orders from domestic and international customers. And following the Chinese government's release of guidelines for developing the low-altitude economy, we delivered 26 units of EH216 series in the first quarter. A significant proportion of these deliveries were government purchases, and approximately 23% going to the overseas customers. The target application scenarios include urban passenger transport, low-altitude tourism, logistics, and emergency firefighting, and other industry applications. Thank you.

Jun Xia, Guosheng Securites.

Thank you for taking my questions and congratulations on the good results and on obtaining PC this quarter. I have two questions.

The first one is, we are also concerned about the bottlenecks during production. Are there any bottlenecks in the supply chain? What is the domestic production rate of EH216-S?

(spoken in foreign language)

(spoken in foreign language)

For your first question, based on the developed UAV and the electric vehicle supply chain system in China, we have established long-term partnerships with suppliers on our supply chain. We maintain close cooperation with multiple suppliers to ensure stable supply and high quality for our eVTOL components. At the same time, we are also actively seeking higher-quality suppliers to diversify our supply chain and reduce risks from dependency on any single supplier. Currently, we do not see any bottlenecks in the supply chain.

Most of the components for the EH216 series have been localized. Our key components, including the control systems, motors, and batteries, are all produced domestically. We receive stable deliveries from our suppliers and maintain stable cooperation with them. Thank you.

Thank you. And I have a second question. In order to achieve the quarterly and annual breakeven points, how many EH216 units need to be delivered? Thank you.

(spoken in foreign language)

Thank you. Based on our current cost structure and the trend of business expansion, we estimate that we can achieve annual breakeven point on a non-GAAP basis, which is excluding the share-based compensation expenses, by delivering around 200 to 250 units of EH216 products per year.

From a quarterly perspective, for example, in the first quarter, we have delivered 26 units and our non-GAAP net loss has narrowed to just RMB10 million. So with our current order book and production capacity expansion, we are confident that we can achieve non-GAAP quarterly breakeven in the near-future. Thank you.

Zesen Zhuang, Huatai Securities.

Hello, management team. Thank you for taking my question. We noticed that the Company sold the EH216-S through livestreaming on Taobao platform in the first quarter. Did you see any new demand generated from this Taobao event? Will the Company sell directly to the C-end users in the future?

My second question is, could the management team share more about the Company's thoughts on eVTOL battery solutions? When can the fast-charging battery be developed with GBT?

(spoken in foreign language)

For your first question, that is a very good question. People are paying attention to whether our aircraft can be sold to the C-end users. Our Taobao livestream sale event for the EH216 was primarily aimed at introducing and educating the public about this new type of autonomous passenger eVTOL aircraft and at the same time, demonstrating that it can be purchased and used by the end consumers.

However, to provide well-rounded low-altitude flight operation services, and to enrich usage scenarios, our current customers are still primarily governments and enterprises. End users can purchase tickets and ride via the Air Taxi app. In the future, end consumers will be able to purchase the aircraft individually. Not only can the aircraft fulfill their daily travel needs, it can also be integrated into the Air Taxi operation system when not in individual use. Based on our autonomous driving system, these aircraft can become the Robo-Air Taxis and generate operational revenues.

For your second question, we have been actively exploring various eVTOL battery solutions to further improve the performance and efficiency of our products. We strive to achieve the best balance between the safety, cost, and efficiency. We will focus on the battery energy density, power density, thermal management and cycle life, and continuously optimize and enhance the performance of our eVTOL products in terms of range, payload, and charging time.

To achieve this, we have been working with battery companies in the industry for years, continuously researching for new battery technologies suitable for eVTOLs. Both our solid-state lithium batteries developed by the Inx, and our rapid-charging and discharging batteries developed by the Greater Bay Technology have entered testing phase. These new batteries, with larger capacity, faster charging speeds, and enhanced safety, will significantly improve our operational efficiency. Thank you.

Xinghe Cai, Zhongtai Securities.

Hello, management team. Thank you for taking my question. I also have two questions. The first one is what are the main uses of the ATM offering? And what are the plans for human capital investment as the Company grows in size?

My second question is about the pipeline of the new type eVTOL aircraft. Can you share more about the latest progress of VT-30? Thanks.

I'll answer the first question. Thank you for your question. On the ATM offering that we have raised over US$50 million through the ATM so far. And we can secure more funds to support our company's growth to enhance our financial flexibility and strengthen our balance sheet, and better adapt to market changes and challenges. This fundraise will provide us with more resources to invest in expansion in the sales team and commercial operations, R&D, and our production capacity.

Currently, we have around 380 employees, which is not too much increase from last year. But with the new fundraise, we will speed up our team expansion to support our business. The growth rate of the operating expenses will definitely below our topline growth rate. Thank you.

(spoken in foreign language)

For your second question, the EH216-S is our first product to receive the airworthiness certification, and the commercial operations will be carried out focusing on the EH216-S at this stage. Meanwhile, to better address the diverse needs of urban air transportation scenarios globally, and maintain our leading position, we will continue to develop new products and technologies.

The VT-30 is a product that we are currently developing, with features including unmanned piloting, electric propulsion, lift-and-cruise type, and long endurance. Following the successful airworthiness experience of the EH216-S, the relevant research and development of the VT-30 and the preparations for airworthiness applications are progressing steadily. We conducted the first overseas showcase of the VT-30 in the UAE in April, and we will announce more progress in due course. Thank you.

Thank you. This will conclude the Q&A session due to the time limits. And I would now like to turn the call back to Ms. Anne for closing remarks.

Thank you, operator, and thank you all for participating on today's call. If you have any further questions, please contact our IR team by email or participate in our 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.

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