EHang Holdings Ltd (EH) 2024 Q2 法說會逐字稿

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

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

Now we will turn the call over to Anne Ji, EHang's Senior Director of Investor Relations.

Ms. Anne, please proceed.

Hello, everyone.

Thank you all for joining us on today's conference call to discuss the Company's financial results for the second 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, 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 the 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 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.

Also, please note that all numbers presented are in RMB and are for the second 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.

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

Hello, everyone.

Thank you for joining EHang's earnings call.

Since the second quarter of this year, as a leading company in the eVTOL 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 the R&D of next-generation technologies and products.

This is enabling us to continue leading the global urban air mobility (UAM) industry.

This April, we successfully obtained the Production Certificate, which is the PC for our EH216-S.

We are proud to be the world's only eVTOL designer, developer, and manufacturer to possess three certifications for the pilotless passenger-carrying eVTOL aircraft.

With these three 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 the strong market demand for innovative, low-altitude aircraft, our eVTOL products, as representatives of 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 EH216-S, a 9-fold increase year-over-year.

Quarterly revenues surged to RMB102 million, 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.

The Company's Q2 gross margin was as high as 62.4%, with both year-over-year and quarter-over-quarter increase.

Since Q4 last year, we have received over 1,100 units in bulk pre-orders in the Chinese market, and this number is continuing to grow.

After securing the PC, our Yunfu production facility has started a production ramp-up of certified EH216-S.

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 customer's order requests.

To meet the continuous delivery of long-term bulk orders, we are also planning for future production capacity expansion.

Based on the four-party strategic cooperation agreement we signed in Q1 this year with the Management Committee of Guangzhou Airport Economic Zone, the Administrative Committee of Guangzhou Economic and Technological Development District, and GAC, which is Guangzhou Automobile Group, we further signed a 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 pilotless 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 market demand more quickly and lift the efficiency and scale of our product deliveries.

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 product deliveries and ensuring safe operations.

As a global pioneer of pilotless eVTOL provider, we are taking the responsibility to explore commercial operations through collaborating closely with regulatory authorities, customers, and partners to co-create a sustainable ecosystem that fosters the industry's growth and development.

With that, we are focusing on three key areas in which we have achieved significant progress.

The first one is talent cultivation.

We have developed customized eVTOL aircraft personnel training program and assessment system, designed to equip our customers with qualified operational teams, ensuring safe operations.

Secondly, infrastructure development.

We not only actively participated in the formulation of China's first group standard for technical requirements of eVTOL vertiports, but also collaborated with local governments and customers to establish EH216-S vertiports and low-altitude urban air mobility operation center demonstration projects in Guangzhou, Hefei, Shenzhen, Zhuhai, Taiyuan, and Wencheng, among other locations.

Thirdly, operational standards and certification.

In July, the CAAC accepted the Air Operator Certificate, or OC applications submitted by EHang General Aviation and Hefei Heyi Aviation.

As the world's first OC project for the pilotless passenger-carrying eVTOL aircraft, it is paving the way for the establishment of the world's first commercial operation standard for pilotless passenger-carrying eVTOLs.

As an innovative technology company, we will not slow down our pace in R&D for new products and technologies while pushing forward with sales and operations.

Building on the VT-30 prototype, we have conducted a comprehensive redesign and technological upgrade of our lift-and-cruise eVTOL model, aiming to achieve more exceptional flight performance.

We will be releasing this soon, so please stay tuned for the exciting news.

We are also continuously optimizing the performance of our EH216-S.

In the critical area of battery technology, we are developing next-generation eVTOL 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 Greater Bay Technology, a battery provider incubated by Guangzhou Automobile Group, for the research and development of the world's first Ultra-Fast Charging battery solutions for eVTOLs.

This is expected to significantly improve eVTOL’s 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.

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 Enpower Electric Company, a leading EV powertrains provider, into our ecosystem.

This not only enhances the flight performance of our aircraft, but also helps to strengthen the stability of our supply chain and supports our industrial layout.

Also, our newly upgraded R&D laboratories are nearing completion at our new headquarters, designed to support the development and 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's Huangpu District, are currently under construction.

This complex will feature a state-of-the-art exhibition center, a brand-new command and control center, and a futuristic office space.

Furthermore, we will integrate with the surrounding communities and commercial complexes to launch aerial sightseeing and transportation routes with our eVTOLs, connecting ground, air, and water transportation, and creating a new urban landmark, EHang Future City, as well as a UAM 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 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 first pilotless passenger-carrying eVTOL prototype to achieving the safe and reliable flights of pilotless eVTOLs; from the absence of industry standards to establishing and shaping them, and subsequently obtaining the world's first type certificate, production certificate, and standard airworthiness certificate, we have consistently pushed 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 long-term growth trajectory.

With our passion and respect for the aviation industry, we will continue to drive forward 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 COO, Mr. Wang, to elaborate on our Q2 operational performance.

Thank you.

Thank you, Mr. Hu, and hello, everyone.

Since securing the production certificate in April, we have been authorized for mass production of our EH216-S and secured standard airworthiness certificate for each aircraft that we have delivered.

Our sales and deliveries continued to grow.

In the second quarter, we delivered 49 units of EH216-S, generating revenue of RMB102 million, representing a year-over-year increase of over 9 times and a quarter-over-quarter increase of 65%.

Let me highlight some key examples of customers and partnerships: In June, we partnered with Wencheng in Zhejiang Province, and received a purchase order with an additional purchase plan for up to 300 units of EH216-S.

We have already delivered the first batch of 27 units in the second quarter and conducted the debut flight at a local scenic area in Wencheng.

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 first authorized distributor in East China to obtain provincial-level distribution qualifications and will establish a comprehensive sales network for our aircraft across Zhejiang Province.

We also delivered the first batch of 10 units of EH216-S to Xishan Tourism for low-altitude tourism services in Taiyuan.

In July, EH216-S completed its debut passenger-carrying flights in Taiyuan, marking a milestone for the development of the low-altitude economy in Shanxi Province.

This delivery is part of a 50-unit order from Xishan Tourism that has been fully paid, with the customer plans to purchase an additional 450 units over the next two years.

These units will be deployed in landmark scenic areas in Taiyuan and create a series of low-attitude tourism demonstration products, further advancing the construction of the low-attitude economy demonstration area in Shanxi Province.

Furthermore, in Q2, EHang also delivered EH216-S to our customers in Guangdong, Hainan, Jilin, Liaoning, and Japan.

In July, we signed a sales and operation corporation agreement with KC Smart Mobility, a subsidiary of Hong Kong's largest non-franchised bus operator-- Kwoon Chung Bus Holdings Limited.

KC Smart Mobility plans to purchase 30 units of EH216-S 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 eVTOLs in China market.

With the production capacity expansion, we expect to maintain a growing delivery trend in the third quarter.

We anticipate the revenues of the third quarter will reach RMB123 million, as we continue to receive more new orders.

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 EHang 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, etc., to ensure that the personnel are certified and on duty to ensure operation safety.

This comprehensive training program ensures that our customers are capable of operating our eVTOL 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 the academic education, license management, etc., for the industry's future large-scale, standardized, and professional operations.

Our joint training program with the Civil Aviation Flight University of China is now in the state of curriculum design.

On the operational infrastructure front, EHang collaborates closely by providing technical requirements and design solutions, while the infrastructure construction is managed by local governments and our customers.

Operation sites in key locations have been launched, including Shenzhen OH Bay, Hefei Luogang Central Park, Guangzhou Jiulong Lake, Zhuhai Tangjia Port, and Wencheng Tianding Lake.

Each of these sites is equipped with facilities including dedicated vertiports for EH216-S, hangars, and the passenger service areas, etc.

In addition, many local governments are planning to build operation networks for future air mobility.

For example, Shenzhen targets to set up a thousand of low-attitude takeoff and landing platforms, and Guangzhou plans to invest RMB10 billion into low-attitude infrastructure.

This will include over a hundred regular-use vertiports and hundreds of community landing pads.

Our EH216-S is ideally suited for future urban air transportation.

It's compact, lightweight, can fly autonomously, easy to manage fleets, and cost-effective.

In May, we were actively involved in shaping China's first group standard for eVTOL vertiports.

This will set the stage for future industry standards.

Notably, all vertiports built in accordance with this standard will be able to accommodate EH216-S.

In terms of operation standards and certification, as Mr. Hu mentioned, in July, the CAAC accepted the Air Operator Certificate, or OC, applications by two operators.

One is EHang General Aviation, our subsidiary for UAM operations.

The other is Heyi Aviation, our operation joint venture in Hefei.

The CAAC has finished the reviewing of Heyi Aviation's application documents, and is about to conduct the on-site inspection soon.

The first OC for pilotless passenger-carrying eVTOL is expected to receive within this year, allowing the operator to launch commercial operations with EH216-S.

Afterwards, we will help more customers and partners in applying OC, with our accumulated experience and established safety standards.

This will also help expanding our operation network.

In July, we also formed a strategic 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 eVTOL tourism, cross-island flights, and cargo transportation at Zhuhai Airport, Chimelong Ocean Kingdom, and the surrounding islands.

Moreover, we are thrilled to see several local governments, including those in Shenzhen, Guangzhou, Hefei, and Zhuhai, are offering direct subsidies for eVTOL commercial routes.

These subsidies range from RMB100 to RMB300 per passenger per flight, providing robust support for eVTOL service operators.

In the international market, we continued to expand into the Middle East market in the second quarter.

In April, we reached a strategic cooperation with the Abu Dhabi Investment Office and a Multi-Level Group.

They will support our development in the UAE and the Middle East region.

In May and June, our EH216-S completed debut flights in UAE and Saudi Arabia.

Since then, our eVTOL footprint has expanded to 16 countries worldwide.

In the third quarter, 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 UAM industry, with safety as our top priority.

Next, I will turn the call over to our CFO, Conor Yang, on financial performance.

Thanks.

Thank you, Mr. Wang.

Hello, everyone.

This is Conor.

Before I dive into details, please note that all numbers presented are in RMB and are for the second quarter of 2024, unless stated otherwise.

Detailed analyses 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 three consecutive quarters.

Notably, our OC application has been formally accepted by CAAC, marking a significant step closer to commercial operations and accelerated growth.

Now, let's delve into the details of our second quarter results.

Total revenue in Q2 were RMB102 million, representing a significant increase of 919.6% year-over-year and a 65.3% increase from the prior quarter.

The increases were primarily driven by higher sales volume of EH216 series products.

We delivered 49 units of EH216 series products in Q2, a significant growth from 5 units a year earlier and 26 units in Q1 2024.

Growth margin remains consistently high at 62.4% in Q2, up 2.2 percentage points from 60.2% in Q2 2023, and a 0.5 percentage point increase from 61.9% in Q1 2024.

The increases were mainly due to changes in revenue mix.

Our high gross margin continues to underscore our competitive edge in the eVTOL sector.

In Q2, our adjusted operating expenses, which are operating expenses excluding share-based compensation expenses, were RMB70.6 million, up 21.6% from RMB58 million in Q2 2023, and up 29.6% from RMB54.5 million in the prior quarter.

The increases were mainly due to higher sales-related compensation, expansion of sales channels and increased expenditures on different models of eVTOL aircraft.

Q2 adjusted operating loss was RMB4.7 million, a notable 90.9% improvement from RMB51.3 million in Q2 2023, and a 62.9% improvement from RMB12.6 million in Q1 2024.

This quarter, we are proud to have achieved adjusted net income earlier than anticipated.

Adjusted net income in Q2 was RMB1.2 million, compared to adjusted net loss of RMB51.8 million in Q2 2023, and adjusted net loss of RMB10.1 million in Q1 2024.

Thanks to our prudent cash management and improved credit controls, we have achieved positive cash flow from operations for the third consecutive quarter, adding strength to our balance sheet.

At the end of Q2, our cash, cash equivalents, short-term deposits, restricted short-term deposits and short-term investments balances were RMB988.2 million.

Additionally, we have raised more than USD76 million from 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 ADSs under the at-the-market offering in 2024.

The process already raised will fuel the next phase of our development and growth strategy aforementioned by Mr. Hu, including R&D for next-generation eVTOL technologies and products, team and production expansion, new headquarters in Guangzhou, upcoming commercial operations and other business purposes.

With the EH216-S having secured three certificates and our OC application accepted by the CAAC, we are well-positioned to commence commercial operations, setting the stage for a new phase of growth.

We expect total revenues for the third quarter of 2024 to be around RMB123 million, representing an increase of 329.8% year-over-year and 20.6% quarter-over-quarter.

Having achieved positive operating cash flow for the third consecutive quarter and adjusted net income in Q2, 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.

That concludes our prepared remarks.

Let's now open the call for questions.

Operator, please go ahead.

(Operator Instructions)

Laura Li, Deutsche Bank.

Thank you for taking my question and congratulations on the strong quarter.

My first question is, thinking about the timeline of commercial operation in overseas markets, when would you expect to start that?

Is 2025 realistic?

(interpreted)

Here's the English translation.

We've been actively expanding our presence in international markets, but starting commercial operations in overseas countries depends on getting local regulatory approvals and certifications.

Right now, EHang is working with the CAAC in advancing bilateral airworthiness agreement for the Validation of Type Certificate, or VTC, of EH216-S with other countries' aviation authorities, such as UAE, Brazil, Indonesia, and Thailand, etc. The timeline depends on the local regulators’ schedule and progress.

Throughout the process, EHang will actively cooperate and provide the required documents to push forward the process.

Besides, we have already made a few deliveries in overseas markets, like the Middle East and Indonesia, and conducted demo flights there.

This helped us not only to expand 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.

Okay, thank you so much.

I appreciate the color.

My second question is, I think we got really impressive gross margin of over 60%.

Just trying to understand what percentage of our supply chain we actually share or overlap with the EV or the drone business.

Okay, most of our procurement are from China domestic with some electric components or chips imported from overseas.

Battery design is different than the EV car, so we design our own battery as well as we design our own electric motor and we outsource to suppliers in China.

In general, there are certain portions overlapping with EV cars, but mostly are different.

For most part, we produce and we assembly in our own factory, in Yunfu factory so far.

Thank you for the color.

Congratulations again for the record delivery.

Thank you.

Ting Song, Goldman Sachs.

My first question is about the progress of EHang obtaining the TC of VT-30.

As we see that the VT-30 and EH216 are in different sizes and features.

What are the key challenges of VT-30 when you developed it compared to the EH216?

And my second question is on the R&D spending.

What's your expectation of R&D spending in the next three years and what would be your key focus on the R&D investment?

Will you spend more on the new model or the enhancement of the existing model?

Thank you.

(interpreted)

This is the English translation.

Leveraging the VT-30 prototype, our R&D team is currently redesigning and upgrading our lift-and-cruise eVTOL model, for enhancing flight performance.

And we will keep you updated on this.

We will also submit the TC application for our lift-and-cruise model once it's released.

Since the EH216-S now has three required certificates, our main focus is on its sales and operations.

The EH216-S is perfect for the air transportation within cities because it's compact and does not need a large takeoff and landing area.

While the VT-30 series lift-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 not a replacement for the EH216-S.

That is suitable for the air taxi uses within the urban areas.

Okay.

This is Conor.

I'll answer the second question regarding R&D.

For the second quarter, R&D expenses is about above 40% of our total operating expenses.

Going forward, we expect that the R&D expenses will be around 45% to 50% of our total OpEx.

We are committed to our R&D development.

For example, if you compare the number of first quarter R&D expenses, actually, we have increased about 42% of R&D expenses from first quarter.

Our future R&D efforts will focus on optimizing the EH216 performance improvement and developing the long-haul eVTOLs and other aircraft for both passenger carry as well as aerial logistics and that will include expenses on the R&D materials and our R&D team expansion, test flights, and airworthiness certification expenses.

I’d say that we believe our growth rate of revenues year-over-year will be a lot higher than overall OpEx.

Even though we continue to increase our R&D expenses, R&D expenses as a percentage of revenue will continue to drop in the coming years.

Cindy Huang, Morgan Stanley.

Thanks for taking my question and congratulations on remarkable 2Q results.

My first question is regarding your order backlog.

I see EHang has made 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?

Also, could we have a rough idea on geographic mix in terms of the older backlogs?

That's my first question.

(interpreted)

Currently, our orders and pre-orders has over 1,100 units in the China market.

We plan to deliver these by batches over the next 1-3 years, per our customers' requests and their business development, and the pace of their placing orders.

We are getting more and more new customers and orders, so we expect 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 new orders.

For this year, we will also help our customers to apply OC, setting up demonstration projects in pioneer cities to exemplify eVTOL operations.

In the future, we aim to replicate these operational sites and share our experiences in more locations across the country.

To add on your question about distribution on the geographic mix, the orders, if you recall that fourth quarter last year as well as the first quarter this year are obviously overseas order revenue contributes around 20% to 25% of our total revenue.

But since the national government has been promoting low-altitude economy, we're seeing a very rapid growth of pre-orders in China.

So we're expecting that in terms of geographic mix that will be 90% from China for this year and next.

The percentage of the overseas revenue will decrease from last year even though the international demand is still quite strong.

Thank you.

That's pretty comprehensive.

My second question is regarding gross margin.

How should we think about the gross margin over time, especially after we take off on commercial operations?

Gross margin, right now, we are the only company that can provide a product for commercialization.

Therefore, we have the pricing power.

Even though as we scale up, we will have leverage in terms of procurement.

On the other side, we continue to improve certain features of our EH216.

So net-net, after we get the TC, we will still maintained 60% plus gross margin in the near future.

In terms of the overall net margin, we have achieved adjusted net income in second quarter and as we have seen very strong revenue growth, with the revenue grows rapidly, we are expecting our adjusted net income margin will continue to improve in the many years to come.

Yu Chen, Haitong Securities.

Congratulations for the company’s business progress.

Thank you for taking my question.

I have two questions.

The first one is, could the management provide some insight into the Company's plans for EH216's operations, including the planning sites, commercial routes and pricing strategies for each flight, once starting a commercial operation?

My second question is, we noticed that the Company is actively promoting the establishment of UAM operation sites and personnel training across various places.

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

(Spoken in Foreign Language)

(interpreted)

For your first question, besides EHang General Aviation and Hefei Heyi Aviation, EHang’s partners in Guangzhou, Shenzhen, Taiyuan, and Wuxi, among other cities are also actively preparing their OC applications.

Once the local operators have obtained the OC, they will first start operations at our new headquarters in Guangzhou, Hefei Luogang Central Park, and more sites in Shenzhen, Wuxi, Taiyuan and Wencheng, starting from the aerial sightseeing use cases.

Throughout the process, we will accumulate operational experience and continuously refining our operational manual, which will serve as a reference for new operators to mitigate their operational risks and uncertainties.

For the question on the pricing, aerial sightseeing is currently our targeted use case.

Compared to the helicopters, our price can be half of them or even lower.

It's very competitive because the EH216-S acquisition cost and maintenance cost is much lower than helicopter, and we don't have pilot cost.

Moreover, local governments are offering subsidies for eVTOL route operations.

For example, in Shenzhen and Hefei, they plan to offer subsidies for eVTOL operators for aerial sightseeing and air transportation within and between cities.

The subsidies range from RMB100 to RMB300 per person for each flight.

For your second question, EHang General Aviation is our wholly owned subsidiary.

It serves as an operation platform company to provide operational services to our customers, setting up demo projects and models.

We have established joint ventures with local governments or partners through EHang General Aviation, to provide eVTOL operation services, such as Heyi Aviation in Hefei and Pengcheng Wings established with our customer Boling Group in Shenzhen.

So, our cooperation model works like this: EHang provides the necessary support, including after-sales services, operational guidance, technical specs, and personnel training, while the government and customers are responsible for planning and building the infrastructure.

The joint venture will form an operational team and 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, replicated and sustained.

Gareth Zhao, TF Securities.

Okay, so congratulations on the Company's outstanding performance this quarter.

I have two questions.

The first one is, do you expect to maintain the quarterly growth trend?

Looking forward, how do you view the Company's revenue growth trajectory?

Thank you for your question.

This is Conor.

We have pre-orders over 1,000 units in China, and our production has been steadily ramping up since obtaining the PC. So, we expect to maintain revenue growth in the third quarter, and our guidance for the third quarter is RMB123 million.

That's more than 300% increase year-over-year and a more than 20% growth quarter-over-quarter.

We are confident that our revenue will achieve triple-digit growth year-over-year in the upcoming quarters.

For the aerial sightseeing market in China market, there are over 10,000 units of eVTOL in demand in China, and when it applies to transportation purpose in various cities in China that demand will be even larger together with the international demand.

So we believe that we should achieve a very high growth rate for the next three to five years.

Okay.

Thank you.

That's very clear.

My second question lies in overseas market.

We have noticed that you have been expanding the Middle East market recently.

What's your competition advantage in market like Middle East?

Do these countries tend to favor eVTOL model that can fly longer distance?

(interpreted)

Here is the translation of the answers to your question.

EHang is the first eVTOL company to conduct test flights in the Middle East, which our first pilotless eVTOL flight in Dubai was back in 2017.

In terms of 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 the CAAC, for mutual recognition of airworthiness certification.

We will be conducting some test flights for the GCAA within this year.

And in May, we conducted the first passenger-carrying flight in Abu Dhabi, marking 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.

Abu Dhabi are planning UAM infrastructure now, including the vertiports and the eVTOL terminals.

We are very confident with the support of our local customers and partners in UAE and Saudi Arabia.

We can be the first to commercialize eVTOL operations in the region.

We believe that the flight range is not a key issue for eVTOLs.

What really matters is to meet the needs of the passengers and fit the specific use cases.

We've been seeing growing interest and demand for our EH216-S in the Middle East market, particularly for urban air transportation.

We will introduce new type of aircraft to serve more and more diversified needs.

Rongyan Zhou, CITIC Securities.

First, congratulations on the Company's strong performance and business progress this quarter.

Here I have two questions.

For the first, with the capacity expansion plans underway in Guangzhou, Hefei, and other locations, could management provide more insight into its capacity expansion plans and what can we expect in terms of capital expenditures over the next two years?

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 a lot of experience in automation, in 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.

On the other side, Hefei will build assembly plant.

That's our plan.

Overall in the next year, we should add some additional 1,000 annual production for next year.

In terms of CAPEX, we're re-innovating our new headquarters.

We're building a lot of facilities.

We're building our R&D labs.

Also, we are building a test flight center and together with all these factory expansions.

So we now expect the CAPEX for 2024 will be about USD15 million and CAPEX for 2025 will be around USD20 million.

Thank you for your answers and my second question is, could management provide more information on recent ATM financing and the Company's financial plans for the future?

Thank you.

Since April, we have raised USD76.2 million through our ATM program, without disturbing the market.

Our average price actually for all this USD76 million, the average price is USD16.5 per share.

Right now, with the rapid revenue growth and consistent positive cash flow from operation, we decided not to continue selling ADSs under the ATM program for this year.

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

Thank you.

Okay.

Thank you very much for your answer and congratulations again for the Company.

Thank you.

Thank you all.

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

Thank you, Operator.

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 the 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.

That concludes our conference for today.

Thank you for participating.

You may now all disconnect.

Have a nice day.

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.