Q3 2024 EHang Holdings Ltd Earnings Call
Speaker Change: Good day ladies and gentlemen. Thank you for standing by and welcome to the Ehang third quarter of 2024 earnings conference call.
Speaker Change: Please note that the management's prepared remarks and the subsequent Q&A session will be primarily conducted in Chinese, and the corresponding simultaneous or consecutive interpretation can be accessed on the English line. As a reminder, all translations are for convenience purposes only. In any case of any discrepancy, the management's statement in the original language will prevail. To listen to the original marks by the management, please join the Chinese line. Additionally, both the Chinese and English lines are open for questions, and today's call is being recorded.
Speaker Change: I will now turn the call over to An Ji, Ehang's Senior Director of Investor Relations. Miss An, please proceed.
An Ji: Hello everyone, thank you all for joining us on today's conference call to discuss the company's financial results for the third quarter of 2024.
An Ji: The earnings release is available on the company's IR website. Please note a conference call is being recorded and the audio replay will be posted on the company's IR website.
An Ji: On the call today we have Mr. Huazhi Hu, our Founder, Chairman and Chief Executive Officer Mr. Zhao Wang, Chief Operating Officer and Mr. Connor Yang, Chief Financial Officer and Director of the Board
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An Ji: 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.
An Ji: forward-looking statement involving inherent risks and uncertainties. As such, the company's actual results may be materially different from the expectations expressed today.
An Ji: Further information regarding this 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.
An Ji: Accept as required under replicable law. Also, please note that all numbers presented are in R&B and are for the third quarter of 2024 unless stated otherwise.
Speaker Change: With that, let me now turn it over to our CEO, Mr. Huazhi Hu. Please go ahead, Mr. Hu.
Speaker Change: Okay, hello everyone. Thank you very much for joining Ehang's earnings call. Since the third quarter of this year, our order deliveries and financial performance hit a record high again. We have also made exciting progress in multiple aspects, such as the Air Operator Certificate application and certification review, the development of low-altitude ecosystem, R&D of next-generation technology and products, as well as the expansion of overseas markets.
Speaker Change: All of these achievements underscore Ehan's commitment and capabilities in accelerating our pace towards commercial urban air mobility operations.
Speaker Change: We have become the world's first e-veto company to obtain the 3 Airworthiness Certificates for pilotless aircraft, demonstrating we have the capabilities for mass production and deliveries.
Speaker Change: In July, the Civil Aviation Administration of China officially accepted the OC applications submitted by Guangdong Yihong General Aviation and Hefei Heyi Aviation.
Speaker Change: This is the world's first OCE project for pilotless passenger-carrying aircraft.
Speaker Change: signifying that the first related operational standards are about to be established, which will provide safety assurance for the commercial operations of EH216S in China.
Speaker Change: Currently, the OC review is progressing well, and the first OC is expected to be issued by the end of this year.
Speaker Change: Simultaneously, we are actively assisting our customers and partners in Shenzhen, Guangzhou, Wuxi, Zhuhai, and Wencheng, Wenzhou in preparing their OC applications as well.
Speaker Change: Since Q3, China's central and local governments have enhanced their support for the low-altitude economy industry.
Speaker Change: Further highlighting its strategic role as an emerging economic growth engine.
Speaker Change: China's National Development and Reform Commission plans to establish a dedicated bureau for low-altitude economy, which will better coordinate resources across different segments for fostering the industry development.
Speaker Change: emphasizing the strategic importance of the industry's high-quality development and outlining key tasks for advancing pilotless electric and talented low altitude equipment
Speaker Change: As a global leading UAM technology company, Ehon actively aligns with national policies. Our product and development philosophy resonate closely with the government's advocacy for innovation and low-altitude equipment.
Speaker Change: Under the broad and in-depth policy support, the domestic demand for pilotless aerial vehicles in China continues to grow. In Q3, our deliveries and revenues reached a record high again.
Speaker Change: We delivered 63 units of EH216S and our quarterly revenues reached 128 million RMB
Speaker Change: This demonstrates the robust market demand and strong customer recognition of EH216S.
And of course
Our focus extends beyond aircraft deliveries.
Speaker Change: Our top priority is to ensure operational safety as we accelerate the establishment of a comprehensive operational support system, focusing on both sales and operations, as well as enhancing the low-altitude ecosystem. We have achieved significant operational progress in the following three aspects.
Firstly, on infrastructure.
Speaker Change: With strong support from the Hefei Municipal Government, the second UAM hub, Ascent, was officially established in Luogang Park in Hefei. This hub is tailor-made for the EH-216 pilotless passenger aircraft, and it also serves as a UAM hub model for pilotless passenger aircraft operations.
Speaker Change: Secondly, on talent training, we have formed a strategic partnership with the Civil Aviation Flight University of China to jointly carry out the training of talents related to operations, maintenance and management of Ehang's pilotless aircraft and to establish a standardized system.
Speaker Change: Thirdly, we are building an after-sales maintenance and repair system to support the upcoming extensive operational work.
Speaker Change: We believe that, in a future of a flourishing low-altitude economy, only truly competitive products can attract a sustained market interest.
Speaker Change: Ehon will continue to increase our R&D investment to maintain our leadership. We will focus on the enhancement of EH216S performance and the commercialization of a long-range product on the following aspects.
Regarding EH 216S performance enhancements
Speaker Change: We have entered into a strategic partnership with Empower, a pioneer in new energy vehicle power systems, to co-develop electric motors and motor controllers tailored for Ehan's e-Vehicle.
Speaker Change: This new solution features an integration of a lighter weight and higher power density.
Speaker Change: Meanwhile, we have strategically invested in ENCS and achieved a significant breakthrough in the joint development of a high-energy, solid-state battery technology.
Speaker Change: With this solid-state battery, our EH216As completed a continuous flight test exceeding 48 minutes.
Speaker Change: significantly improving the flight endurance by 90%. Next year we aim to improve the flight endurance even further to 60 minutes. This milestone achievement is critical in broadening the application and operational scope for our eVTOL products.
Speaker Change: Moving on to the development of our long-range product. Building on the VT-30 prototype, we have conducted commercial design and upgrades for our lift and cruise EVIRO model to VT-35.
Speaker Change: This long-range product complements our existing product portfolio by targeting application scenarios like inner-city, cross-bay, and cross-mountain routes.
Speaker Change: Extending beyond the EH216S's intra-city UAM coverage, with the two categories of EH216 series and VT35, we will achieve boost narrow coverage for low-altitude flights.
Speaker Change: In the overseas markets, in Q3, we have conducted demo flights in Brazil, Japan, and Thailand.
extending our footprints to 18 countries across the globe.
Speaker Change: We're also making strides in overseas airworthiness certification for the EH-216S in September. EH-216S was granted an Experimental Flight Authorization Certificate from Brazil's National Civil Aviation Agency.
Speaker Change: And we plan to conduct more in-depth test flights in Brazil to facilitate the local airworthiness certification.
Speaker Change: The Civil Aviation Authority of Thailand also plans to open flight tests for certified EVTOs in multiple areas of Thailand.
Speaker Change: We are planning to expand our flight range in Thailand with the aim to launch commercial flight operations in some regions of Phuket and Sumy by 2025.
reflecting on our progress over the past decade.
Speaker Change: Ehon has launched the world's first pilotless passenger aircraft EH-1A4 in the United States, becoming a pioneer of the global urban air mobility industry. We have driven and pioneered breakthroughs in pilotless aerial vehicle technology and airworthiness certification.
Speaker Change: With the launch of operational hubs such as the Hefei UAE Airbus hub and others, Ehan's long-held dream of urban air mobility will truly come to fruition.
Speaker Change: Moving forward, we will steadily advance ensuring safety as the top priority to achieve sustainable industry development.
Speaker Change: We also strive to create greater value for our shareholders, partners, and the society. Next, I'll turn the call over to our COO, Mr. Wang, to elaborate more on our Q3 operational performance. Thank you.
Mr. Wang: Thank you, Mr. Hu, and hello, everyone. Let me first provide an overview of our product delivery status for the third quarter. In Q3, we received repeat orders from existing customers as well as new customers.
Mr. Wang: Specifically, we completed the deliveries of 40 units to the Shanxi client in the third quarter, reaching a total of 50 unit deliveries to this client.
Mr. Wang: We also delivered 3 units to our Wancheng client in Wenzhou, Zhejiang province in the 3rd quarter, reaching a total of 30 units delivered.
Mr. Wang: Additionally, we delivered five units to each of Shenzhen, Boling and Hefei Heyi customers for their repeat orders in the third quarter, to be deployed in their expanded site at the UAM Operations Center in Luohu District, Shenzhen, and the newly established UAM Hub at Luogang Park in Hefei.
I'm sorry, I'm sorry, I'm sorry, I'm sorry
Mr. Wang: Furthermore, we also secured new orders and completed deliveries for clients in Fujian, Chongqing, Tianjin, Guizhou, Shaanxi, and Zhuhai this quarter.
Mr. Wang: In summary, we delivered a total of 63 units of the EH-216S series in the third quarter. Currently, our domestic order book is more than a thousand units. As an aircraft manufacturer, Ehan is not only responsible for the production and sales of the aircraft,
Mr. Wang: We are also providing customers with maintenance, repair, and related consulting services.
Mr. Wang: Due to the special nature of the aircraft, we are also assisting our customers from various regions in preparing for their operational certification applications, striving to obtain approvals from the CAAC as soon as possible.
Mr. Wang: Before that, we are also assisting customers with services including operational site design, route planning, and business process planning.
Mr. Wang: For those operation companies that have submitted their OC applications and are under regulatory review, we provide full technical support to assist them in safety improvements to meet the safety operation requirements of the CAAC.
Mr. Wang: Our company's focus moving forward will be to place greater emphasis on service quality. We aim to proceed steadily and diligently, serving our customers well, building a robust UAM operational system, and improving talent training mechanisms.
Mr. Wang: This will enable our customers to operate their aircraft continuously and stably, achieve commercial returns, and also lay a solid foundation for the company's long-term development.
Mr. Wang: In terms of personnel training, with the aim to assist our clients in better operating and maintaining the aircraft, we have trained a total of 47 operators and 22 maintenance personnel for our customers.
Mr. Wang: Regarding infrastructure construction, we have signed a strategic cooperation agreement with several infrastructure service providers.
Mr. Wang: Since the second quarter, we have visited numerous domestic production bases for new energy vehicles and new energy batteries.
Mr. Wang: Additionally, in October, we visited some European manufacturing facilities specializing in safety aviation components. We are currently in discussions with some of these factories about potential cooperation.
Mr. Wang: Our goal is to integrate various production facilities and management expertise to provide ideas and solutions for the integration and upgrade of our production lines and manufacturing technique in order to improve quality and reduce costs.
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Speaker Change: Currently, all of our delivered aircraft are produced in our show production facility in Yunfu.
Speaker Change: In North China, leveraging our cooperation with Xishan Tourism, we plan to establish a low-altitude economy industrial park and a North China delivery center in Taiyuan.
Speaker Change: In the capital Beijing, we are actively exploring cooperation on the R&D and testing, manufacturing, education and training, and demonstration applications in areas like emergency response, firefighting, and rescue missions.
and we have already begun environmental research work.
Speaker Change: As for our existing Yunfu factory, we'll start technical upgrades to the production line and flight test area in the fourth quarter. By 2025, with the commissioning of new factories, our overall aircraft production capacity and component supply will continue to expand.
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Speaker Change: Since the third quarter, we have visited a number of overseas customers, investors, partners, and media.
Speaker Change: Additionally, we have actively participated in various domestic and international industry exhibitions, including the China International Aviation and Aerospace Exhibition, the China International Import-Export,
Ruan Ito in Bologna, and Smart City Expo World Congress
GTAX Global, and the Thailand Drone Expo, among others.
Speaker Change: These activities have further enhanced Yi Han's international reputation and allowed us to connect with a large number of potential customers. In China, we have also actively participated in activities and conferences organized by various ministries and commissions.
Speaker Change: such as the Ministry of Industry and Information Technology, the National Development and Reform Commission, and the CAAC, including the Low Altitude Economy Innovation and Development Conference.
Speaker Change: the China International Small and Medium Enterprises Fair and the Urban Air Mobility Forum.
Speaker Change: Through these conferences and forums, Ehan has actively communicated its thoughts on the development of the low-altitude economy and future operational strategies, resonating with attendees and earning recognition from many industry experts.
Speaker Change: Yi Han has been invited to almost every low-altitude economy-related conferences and forum, with expectations to bring our aircraft for display or fly demonstrations.
Speaker Change: Our international reputation has also significantly improved. Since the third quarter, we have obtained special flight permits in Brazil and Thailand, and have carried out demo flights. To date, the EH216 series has completed flights in 18 countries.
Speaker Change: We will stay committed to our due focus on sales and operations, filled by innovation and collaboration, as we support the sustainable growth and commercialization of this emerging industry.
Speaker Change: Now, I'll hand it over to our Chief Financial Officer, Connor, to walk you through the financial performance for the third quarter. Thank you.
Speaker Change: Thank you, Mr. Wang. Hello, everyone. This is Connor. Before I dive into the details,
Speaker Change: Please note that all numbers presented are in RMB and are for the third quarter of 2024 unless otherwise stated. Detailed analysis are available in our early press release on our IR website. I will now highlight some key points.
Speaker Change: In Q3, our efforts have once again delivered robust results. We exceeded our revenue guidance by 4%, recorded adjusted net income for the second quarter in a row.
Speaker Change: and maintains positive operating cash flow for the fourth consecutive quarters.
Speaker Change: We're also making steady progress on the OC front as we gear up for upcoming commercial operations.
Speaker Change: Turning to the specifics for Q3, our total revenues were 128.1 million presenting a 347.8% year-over-year increase and a 25.6% increase from the prior quarter.
Speaker Change: This is primarily driven by the higher sales volume of EH216 series products.
Speaker Change: In this period, we delivered 63 units of EH216 series products, achieved a new record high for quarterly deliveries. Compared to 13 units in Q3 2023,
and 49 units in Q2 2024.
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Speaker Change: Q3 growth margin was 61.2%, compared to 64.6% in Q3 2023, and 62.4% in Q2 this year. Despite the modest decrease, our growth margin remained high, reflecting our competitive advantage in the e-vehicle sector.
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Speaker Change: Adjusted operating expenses, which exclude share-based compensation, were $86.9 million at a 60.9% increase from $54 million in Q3 2023 and up 23.1% from $70.6 million in the prior quarter.
Speaker Change: The increase was mainly due to expanded sales-related expenses, higher employee compensation, expansion of sales channels, and increased investments in various EBITDA models.
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Speaker Change: The quarter's Adjusted Operating Income was $9 million compared to an Adjusted Operating Loss of $34.2 million in Q3 2023 and an Adjusted Operating Loss of $4.7 million in the prior quarter.
Speaker Change: We recorded adjusted net income for the second consecutive period in Q3, 2024.
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reaching 15.7 million.
Speaker Change: This marks a significant improvement from an adjusted net loss of $31.3 million in Q3 last year and also an impressive increase
over the $1.2 million achieved in the prior quarter.
Speaker Change: furthermore we continue generating positive operating cash flow for the fourth consecutive quarter
Speaker Change: At the end of Q3, our cash balance, including cash, cash equivalents, short-term deposits, restricted short-term deposits, and short-term investment balances.
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was $1,077,600,000.
Speaker Change: On top of that, last week we announced an over U.S. dollar 22 million pipe investment from strategic investors, including Empower and a strategic institutional investor from the Middle East.
Speaker Change: This strategic investment brings our total year-to-date financing to nearly US$100 million, enhancing our financial position for our next phase of development and growth.
Speaker Change: The financing process will be used to advance our next-generation digital technology and products.
Speaker Change: scale production capacity, expand our team, establish new headquarters and operating sites, and support the general corporate activities.
Speaker Change: As we move into the fourth quarter, with the OC certification process nearly complete, and final approval within reach, we are focusing on...
Speaker Change: on fine-tuning our commercialization model to enhance our customers to achieve safe and stable operations as quick as possible.
Speaker Change: This is expected to further boost market demand for our pilotless EVTO aircraft, driving steady growth in both orders and sales.
At the same time, ongoing improvement in low-altitude policies.
Speaker Change: and increased government support for the low-outer view economy are adding even more momentum to the market.
Speaker Change: Given these trends, we are expecting our revenue in Q4 is RMB 135 million, representing a year-on-year increase of 138.5%.
Speaker Change: The total revenue for the full year of 2024 is expected to reach $427 million, with an year-on-year increase of 263.5%.
Speaker Change: That concludes our prepared remarks. Let's now open the call for questions. Operator, please go ahead.
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Speaker Change: Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced.
Speaker Change: If you wish to cancel your request, please press Star 2.
You are on a speakerphone.
Please pick up your handset before asking your question.
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Speaker Change: Your first question comes from Cindy Huang from Morgan Stanley. Please go ahead.
Speaker Change: Hi, thanks for taking my question and congratulations on remarkable 3Q results. My first question is regarding to solid-state battery. Could Magiman share more details on battery development with INX? And what's the key hurdle for solid-state battery to commercialize now? And when do we expect to mass produce it?
Speaker Change: Thank you for your question. I am Wang Zhao. On your first question, our joint battery development with INX began early on. Developing a new battery, especially one requiring significant technological breakthrough, like a solid-state battery, is a complex progress. It involves not only increasing battery capacity density, but also enhancing cycle life, maintainability, and safety features, requiring significant R&D resources to
Wang Ji, Huazhi Hu, Xin Fang, Wang Zhao
Speaker Change: Our battery is under the support of Hefei International Advanced Technology Application Promotion Center, jointly developed with Xijian Energy, and progressively recognized by the country.
Speaker Change: It has increased the battery life of EH265S to 48 minutes and 10 seconds And this is just a small change It is expected to be further improved to 60 minutes next year
Speaker Change: In addition, the density of battery energy has increased from the original 250Wh per kg to 480Wh per kg.
Speaker Change: The temperature dropped from 60 degrees to 18 degrees throughout the flight.
Speaker Change: With support from the Hefei International Advanced Technology Application Promotion Center, we have collaborated with INX Energy to develop our batteries, combining our strengths with impressive progress.
Speaker Change: We have significantly increased the EH216S's flight endurance to 48 minutes and 10 seconds.
Speaker Change: And this is just the beginning. We expect to further extend this to 60 minutes sometime next year.
Speaker Change: Additionally, the energy density of this battery has increased from 250 Watt per kilogram to 480 Watt per kilogram.
Speaker Change: And the temperature rise during the entire flight has been reduced from 60°C to 80°C.
Speaker Change: At present, the cost of the solid-state battery is relatively high in the small batch testing stage, which is twice the cost of the existing battery. Of course, the density of energy has also doubled. However, as the mass production machine is installed, the cost will increase. Our goal is to achieve solid-state battery certification and installation mass production at the end of 2025 at EH216-S. Thank you
Thank you.
Speaker Change: But I should let you know that currently these solid-state batteries are only in small-batch testing.
and its costs are twice that of existing batteries.
But of course, the energy density has been doubled.
Speaker Change: I think the production costs will gradually decrease as we mass-produce them.
Speaker Change: Our goal is to achieve certification and mass production of these solid-state batteries for the EH216S sometime by the end of 2025. Next question, please.
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Speaker Change: Thank you for the answer. And my second question is regarding the progress of operator certificate. As we enter into more in-depth review phase, can we expect that Ehang still can receive OC by the end of this year?
Speaker Change: Okay, thank you. My second question is about the progress of the OECD application. As we are now entering a more in-depth review phase, can we expect Yihang to win the OECD at the end of this year?
I will answer your second question.
Speaker Change: Indeed, the progress of the OECD is of great concern. The OECD review does not have the existing standards to refer to, and needs to be improved and innovated based on existing regulations.
Speaker Change: Therefore, the audit process of OECD is also a process of standardization.
Speaker Change: Well, in response to your second question, you should know that, yeah, of course the progress of the OECD application is closely watched by the industry.
Speaker Change: However, there are no readily available standards that we can refer to for the OC review. Therefore, it takes a lot of time.
Speaker Change: It requires improvements and innovations on the current regulations. Therefore, the OC approval process is also a process of setting up standards.
Speaker Change: At present, most of the work has been completed for the review of the OECD. We have submitted the relevant adjustment results to the Civil Aviation Bureau for further feedback on the adjustment opinions of the Civil Aviation Bureau.
Speaker Change: The company's response and adjustment speed are very fast. We hope to meet the safety requirements of the Civil Aviation Bureau as soon as possible.
Speaker Change: And most of the work on the OC review has been completed, and also based on the feedback from the Civil Aviation Administration of China, we have recently submitted necessary adjustments, and we're still waiting for further feedback from them.
Speaker Change: Our company has been quick to respond and also make adjustments so our goal is to meet the safety operational requirements of the Civil Aviation Administration as soon as possible.
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Speaker Change: If the first OC goes well, it will be released this year. But at the same time, I hope everyone will realize that this is a safe process.
需要严谨对乘客负责,所以请大家静候佳音,谢谢。
Speaker Change: If all goes well, the first OC is expected to be issued within this year. However, we also hope everyone understands that this is a process of certifying operational safety, which requires a lot of rigorous work and responsibility to the passengers. So please stay tuned for further updates. Thank you.
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Next question please.
Speaker Change: Thank you. Your next question comes from Laura Lee at Deutsche Bank. Please go ahead.
Laura Lee: Hey, thank you for taking my question. So my first question is about production. So I think last quarter we talked about there will be additional 1,000 units per year capacity by next year.
Laura Lee: So, does that include the capacity from the third-party manufacturer or partners, as you mentioned today, or is it mainly on the Yunfu factory? Also, is there any update on the CAPEX of this and next year?
Thank you.
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Speaker Change: First of all, I would like to thank the management team for answering my question. My question is about production capacity. In fact, we have mentioned in the speech that we expect some new production capacity to be launched this year. I would like to ask if the increase in production capacity provided by us is only the production capacity provided by third parties and partners, or is it purely the production capacity provided by Yunfu Single Production Base? In addition, can you give us a guide for this year's annual and next year's overall capital expenditure?
Speaker Change: Thank you for your question. I will answer the first question. In the fourth quarter, we will start the upgrade of Yunfu Factory, which is the only factory in China.
Speaker Change: At the same time, we will prioritize the construction of new factories in Guangzhou, Hefei, Guangxi, etc. New factories may be a positive model, attracting new partners in the production and manufacturing industry, combining relevant experience and management models with our products, to better complete the production delivery of propellers. Thank you.
Speaker Change: On the question of capital expenditure, the answer is that this year it will be about US$15 million, and next year it will be about US$20 million. Thank you.
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Speaker Change: First on your CapEx question, so this year our CapEx is around 15 million US dollars and
Speaker Change: It will be 20 million U.S. dollars for the next year and with your question on the production ramp-up
Speaker Change: So we will start technical upgrades to our existing and only factory in Yunfu, Guangdong province, in Q4. Meanwhile, we will also prioritize constructing new factories in Guangzhou.
Speaker Change: He Fei, and Guang Xi. These new factories may involve joint ventures. We may bring in new partners in the manufacturing industry to leverage their experience and management models with our products for better aircraft production and delivery.
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Next question, please.
Speaker Change: Okay, gotcha. Just a quick follow-up. So think about the technical upgrades in Yunfu Factory in 4Q. Will that cost any kind of downtime or influence the delivery cadence for this year or no?
Speaker Change: I have a follow-up question. After the technical upgrade of Yunfu Factory in the fourth quarter, will it affect our production reduction or our delivery? Will it affect our delivery rhythm?
Speaker Change: I will answer this question. Actually, we have considered this question from the second quarter to the third quarter. So we hope to minimize the impact. After all, the improvement of the production process will have a huge impact on the subsequent production capacity.
Speaker Change: Therefore, we hope to make up for the short-term impact on the factory by improving the production capacity in the future. At the same time, due to the construction progress of other factories abroad,
Speaker Change: I hope they can cooperate with us and reduce the limit as much as possible.
I don't think it's a big problem.
Thank you.
Speaker Change: I expect the impact of or disruption to the production and delivery would be minimum. We actually have considered the potential impact of this technical upgrade on the deliveries, you know, from Q2 all the way to Q3. However, the, you know, we want to mitigate and minimize the impact.
Speaker Change: as we upgrade to the capacity. However, we believe the short-term disruption, if there were any to the production, actually may be offset by the increase to production later on. Meanwhile, we are also considering scheduling the construction of other facilities. So with the synergies between these upgrade as well as additional production facilities, we might be able to minimize the impact and ensure future smooth deliveries.
Okay, gotcha. Yeah, thank you for the call.
Thank you.
好,感谢您的回答。 Thank you for your answer. Next question, please.
Speaker Change: Thank you. Your next question comes from James Zhao at UBS.
Please go ahead.
Thanks for taking that question.
Speaker Change: My question is regarding that since the battery price are lowering and our scale is growing up What are we expecting our break-even will be at what kind of scale or at what kind of time period?
Speaker Change: My question is about the price of lithium batteries. Currently, the price of lithium batteries in the industry is falling, and our assembly volume is rising. I would like to ask, what kind of assembly volume can we reach to achieve a profit-loss point? Can you introduce whether our profit-loss balance point is approaching?
Speaker Change: With the expansion of the purchase scale, the number of main parts may continue to decline. But at the same time, we will also do some upgrades and some new functions may also be partially increased.
Speaker Change: Overall, we still hope to maintain a certain level of MVP. With the rapid growth in turnover and revenue, we have achieved net profit after adjustment in the third quarter of this year, and net profit after adjustment is positive.
Speaker Change: As the revenue continues to grow, the growth of income will be far higher than the growth of cost. So our business efficiency will continue to improve, and our profitability will continue to improve. Thank you.
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Thank you very much.
Thank you very much.
Speaker Change: Yes, you can see that in the third quarter, we have an app. Sorry, I was on mute. Would you like to go for this bit?
Oh, I've finished, yeah. Please, go ahead.
Okay, please go ahead and take a seat.
Okay.
Apologies, I wasn't moved.
Speaker Change: Yes, so as we ramp up production, the price of battery as well as the key components will definitely come down, that's the trend. However, you should know that we are constantly iterating these models and also introducing new features. This will potentially push up some of the other costs of these aircraft, but our gross profit margin is at a healthy level. Let me point you that we have achieved a positive adjusted net profit for the past quarter and we'll definitely see a faster growth in our revenue than our expense. So in other words, we are having better operational efficiency and a stronger profitability.
Thank you. Thank you. Thank you.
Speaker Change: Thank you for the color. My second question is regarding our supply chain strategy. What kind of investment and research and development strategy are we adopting in the electric motor and the solid-state battery?
Speaker Change: My second question is about our supply chain strategy. What is our strategy in terms of investment and development, especially in the field of electricity and solid-state batteries?
I will answer this question. Thank you for your question.
Speaker Change: In the new industry of UAM, IoTeX is a key player in the low-income economy in the future.
Speaker Change: For us, the most important thing is to make the DH-216s better in the test certification.
Speaker Change: We will continue to upgrade core components and key technologies to maintain our product and technology leadability.
Speaker Change: We selected more than 10 core directions to carry out strategic layout, including battery, motor, drive rotor, composite material, and other communication technologies.
Speaker Change: Through cooperation, development, strategic investment, and joint venture companies, we will continue to communicate and cooperate actively with high-quality suppliers of low-capital chains, explore and develop new patents and technical directions, and even in the future, we may be able to provide our co-developed core components to peers, to enhance the vitality and innovation of the industry.
Thank you for the question. I'll take this one.
Speaker Change: So let me start by saying that in this emerging UAM industry, air taxis are set to play a critical role in the future low-altitude economy.
And for us, the key is to enhance the EH216S.
Speaker Change: based on its airworthiness certification and will continually upgrade the core components and key technologies to maintain our product and technological leadership and based on this strategy we have chosen and focused on over
Speaker Change: 10 core areas, including batteries, motor, propellers, AI, composite materials, and communication technologies. And through collaborative development,
Speaker Change: strategic investments, as well as joint venture. So we maintain active communication and cooperation with these top-level suppliers in this industry chain. We are constantly exploring new patents and also new technological directions.
Speaker Change: So, perhaps in the future we might even offer some key components that we developed to our peers in the industry to actually push forward innovation in this sector.
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Speaker Change: For example, the high-energy solid-state lithium-ion battery that we have recently developed with XINJIE Energy has completed a 48-minute flight test on EH216-S. It has achieved a major breakthrough in the industry and is expected to increase to 60 minutes in the future.
Speaker Change: In addition, we will also develop a new generation of power systems to improve efficiency In addition to the 216 series, the VT35 will also be a powerful addition to our existing products
Speaker Change: On the product side, other than the EH216 series, the VT35 will also be a strong complement to our current product lineup.
Thank you.
Thank you for taking the time to speak with us.
Speaker Change: Thank you. Your next question comes from Gareth Zhao at Tianfeng Securities.
Please go ahead.
[inaudible]
Speaker Change: Okay. Thank you for taking my question. So I have two questions. The first one is regarding the gross margin. So we saw there's a slight decline in the gross margin in this quarter. So how does the company view the potential for cost reduction in the future? Thank you.
Thank you for accepting my invitation.
Speaker Change: My question is about the 3-quarter profit. We found that there is a decrease in the small-sum. I would like to ask the management how to view the future cost of EH216S and the reduction in space.
Thank you.
Speaker Change: so the price will be a bit lower so it will affect the price of the 3rd quarter so the interest rate will be a bit lower but it can still be above 60% so the impact is not too big
Speaker Change: In the third quarter, we are very delighted to see some repeat orders from our existing customers. However,
Speaker Change: You know, we actually sell them based on last year's contract prices.
Speaker Change: therefore it slightly affected our average selling price and therefore caused a minor decrease in our gross margin but it remains still at over 60% so the impact is minimal.
Thanks for watching!
Speaker Change: In terms of cost, with the increasing number of slopes, the scale effect will have a certain reduction in cost. But at the same time, we will continue to optimize the performance of core components, such as motors and batteries. These improvements and upgrades in performance will also increase the cost to a certain extent.
Speaker Change: So, we are competing with each other. We expect that in the future, the Maoli team will still be able to maintain around 60% level.
Speaker Change: And on the cost side, as we scale up production, we expect some cost reductions due to economies of scale.
Speaker Change: At the same time, we will continue to enhance the performance of core components like motors and batteries, which could increase costs.
to some extent.
Speaker Change: These factors will likely balance each other out, so we anticipate maintaining a gross margin of around 60% in the future. That's my answer.
Speaker Change: Okay, thank you. So, my second question is regarding the VTC progress. So, could you provide more insights about the progress of VTC certification in overseas markets? Thank you.
Speaker Change: My second question is about the progress of the company's VTC in various overseas regions, can you introduce it?
Speaker Change: The Bank of China has flown in 18 countries around the world and is in close contact with the civil aviation regulatory bodies in many countries and is well aware of the country's strict attitude towards the market certification of new aircrafts.
Speaker Change: and lack of unmanned aerial vehicle-related supervision, experience, and certification system overseas. Therefore, we will promote overseas certification programs through the China Civil Aviation Administration's dual test and navigation certification channels. On the one hand, we will actively explore the ideas and methods of first-come, first-served overseas and strive to make our eVTOL operate overseas as soon as possible.
Thank you for watching!
Speaker Change: You know, Ehan has conducted flights in 18 countries worldwide and has engaged with various national aviation regulators across the world.
Speaker Change: and also in these areas they lack experience and certification systems.
Therefore...
Speaker Change: For us, while we were advancing our overseas certification process through bilateral airworthiness channels with the Civil Aviation Administration of China, we are also actively exploring some pilot programs abroad to get our e-veto operational internationally as soon as possible.
Speaker Change: For example, in September this year, the French Air Force and our EH266F issued a test flight license. We will conduct a wide range of flight tests and test flights in Brazil to accumulate flight data for subsequent VTC certification.
Speaker Change: We are exploring the Sandbox trial mode with the Thai Civil Aviation Bureau to be the first to launch commercial flights in Thailand next year.
Speaker Change: For instance, in September, Brazil's aviation authority granted our EH216 as an experimental flight permit.
Speaker Change: allowing us to conduct flight tests and trials extensively in Brazil. So this would help us to gather data for future VTC certification.
Speaker Change: And also moving to Thailand, we are actively exploring a sandbox pilot model with the Thai Aviation Authority. We're aiming to begin commercial flight operations in some selected regions next year. Thank you.
Next question, please.
Thank you for watching!
Speaker Change: Thank you. Your next question comes from Ling Liu at Guixiang City.
Next question, from Guo Sheng Zheng Quan, Liu Lin
Bye.
Speaker Change: Hello, everyone in the management team. First of all, congratulations on such a good result. My question is about operations. As you can see, the company just mentioned that we have shut down the Shuniu Port in Hefei. I would like to know how we will plan operations in Hefei in the future.
Speaker Change: Congratulations on the strong results. We noticed the recent announcement of the Hefei Hub completion. Could management share some insights on the future operational plans in Hefei?
Speaker Change: Thank you for your question. I am Wang Zhao. Let me answer your question.
Speaker Change: This is the main operating point that we built according to the OC standard. It corresponds to the original operating point. It will launch all kinds of operating points in the air traffic from these two points.
Speaker Change: The Hefei City Government has announced its plan to build more than 30 medical facilities in Hefei in the next three years.
The operation plan is very rich.
Speaker Change: Now, the existing points can be combined with the operation of Luogang Park, and it is also a transportation hub in the air. So, after the operation of the Autonomous Region, it will be officially ticketed. Thank you.
Thank you for watching!
Speaker Change: Thank you for your question. This is Wang Zhao. I'll take your question. The Hefei Hub is a major operational site built to OC standards, complementing existing sites to pilot various
air transportation operations.
Speaker Change: The Hefei Municipal Government has announced plans to build over 30 e-veto take-off and landing points in Hefei over the next three years
Speaker Change: The operational plan is quite extensive in its size, with existing size integrated with operations at Luogang Park. So it will serve as an air transport hub. Once operational qualifications are obtained, ticketed operations will start very soon.
Next question, please.
Speaker Change: Thank you. Your next question comes from Yaming Wang at China Renaissance.
Please go ahead.
Next question, Huaxin Zhengquan, Wang Yiming, please ask
Thank you for watching!
Hello, Kaixin.
Thank you.
Yiming, can you hear me?
Speaker Change: Can you hear me now? Yes, we can hear you. Please go ahead. Okay. My first question is about the company's production capacity. I would like to ask how much the company's production capacity can be improved after the technical upgrade of the cloud-based factory. How much help can it be for the current order delivery? Thank you.
and the other two of us are the same.
Speaker Change: My question is on the capacity ramp up following the technical upgrades. How much do you think it is going to help increasing our capacity and how much help or assistance is going to land to our delivery to our existing orders? Thank you.
Speaker Change: Thank you for your questions. I am Wang Zhao. I will answer this question.
Speaker Change: First of all, the current improvements are made by constantly optimizing the supply chain and improving worker skills and skill levels.
Speaker Change: But the factory still needs a technical upgrade to improve production.
Speaker Change: At the same time, if you want to improve in a large scale, it is necessary to build a new factory to increase production in a large scale. The demand for EH216S aircraft is beyond our expectations, so we are choosing to design a new factory.
Speaker Change: Current production capacity is being enhanced through means of supply chain optimization and improved worker skills as well as efficiency. However, the factory requires a technical upgrade to further increase capacity.
Speaker Change: Additionally, if we were to increase the capacity significantly, that means we need to build out new factories. It looks like the demand for our aircraft has exceeded our expectations, so we are in the process of selecting new sites and designing new factories.
Thanks for watching!
Speaker Change: Therefore, the current stage is mainly to maintain stability and fully test to ensure the safety of the aircraft. In addition, the training of landing points, operating centers, and maintenance personnel is also required.
Speaker Change: So when the new factory and the new test site are launched next year, and the operating center infrastructure is ready, the speed of delivery will be improved.
Speaker Change: Existing orders are right now being delivered at a stable pace.
Speaker Change: The testing of aircraft is relatively time-consuming and complex, so the current focus is on maintaining stability and thorough testing to ensure aircraft safety.
Speaker Change: Additionally, other infrastructures such as takeoff and landing points, operational centers, and training for operators and maintenance personnels also require time. So once the new factories and test sites are operational next year, the infrastructure for operational centers in various locations is mature and delivery speed will pick up.
Thank you for watching!
Thank you for watching!
Next question, please.
Speaker Change: Thank you. Your next question comes from Rongyang Zhao at Citix.
Please go ahead.
下一个问题来自中新正确
Speaker Change: Thank you for the introduction and questions. I mainly have two questions. The first question is about solid-state batteries. We have already introduced the cooperation and progress of solid-state batteries. The first question is, in the case of solid-state batteries, what is the expected investment of CAPEX in the future? In addition, what form will it take to cooperate with related companies? The second question is, if we finally produce a new product or technology, how will the intellectual property rights be distributed? This is my first question. Thank you.
Yeah
Speaker Change: I got two questions. One is regard on the future CADPAX investment expectations in the solid-state battery. And the other one is what forms of collaboration we're taking in this collaboration in the solid-state battery. If new property rights were generated on this solid-state battery, so how are we going to split the ownership of it? So that's my first question.
Thank you.
Speaker Change: Thank you for your question. I am Conor. Since July last year, we have been actively participating in strategic investment in new energy. In the past year, the two technical teams have also continued to develop together. The cooperation and response of the two teams is better, so we can complete phase-by-phase development in a relatively short time.
Speaker Change: You know, as early as July last year, we proactively participated in the strategic investment in INX Energy. And over the past year, both technical teams have continued to collaborate on research and development with very good coordination and responsiveness, allowing us to achieve phased goals in a relatively short time.
Thank you for watching!
Speaker Change: This technical breakthrough cannot be without the support of the Hefei City Government. We collaborated with the Hefei City Government in October last year, and have been working on the low-altitude project in Hefei.
Speaker Change: and Hefei University's support for technological breakthroughs. Under the guidance of the National Science and Technology Center's Low-Energy Economic Battery Research Institute, we have successfully completed the breakthrough of the ancient battery with Xinjian Energy, installed EH-216, and test-fired successfully.
Speaker Change: The technical breakthrough is also supported by the Hefei Municipal Government. Last October, we reached a cooperation agreement with the Hefei Municipal Government.
Speaker Change: are continuously implementing low-altitude projects in Hefei to promote the development of the local low-altitude economy.
Speaker Change: The Hefei government is also very supportive of these technical breakthroughs and under the incubation of the National First Centre Low Altitude Economy
Speaker Change: Battery Energy Research Institute, we and INX Energy have successfully completed the solid-state battery R&D breakthrough and installed it on the EH216S and have successfully test-flew it.
Thank you for watching!
Speaker Change: We will continue to invest in fast charging batteries and solid-state batteries. At present, this part is mainly to record the cost of this research and development, and is not in the capital expenditure. From the production end, our battery production is mainly entrusted to the battery cooperation manufacturer. So from the production end, we do not have capital expenditure in this regard.
Thank you. Bye-bye.
Speaker Change: And we'll continue to increase our R&D investment in fast charging and solid-state batteries. These expenses are primarily recorded as R&D costs and not included in the capital expenditures. And also we are doing contract manufacturing, so there aren't any capex included for the production of these batteries.
Speaker Change: The knowledge and property rights of the core technology and parts developed jointly will be shared by banks and other parties.
Speaker Change: And also the intellectual property for the core technologies and components will be jointly owned by Ehan and our partners.
Thank you for watching!
Xièxiè.
Thank you and that's the end of the Q&A session.
Speaker Change: Thank you. Yes, that concludes the question and answer session. I'd like to hand the call back to Miss Anne for closing remarks.
Thank you very much.
Thank you very much.
Speaker Change: Okay, thank you operator, and thank you all for joining our today's conference 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 company's IR website. We appreciate your interest and look forward to our next earnings call. Thank you.
Speaker Change: Thank you, host, and thank you all for attending today's telephone conference. If you have any further questions, please contact our investor relations team by email or by visiting our investor relations website. Thank you for your attention and look forward to our next telephone conference. Thank you.
and Wang Zhao. Thank you. Thank you.
Thank you all again. You may now disconnect.
Thank you.
Speaker Change: Wang Zhao, Xin Fang, Huazhi Hu, Xin Fang, Yиходang Wang Zhao, Xin Fang, Huazhi Hu, Xin Fang, Yichodang