Release Date: August 22, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- EHang Holdings Ltd (EH, Financial) achieved record-high delivery volumes and revenues in Q2 2024, with 49 units of EHang 216-S delivered and quarterly revenues reaching RMB102 million.
- The company secured three critical certifications for its EHang 216-S, making it the world's only eVTOL designer, developer, and manufacturer with such credentials.
- EHang Holdings Ltd (EH) has received over 1,100 units in bulk preorders in the Chinese market, indicating strong market demand.
- The company's Q2 gross margin was an impressive 62.4%, showing both year-over-year and quarter-over-quarter increases.
- EHang Holdings Ltd (EH) is expanding its production capacity through strategic partnerships, including a joint venture with Guangzhou Automobile Group (GAC) to enhance future production capabilities.
Negative Points
- The company faces inherent risks and uncertainties associated with forward-looking statements, which could result in actual results differing materially from expectations.
- Despite significant revenue growth, EHang Holdings Ltd (EH) reported an adjusted operating loss of RMB4.7 million in Q2 2024.
- The company’s R&D expenses are expected to remain high, accounting for 45% to 50% of total operating expenses, which could impact profitability.
- EHang Holdings Ltd (EH) is heavily reliant on the Chinese market, with 90% of its revenue expected to come from China, potentially limiting geographic diversification.
- The timeline for starting commercial operations in overseas markets is uncertain and depends on obtaining local regulatory approvals and certifications.
Q & A Highlights
Q: Thinking about the timeline of commercial operation to oversee markets when would you expect to start that? Is that like 2025 realistic?
A: We've been actively extending our presence in the international market. But starting commercial operations in overseas countries depends on getting the local regulatory approvals and certification. Right now, EHang is working with CAAC in advancing bilateral airworthiness agreement for the validation of type certificate or VTC of the EHang 216-S with other countries' aviation authorities such as UAE, Brazil, Indonesia, and Thailand, etc. The timeline depends on the local regulator's schedule and progress. Throughout the process, EHang will actively cooperate and provide the required documents to push forward the process. Besides, we have already made a few deliveries to overseas markets, like the Middle East and Indonesia and conducted a demo flight there. This helped us not only to expand the market to educate the public, but also to enhance the communication with local authorities for their recognition of our aircraft and our aircraft safety features, paving way for the VTC certification. (Huazhi Hu, CEO)
Q: 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.
A: Most of our procurement is from China domestic with some electric components or chips imported from overseas. The battery design is different than the EV car. So we design our own battery as well as our own electric motor and we outsource to suppliers in China. There are certain portions overlapping with EV cars, but mostly are different. For most parts, we produce and assemble in our own factory in Yunfu. (Conor Yang, CFO)
Q: What is the progress of EHang obtaining the TC of VT-30? What are the key challenges of VT-30 compared to the EH216?
A: Leveraging the VT-30 prototype, our R&D team is currently redesigning and upgrading our lift-and-cruise eVTOL model. We're enhancing the performance and will keep you updated on this. We will also submit the TC application for our lift-and-cruise model once it's released. The EHang 216-S now has three required certificates, so our main focus is on its sales and operations. The VT-30 series lift-and-cruise model is meant to complement our current product portfolio and use cases, designed specifically for intercity air transportation. (Huazhi Hu, CEO)
Q: What is your expectation of R&D spending in the next three years and what would be your key focus on the R&D investment?
A: In the second quarter, R&D expenses were about 45% to 50% of our total OpEx. We are committed to R&D development, focusing on optimizing the EH216 performance improvement and developing long-haul eVTOLs and other aircraft for both passenger carry and cargo. This includes expenses on R&D materials, team expansion, test flights, and airworthiness certification. We believe our revenue growth rate will be higher than overall OpEx, so R&D expenses as a percentage of revenue will continue to drop in the coming years. (Conor Yang, CFO)
Q: Could you give us a quick update on how many purchase orders we have on hand and when they will be delivered? Also, could we have a rough idea on geographic mix in terms of the order backlogs?
A: Currently, our orders and backlog have over 1,100 units in the China market. We plan to deliver these by batch over the next one to two years, per our customers' request and their business development. We are getting more new customers and orders, so we expect deliveries to keep growing. For this year, we will also help our customers to apply for OC, setting up demonstration projects in pioneer cities to exemplify eVTOL operation. (Huazhi Hu, CEO)
Q: How should we think about the gross margin over time, especially after we take up commercial operations?
A: Right now, we are the only company that can provide a product for commercialization, giving us pricing power. Even as we scale up, we will have leverage in procurement. We continue to improve certain features of our 216. After we get the TC, we will still maintain a strong gross margin. With the rapid revenue growth, net income margin will continue to improve in the coming years. (Conor Yang, CFO)
Q: 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?
A: 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 start operations at our new headquarters in Guangzhou and Hefei, Luogang Central Park, and more sites in Shenzhen, Wuxi, Taiyuan, Wenchang, starting from the area of sightseeing use cases. For pricing, compared to helicopters, our price can be half or even lower. Local governments are offering subsidies for eVTOL route operations, ranging from RMB100 to RMB300 per person for each flight. (Huazhi Hu, CEO)
Q: What is your current operation cooperation model with local governments or customers?
A: The EHang General Aviation is our wholly owned subsidiary, serving as an operation platform company to provide operational services to our customers, setting up demo projects and models. We have established joint ventures with local governments or partners to provide eVTOL operation services. EHang provides necessary support, including after-sales services, operational guidance, technical specs, and personnel training, while the government and customers are responsible for planning and building the infrastructure. (Huazhi Hu, CEO)
Q: Do you expect to maintain the quality growth trend? How do you view the company's revenue growth trajectory?
A: We have over 1,000 units in pre-orders in China, and our production has been steadily ramping up. We expect to maintain revenue growth in the third quarter, with guidance of RMB123 million, more than 300% year over year and over 20% quarter over quarter. We are confident that our revenue will achieve triple-digit growth year over year. The demand in China is over 10,000 units, and with international demand, we believe we will achieve a high growth rate for the next three to five years. (Conor Yang, CFO)
Q: What is your competition like advantage in market like Middle East? Do these countries tend to favor eVTOL model that can fly longer distance?
A
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
