EHang Holdings Limited (EH), a leader in the autonomous aerial vehicle (AAV) industry, announced in their second-quarter earnings call of 2024 a nine-fold year-over-year increase in both delivery volume and revenue.
The company achieved a milestone by becoming the sole eVTOL designer, developer, and manufacturer in the world to hold three certifications for pilotless passenger-carrying eVTOL aircraft.
With a record-high delivery of 49 units of the EHang 216-S and revenue reaching RMB 102 million, the company is also witnessing a surge in pre-orders, indicating robust market demand.
Key Takeaways
- EHang reported a nine-fold increase in delivery volume and revenue year-over-year.
- The company obtained production certification for the EHang 216-S, marking a significant achievement in the eVTOL industry.
- Over 1,100 units in bulk pre-orders have been received, highlighting strong market demand.
- EHang is actively expanding production capacity and investing in R&D for new eVTOL models and next-generation battery solutions.
- The company conducted the debut flight of the EH216-S and delivered the first batch to Xishan Tourism for low-altitude tourism services.
- A Sales and Operations Corporation agreement was signed with KC Smart Mobility to purchase 30 EH216-S units.
- EHang expects total revenue of RMB 123 million in the third quarter and aims for full-year positive cash flow in 2024 and adjusted net income in 2025.
Company Outlook
- EHang anticipates a third-quarter revenue of RMB 123 million and is confident in maintaining a positive cash flow and adjusted net income in the following years.
- The company is pursuing regulatory approvals and certifications for commercial operations in overseas markets.
- EHang plans to improve automation at its Yunfu factory and build a new assembly plant in Hefei, aiming to add 1,000 units to annual production next year.
Bearish Highlights
- EHang has ceased selling ADS under its ATM program for the remainder of the year, focusing on optimizing its capital structure.
Bullish Highlights
- EHang's gross margin remains high at 62.4%, with expectations to maintain strength post-commercial operations.
- The company has a pricing advantage over helicopters and benefits from local government subsidies for eVTOL operations.
Misses
- There were no specific misses mentioned in the earnings call summary provided.
Q&A Highlights
- EHang executives discussed plans for commercial operations in international markets, including efforts to secure local regulatory approvals in UAE, Brazil, Indonesia, and Thailand.
- The company's supply chain is primarily domestic, with some imported electric components, and they design their own battery and electric motor.
- R&D spending is projected to be 45% to 50% of total OpEx, focusing on optimizing current models and developing new technologies.
EHang's strategic emphasis on talent cultivation, infrastructure development, and operational standards and certification positions the company as a pioneer in the urban air mobility industry.
With the construction of new headquarters and facilities to support operations, EHang is poised to create an expansive aerial sightseeing and transportation network.
The company's focus on R&D, coupled with its ambitious production and revenue goals, underscores its commitment to driving growth and development in the eVTOL sector.
InvestingPro Insights
EHang Holdings Limited (EH) has demonstrated a remarkable financial performance with a staggering 158.45% revenue growth over the last twelve months as of Q1 2024, showcasing their rapid expansion in the autonomous aerial vehicle (AAV) market. The company's gross profit margin stands at an impressive 63.27%, reflecting its ability to maintain profitability amid scaling operations.
Investors have been responding positively to EHang's recent developments, as evidenced by a significant 22.95% return over the last week. The company's market capitalization is currently valued at $918.91 million, and while the P/E ratio is negative at -20.59, indicating that the company is not currently profitable, the strong sales growth anticipated by analysts suggests a potential for future profitability.
InvestingPro Tips highlight that EHang holds more cash than debt on its balance sheet, providing a solid financial foundation for continued growth. Additionally, the company's liquid assets exceed short-term obligations, ensuring financial stability in the near term.
For readers interested in more detailed analysis and additional insights, InvestingPro offers a comprehensive list of tips, including information on EHang's trading multiples and return performance over various timeframes. With 11 additional InvestingPro Tips available, investors can gain a more in-depth understanding of the company's financial health and market position.
To explore these insights further, visit https://www.investing.com/pro/EH for a full suite of InvestingPro Tips and metrics that can help inform investment decisions.
Full transcript - Ehang Holdings Ltd (NASDAQ:EH) Q2 2024:
Operator: Good day, ladies and gentlemen. Thank you for standing by and welcome to the EHang's Second Quarter of 2024 Earnings Conference Call. As a reminder, we are recording today's call. Now, I'll turn the call over to Anne Ji, EHang's Senior Director of Investor Relations. Ms. Anne, please proceed.
Anne Ji: 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 successfully give prepared remarks. Remarks delivered in Chinese will be followed by English translations. All translation is for convenience purpose only. In case of any discrepancy, the management 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 the 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.
Huazhi Hu: [Foreign Language] [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 R&D of next-generation technologies and products. This is enabling us to continue leading the global urban air mobility industry. This April, we successfully obtained a production certificate, which is the PC for our EHang 216-S. We are proud to be the world's only eVTOL designer, developer, and a 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 brings 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 a strong market demand for innovative low-altitude aircraft, our eVTOL product as a representative of the new quality productive forces promoted by the nation have garnered a large number of customers and bulk orders. Our delivery volume and the revenues both reached record highs in Q2. We delivered 49 units of EHang 216-S, a nine-fold increase year-over-year. Quarterly revenues surged to RMB102 million, also a nine-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 a quarter-over-quarter increase. Since Q4 last year, we have received over 1,100 units in bulk pre-orders in the Chinese market. This number is continuing to grow. After securing the PC, our Yunfu production facility has started a production ramp-up of the certified EHang 216-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 customers' order requests. To meet the continuous delivery of long-term bulk orders, we are also planning for the future production capacity expansion based on the four-party strategic cooperation agreement we signed in Q1 this year with the management committee of the Guangzhou Airport Economic Zone, the administrative committee of Guangzhou Economic and Technological Development District and the GAC, which is Guangzhou Automobile Group. We further signed an MoU with GAC in June with the intent to establish a joint venture. This joint venture will leverage GAC's expertise and advantages in intelligent manufacturing and automated production lines for electric vehicles to produce 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 the 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 aftersales 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 the regulatory authorities, customers and partners to co-create a sustainable ecosystem that foster the industry's growth and development. With that, we are focusing on three key areas, in which we have achieved a significant progress. The first one is talent cultivation. We have developed a customized eVTOL aircraft personnel training program and assessment system designed to equip our customers with qualified operational team, ensuring safe operations. Secondly, infrastructure development. We not only actively participated in the formulation of China's first group standards for technical requirements of eVTOL vertiports, but also collaborated with local governments and customers to establish EHang 216-S vertiports and the low-altitude urban air mobility operations center demonstration projects in Guangzhou, Hefei, Shenzhen, Zhuhai, Taiyuan, Wencheng and among other locations. Thirdly, operational standards and certification. In July, the CAAC accepted the air operator certificate or OC applications submitted by the 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 the 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 EHang 216-S in the critical areas of our 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 the eVTOL 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 sustaining improvements. We have also cooperated with more high-quality suppliers such as Zhuhai Enpower Electric Company, a leading EV powertrains provider into our system. This not only enhances the flight performance of our aircraft, but also helps to strengthen the stability of our supply chain and support our industrial layout. Also, our newly upgraded R&D laboratories are nearing completion at our new headquarters, designed to support the development and the testing of new technologies and components, such as batteries and electric motors. I'm also delighted to share with you that our new headquarters and the supporting facilities located on the banks of the Pearl River in Guangzhou Huangpu district are currently under construction. This complex will feature a state-of-art exhibition center and 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 eVTOL 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 a leader in the UAM industry. Throughout, we have remained steadfast in our commitment to exploring pilotless passenger-carrying aircraft. And its applications driving innovations in technologies, concepts and standards. From pioneering the world's first pilotless passenger carrying eVTOL prototype to achieving the safe and reliable flights of pilotless evidence, from the absence of industry standards to establishing and shaping them, and subsequently obtaining the world's first type certificate, production certificate and standard air worseness certificate, we have consistently pushed boundaries from zero to one through innovations and perseverance, contributing to shaping this urban air mobility industry. Today, our years of hard work and dedication have led to strong and stable financial performance and the long-term growth trajectory. With our passion and the respect for the aviation industry, we will continue to drive 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.
Zhao Wang: 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 secure standard airworthiness certificate for each aircraft that we have delivered. Our sales and delivers continue 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, Zhejiang Province and received a purchase order with an additional purchase plan for up to 300 units of EH216-S. We have already delivered a 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, making a milestone for development of the low-altitude economy in Shanxi Province. This delivery is part of 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 the second quarter, EHang also delivered EH216-S to our customers in Guangdong, Hainan, Jilin, Liaoning, and Japan. In July, we signed the Sales and Operations Corporation agreement with KC Smart Mobility, a subsidiary of Hong Kong's largest non-franchised bus operator, Kwoon Chung Bus Holding 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 means 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, and so on, to ensure that personnel are certified and on duty to ensure operations 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 surfaces 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 academy education, license management, and so on. For the industry's future large-scale, standardized and professional operations, our joint training program with the Civil Aviation Flight University of China is now in a 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 the Wencheng County Lake. Each of these sites is equipped with facilities including dedicated vertiports for EH216-S, hangars, and the passenger service areas. In addition, many local governments are planning to build operation networks for future air mobility. For example, Shenzhen targets to set up a 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 a 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 reviewing of Heyi Aviation's application documents and is about to conduct 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 have 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 strategy partnership with China Southern General Aviation, a leading general aviation service provider under the China Southern Airlines Group. Together, we are planning to introduce a range of services including eVTOL tourism, cross-island flights and cargo transportation at Zhuhai Airport, Chimelong Ocean Kingdom and surrounding islands. Moreover, we are thrilled to see several local governments, including those in Shenzhen, Guangzhou, Hefei, and Zhuhai, are offering direct subsidies for 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 continue to expand into the Middle East market in the second quarter. In April, we reached a strategy cooperation with the Abu Dhabi Investment Office and a multilevel group. They will support our development in UAE and the Middle East region. In May and June our EH216-S completed the 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.
Conor Yang: 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 analysis are available in our early 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 second quarter 2024. We exceeded our revenue guidance by over 13%, achieved adjusted net income, and have generated positive operating cash roll 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 dive into details of our second quarter results. Total revenue in second quarter were RMB102 million, representing a significant increase of 919.6% year-over-year and a 65.3% increase from prior quarter. The increase were primarily driven by higher sales volume of EH216 series products. We delivered 49 units of EH216 series products in second quarter, a significant growth from five units a year earlier and 26 units in first quarter 2024. Growth margin remains consistently high at 62.4% in second quarter, up 2.2 percentage point from 60.2% in second quarter 2023, and a 0.5 percentage point increase from 61.9% in first quarter 2024. The increase were mainly due to changes in revenue mix. Our high gross margin continued to underscore our competitive edge in the eVTOL sector. In second quarter, our adjusted operating expenses, which are operating expenses excluding share-based compensation expenses, were RMB70.6 million, up 21.6% from RMB58 million in second quarter 2023, and up 29.6% from RMB54.5 million in the prior quarter. The increase was mainly due to higher sales related conversations, expansion of sales channel and increased expenditures on different models of eVTOL aircraft. Second quarter adjusted operating loss was $4.7 million, a notable 90.9% improvement from RMB51.3 million in second quarter 2023 and a 62.9% improvement from $12.6 million in first quarter 2024. This quarter, we are proud to have achieved adjusted net income earlier than anticipated. Adjusted net income in second quarter was RMB1.2 million compared to adjusted net loss of RMB51.8 million in second quarter 2023 and adjusted net loss of RMB10.1 million in first quarter 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 second quarter, our cash, cash equivalence, short-term deposit, restricted short-term deposit, and short-term investment balances were RMB988.2 million. Additionally, we have raised more than $76 million from the at-the-market offering as of today. With the strengthened liquidity position and our confidence in future growing operating cash flow, we will not continue selling ADS under the at-the-market offering in 2024. The process already raised will fill 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 product expansions, new headquarters in Guangzhou, upcoming commercial operations and other business purposes. With the EH216-S having secured three certificates and our OC applications accepted by CAAC, we are well positioned to commence commercial operations setting the stage for new phase of growth. We expect total revenue 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 second quarter, we are confident that this upward trend will continue and ultimately led to full year positive cash flow in 2024 and foreseeable adjusted net income in 2025. That concludes our prepared remarks. Let's now open the call for questions. Operator, please go ahead.
Operator: Thank you. [Operator Instructions] And now we're going to take the first question. And it comes from Laura Lee from Deutsche Bank (ETR:DBKGn). Your line is open. Please ask your question.
Laura Lee: Hey, thank you for taking my question and congratulations on the strong quarter. So my first question is, thinking about the timeline of commercial operation to oversee markets. When would you expect to start that? Is that like 2025 realistic?
Huazhi Hu: [Foreign Language] [interpreted] Here's the English translation. We've been actively extending our presence in the international market. But studying commercial operations in overseas countries depends on getting the local regulatory approvals and the certification. Right now, EHang is working with CAAC in advancing bilateral worthiness agreements for the validation of tax certificate or VTC of the EHang 216-S with other countries' aviation authorities such as UAE, Brazil, Indonesia, and Thailand, et cetera. The timeline depends on the local regulator's schedule and the progress. And throughout the process, EHang will actively cooperate and provide the required documents to push forward the process. And besides, we have already made a few deliveries to overseas markets, like the Middle East and Indonesia, and conducted a demo flight there. And 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, having a way for the VTC certification. Thank you.
Laura Lee: Okay, thank you so much. I appreciate the color. And my second question is, I think we get really impressive gross margin of over 60%. Just trying to understand what percentage of our supply chain actually we share or overlap with the EV or the joint business.
Conor Yang: Okay, most of our procurement are from China, domestic, with some electric components or chips imported from overseas. And battery design is different than the EV car. So we design our own battery, as well as we design our own electric motor and we outsource to suppliers in China. And so in general there are certain portions overlapping with the EV cars, but mostly are different. The [Technical Difficulty] of the aircraft. So for most part that we produce and we assembly in our own factory in [indiscernible] factory so far. Thank you.
Laura Lee: Okay. Yes, thank you for the color. Yes, congratulations again for the direct delivery. Thank you.
Conor Yang: Thank you.
Operator: Thank you. Now we're going to take our next question. And the next question comes from Lan of Ting Song from Goldman Sachs (NYSE:GS). Your line is open. Please ask the question.
Ting Song: Hi. Thank you for taking my question. So I will ask it together. My first question is about the progress of EHang obtaining the TC of VT-30. As we see that the VT-30 and EH216 is in different sizes and features. So what are the key challenges of VT-30 where you developed compared to the EH216? And my second question is on the R&D spending. So 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.
Huazhi Hu: [Foreign Language] [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 the back performance. And we will keep you updated on this and we will also submit the TC application for our lift-and-cruise model once it's released. And since the EH216-S now has three required certificates. So our main focus is on its sales and operations. And the EH216-S is perfect for the air transportation within the city, because it is compact and it does not need large take-off and landing areas. 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 EHang 216-S. That is suitable for the air taxi uses within the urban area. Thank you.
Conor Yang: Okay. This is Conor. I'll answer the second question regarding R&D. On the second quarter, R&D expenses is about adjusted [Technical Difficulty]. So going forward, we expect that the R&D expenses will be around 45% to 50% of our total OpEx. And we are committed to our R&D development. And for example if you compare the number of first quarter R&D expenses, actually we have increased about 42% of R&D expenses for first quarter. And 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 [indiscernible]. And that will include expenses on the R&D materials and our R&D team expansion, test flight, and airworthiness certification expenses. I would say that we believe our gross rate of revenue will be -- year-over-year, will be a lot higher than overall OpEx. So even though we continue to increase our R&D expenses, the R&D expenses as a percentage of the revenue will continue to drop in the coming years. Thank you.
Operator: Thank you. Now we're going to take our next question. And the next question comes from the line of Cindy Wang from Morgan Stanley (NYSE:MS). Your line is open. Please ask your question.
Cindy Wang: 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? And also, could we have a rough idea on geographic mix in terms of the older backlogs? So that's my first question.
Huazhi Hu: [Foreign Language] [interpreted] Currently, our orders [Technical Difficulty] has over 1,100 units in the China market. We plan to deliver this batch over the next one to two years, per our customers' request and their business development and the pace of their placing orders. We are getting more and more new customers and orders, so we expect 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. And for this year, we will also help our customers to apply OC, setting up demonstration projects in pioneer cities to exemplify eVTOL operation. And in the future we aim to replicate this operational site and share our experience in more locations [indiscernible].
Zhao Wang: To add on your question about distribution on the geographic mix, the orders, if you recall that the fourth quarter last year and as well as the first quarter this year, are obviously over older revenue contributes around 20% to 25% percent of our total revenue. But since the [indiscernible] government has promoting no [Technical Difficulty] we're seeing a very rapid growth [Technical Difficulty]. So we're expecting that in terms of geographic mix that will be 90% from China for this year and next. And the percentage of the overseas revenue will decrease from last year, even though the international demand is still quite strong. Thank you.
Cindy Wang: Thank you. That's pretty comprehensive. And my second question is regarding gross margin. So how should we think about the gross margin over time, especially after we take up commercial operations?
Conor Yang: Right, the 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 a like a leverage in terms of procurement. On the other side, we continue to improve certain features of our 216. So net-net, after we get the TC we will still maintain a [indiscernible] plus growth margin [indiscernible]. In terms of the overall NIM margin, we have achieved adjusted [indiscernible] second quarter and as we have seen that very, very strong revenue growth. So we are expecting -- with the revenue growth rapidly [Technical Difficulty] net income margin will continue to improve in the next many years to come. Thank you.
Cindy Wang: Thank you.
Operator: Thank you. Now we're going to take our next question. And the question comes from the line of Cindy Huang from -- my apologies. From Yu Chen from Haitong Securities. Your line is open, please ask your question.
Yu Chen: Congratulations for the company business program. And 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 site commercial and pricing strategies for each flight from starting a commercial operation. My second question is, we noticed that the company is actively promoting the establishment of UAM operations sites and personnel training across various places. What is your current operation cooperation model with local governments or customers? [Foreign Language]
Huazhi Hu: [Foreign Language] [interpreted] For your first question, besides the EHang General Aviation and Hefei Heyi Aviation, partners in Guangzhou, Shenzhen, Taiyuan, and Wuxi, among other cities, are also actively preparing their OC applications. Once the local operators have obtained the TC, they will first start operations at our new headquarters in Guangzhou and Hefei, Luogang Central Park and more sites in Shenzhen, Wuxi, Taiyuan, Wenchang, and starting from the area of sightseeing use cases. And 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 risk and uncertainty. And for the question on the pricing, ever since seeing is constantly our targeted use cases. Compared to the helicopters, our price can be half of them or even lower. It's very competitive because the EHang 216-S acquisition cost and maintenance cost is much lower than a helicopter and we don't have pilot costs. Moreover the local governments are offering subsidies for eVTOL route operations. For example, in Shenzhen and Hefei, they plan to offer subsidies for eVTOL operators for air sightseeing and air transportation within and between cities. And the subsidies range from RMB100 to RMB300 per person for each flight. Thank you. And for your second question, the 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 a joint venture with the local government or partners through the EHang General Aviation to provide eVTOL operation services such as Heyi Aviation in Hefei and the Pengcheng Wing established with our customer boarding group in Shenzhen. So our cooperation model works like this. EHang provides the necessary support, including the after-sales services, operational guidance, technical specs, and the personnel training. While the government and customers, they are responsible for planning and building the infrastructure. The joint [Technical Difficulty] and 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 and replicated and sustained. Thank you.
Yu Chen: Thank you for your answers.
Operator: Thank you. Now we're going to take our next question. Just give us a moment. The next question comes from [Gareth Zhao] (ph) from [TF Securities] (ph). Your line is open, please ask your question.
Unidentified Analyst: So, congratulations on company's outstanding performance this quarter. I have two questions. The first one is add-on, so do you expect to maintain the quality growth trend? Looking forward, how do you view the company's revenue growth trajectory?
Conor Yang: Thank you for your question. This is Conor. In terms of pre-orders over 1,000 units in China. And our production has been steadily ramping up [indiscernible]. So we expect to maintain the revenue growth in the third quarter. So our guidance for the third quarter is RMB123 million. That's more than 300% [indiscernible] and 20% growth for the quarter. [indiscernible]market in China, there were 10,000 units in demand in 2016. 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. Thank you.
Unidentified Analyst: Okay. Thank you. That's very clear. So my second question lies in overseas market. So we have noticed that we have expanding Middle East market recently. So what's your competition, like advantage in market like Middle East? Do these countries tend to favor a little model second fly longer distance?
Huazhi Hu: [Foreign Language] [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 2016, sorry, 2017. In terms of the airworthiness certification, we also have an advantage over our peers. The UAE's General Civil Aviation Authority, or GCAA, is moving toward a framework agreement with 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, making the first of its kind in the UAE with GCAA's approval. It's a very significant milestone that lays the foundation for our future VTC. And Abu Dhabi are planning UAE infrastructure now, including the [indiscernible] 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. And we believe that the flight range is not a key issue for eVTOL’s. What really matters is to meet the needs of the passengers and the feed the specific use cases. We've been seeing growing interest and demand for EHang 216-s in the Middle East market, particularly for the urban air transportation. And we will be introducing a new type of aircraft to serve for more diverse [indiscernible]. Thank you.
Anne Ji: Excuse me, Gareth, any further questions?
Operator: Thank you. Now we're going to take our next question. And the question comes from the line of [indiscernible] from [indiscernible] Security. Your line is open. Please ask your question.
Unidentified Analyst: Okay, thank you. So first, congratulations on the company's strong performance and business progress this quarter. Here I have two questions. So for the first, so I mean with the capital expansion plans underway in Guangzhou, Hefei and other locations, so could management provide more insight into its capital expansion plans and what can we expect in terms of the capital expenditure over the next two years? So it's my first question. Thank you.
Zhao Wang: Yes, thank you. In our current Yunfu facilities, we plan to do more automation. As you know, we have signed a strategic agreement partnership with GAC, and they have lots of experience in automation, 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. And on the other side, Hefei will build assembly plant. That's our plan. So overall in the next year, we should add some additional 1,000 annual production for next year. In terms of CapEx, we're building our -- we're innovating our new headquarters. We're building a lot of facilities. We're building our R&D labs. Also building a test supply center and together with all these factory expansion. So we are expecting -- now expect the CapEx for 2024 will be about $15 million and CapEx for 2025 will be around $20 million. Thank you.
Unidentified Analyst: Okay thank you for your answers and my second question is, could management provide more information on recent ATM financing and as companies financial plans for the future?
Conor Yang: Okay, thank you. Since April we have raised $76.2 million through our ATM program without disturbing the market. Our average price actually for all this $76 million, the average price is $16.5 per share. Right now with the rapid revenue growth and consistent positive cash flow from operation, we decide not to continue selling ADS under the ATM program for this year. And we're always looking for the best financing strategy and also the optimize our capital structure to help the company to build the strategy and also to drive our business growth. Thank you.
Unidentified Analyst: Okay. Thank you very much for your answer and congratulations again for the company. So thank you.
Conor Yang: Thank you. Operator.
Operator: Thank you all. Given the time is limited, let me turn the call back to Ms. Anne for closing remarks.
Anne Ji: Thank you, Operator. Thank you all for participating in our 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 Canada information provided on our IR website. We appreciate your interest and look forward to our next earnings call. Thank you.
Operator: That concludes our conference for today. Thank you for participating. You may now all disconnect. Have a nice day.
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