Good morning and good evening, everyone. Welcome to Cango Inc's. Third Quarter 2021 Earnings Conference Call. [Operator Instructions]. The call is also being broadcasted live on the company's IR website. Joining us today are Mr. Jiayuan Lin, Chief Executive Officer; and Mr. Michael Zhang, Chief Financial Officer of the company. Following management's prepared remarks, we will conduct a Q&A session. Before we begin, I refer you to the safe harbor statement in the company's earnings release, which also applies to the conference call today as management will make forward-looking statements. With that said, I am now turning the call over to Mr. Jiayuan Lin, CEO of Cango. Please go ahead, sir.

Hello, everyone, and welcome to Cango's Third Quarter 2021 Earnings Call. The ongoing shortage of automotive chips and other key auto components continue to severely restrict global car production and sales in the third quarter. In addition, a resurgence of the COVID-19 pandemic in the Southeast Asia caused widespread production cuts and temporary shutdowns among global automakers, delivering a serious blow to auto supply in the second half of 2021. As the world's largest automotive consumer market, the Chinese car market bore the brunt of these disruptions. As of the end of the third quarter, domestic car production and sales have declined year-over-year for several consecutive months. Given the dual effects of the epidemic and the economic downturn, consumer demand is very weak, especially in lower-tier markets. And the auto market shows a pattern of weakness in both supply and demand. The tough market conditions were broadly consistent with our expectations and impacted our third quarter business accordingly. Nevertheless, we achieved total revenues of RMB801 million in the third quarter, beating our guidance. Revenues from our car trading transaction business were RMB429 billion -- RMB429 million, accounting for nearly 53.6% of total revenues. Revenues from our automotive financing facilitation and aftermarket services facilitation businesses were RMB267 million and RMB42.7 million, respectively. In terms of the bottom line, net loss was RMB417 million due to the fair value change of our investment in Li Auto. Among our three core businesses, the challenging market conditions most directly impacted our automotive financing facilitation business. Given insufficient car supply, consumers' wait-and-see attitude and the falling car sales, the company facilitated financing transactions totaling RMB6,211 million in the third quarter, down 20% quarter-over-quarter. The total outstanding balance of Cango-facilitated financing transactions was RMB47,955 million as of September 30, 2021. At the same time, asset quality…

Thanks, Jiayuan. Hello, everyone, and welcome to our third quarter 2021 earnings call. Before I start to review our financials, please note that unless otherwise stated, all numbers are in RMBterms and all percentage comparisons are on a year-over-year basis. Despite the ongoing uncertainty due to the global chip shortage, our third quarter results demonstrate the flexibility and resilience of our business model. We recorded total revenue of CNY800.6 million, outperforming our previous guidance. Looking at the performance of our 3 core businesses in the third quarter. Revenue from our car trading transaction were CNY429.2 million, continuing to serve an important growth driver. Revenues from automotive financing facilitation and aftermarket service facilitation were CNY266.5 million and CNY42.7 million, respectively. Now let's move on to our cost and expenses during the quarter. Total operating costs and expenses in the third quarter of 2021 were CNY839.6 million compared to CNY300.4 million in the same period 2020. This was mainly due to the related costs incurred by car trading transaction business, primarily as a result of the increase in revenue from car trading transaction. Sales and marketing expenses, general and administrative expenses and research and development expenses each decreased as a percentage of total revenue in the third quarter of 2021. Cost of revenue in the third quarter of 2021 increased to CNY610.5 million from CNY180.9 million in the same period 2020. As a percentage of total revenue, cost of revenue in the third quarter of 2021 was 76.3% compared to 41.6% in the same period 2020. And the change was primarily due to an increase in the amount of car trading transaction. For automotive financing facilitation services...

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Good. Thank you, operator. Cost of revenue in the third quarter of 2021 increased to CNY610.5 million from CNY180.9 million in the same period 2020. As a percentage of total revenue, cost of revenue in the third quarter of 2021 was 76.3% compared to 41.6% in the same period 2020. And the change was primarily due to an increase in the amount of car trading transaction. For automotive financing facilitation and aftermarket services facilitation, cost of revenue as a percentage of relevant revenue was around 50.1% in the same period 2021. Sales and marketing expenses in the third quarter of 2021 were CNY46.8 million compared to CNY41.9 million in the same period 2020. As a percentage of total revenue, sales and marketing expenses in the third quarter of 2021 was 5.8% compared to 9.6% in the same period of 2020. General and administrative expenses in the third quarter of 2021 were CNY64 million compared to CNY52.2 million in the same period 2020. As a percentage of total revenue, general and administrative expenses in the third quarter of 2021 was 8% compared to 12% in the same period 2020. Research and development expenses in the third quarter of 2021 were CNY17.4 million compared to CNY14.2 million in the same period 2020. As a percentage of total revenues, research and development expenses in the third quarter of 2021 were 2.2% compared to 3.3% in the same period 2020. Net loss on risk assurance liability in the third quarter of 2021 was CNY55.5 million compared to a net gain of CNY12.9 million in the same period 2020. We recorded a loss from operations of CNY39 million in the third quarter of 2021 compared to an income of CNY134.5 million in the same period 2020. Due to the fair value change of the company's investment in Li Auto, net loss in the third quarter of 2021 was CNY416.5 million. Non-GAAP adjusted net loss in the third quarter of 2021 was CNY392.5 million. On a per share basis, diluted net loss per ADS in the third quarter of 2021 was CNY2.88, and diluted non-GAAP adjusted net loss per ADS in the same period was CNY2.72. Moving on to our balance sheet. As of September 30, 2021, we had cash and cash equivalents of CNY906.4 million compared to CNY1.5 billion as of June 30, 2021. As of September 30, 2021, the company had short-term investments of CNY3.6 billion compared to CNY3.2 billion as of June 30, 2021 -- compared to CNY3.2 billion as of June 30, 2020. Looking ahead to the fourth quarter of 2021, we expect our total revenue to be between CNY950 million and CNY1 billion. Please note that this forecast reflects our current and preliminary views on the market and operational conditions, which are subject to change. This concludes our prepared remarks. Operator, we are now ready to the question. Thank you.

[Operator Instructions]. Our first question will come from Shelley Wang with Morgan Stanley.

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I will first respond to the third question, which is about the recovery of the retail sales. If you look at the industry, the chip shortage continues to impact the entire auto industry. We find that leading to inventory depletion for OEMs and the dealers and a drop in deliveries for carmakers, both of which affect new car sales. According to the official data, the chip shortage has eased slightly in the last quarter, but the supply capacity hasn't materially improved. Going into the fourth quarter, a traditional season to drive the year-end sales due to the ongoing supply shortage, well, we don't expect the dealers to enhance proportional measures. From the company's perspective, thanks to our successful initiative over the past few quarters, our car trading transaction business developed steadily during the third quarter. And to the second question about banks, is it easier to get car loans from the banks? Actually, we have observed that there is a shift in the preference of banks in which asset targets that they held and now are turning from the property assets, banks are looking more and more into the automotive car loans. And actually, car loans have long been one of an important asset targets of the banks. So overall, the current loan volume of banks have been increasing steadily over the past few years, and we are quite optimistic and positive of getting support and loans from the bank.

So I would like to respond to the first question of Shelley, which is why in the third quarter, the revenue has almost doubled year-on-year, but the year-on-year growth of gross margin is negative? What is the business that is dragging down the gross margin? And I can provide a couple of explanations. First is if you look at our main business, which is the car trading transactions business, it is a low-margin business. So even though the revenue of this business goes up very quickly in the third quarter, but its contribution to our margin is on the low side. And the second explanation, the traditional drivers for our gross margin is our automotive financing facilitation business. If you look at this business, it had a 15% growth year-on-year. However, there is a shift in the business landscape, which is we found our customer base as well as our channels and those dealers are moving from a lower-tier to higher-tier market, including Tier 1 cities. So a lot of our dealers are in those Tier 1 cities, meaning that we have to pay them more commission, which is leading to an increase in our cost of providing the automotive financing facilitation service and have a significant impact on our gross margin. And the third explanation is from our aftermarket services, which is led by -- mainly by insurance. Insurance and aftersales market services are a source of revenue and gross margin as well. But due to the third round of reform of the insurance premium, the gross margin and the revenue from this part of business also came down, and it impacted our gross margin in the third quarter. So based on those explanations, even though you find the revenue and the total amount of revenue increased in the third quarter, the business structure changed and our cost goes up. That will impact our gross margins.

[Operator Instructions]. Our next question will come from David Pan with Goldman Sachs.

[Foreign Language]

[Foreign Language]

I would love to respond to the first question, which is to give you more perspectives on the business extension from lower-tier cities to the higher-tier, like Tier 1, Tier 2 cities. If you look at the history of Cango, we started our business in the lower-tier cities. Along with more collaborations with those financial institutions and our optimization of our financial-related products, we are now extending our business and strategic layout to high-tier cities. And we are starting to work with luxury 4S dealers and other large-scale dealer groups. So if you look at the home market of automotive financing and the car transaction market, this market is basically dominated by the large-scale dealer groups and luxury 4S dealers. So on one hand, internally, we are perfecting our sales teams as well as our product matrix. On the other side, we start to collaborate with those luxury and the high-end and the large-scale dealer groups. This is one perspective. Then second is it is in line with our strategic intention for business transformation because ultimately, what we want to do is a automotive transaction and service integrated platform. To build that network, we have to work with those 4S dealers and from luxury brands and large-scale dealers groups. If you look at the supply chain as well as dealer service, I think our dealer collaboration and such business expansion is paramount and inevitable. So this is our basic business logic for such an expansion.

And I just want to add one more thing. You know that this is a very competitive segment. So as a relatively new service platform, to enter into that segment, we do have to pay the marketing as well as the operation cost. So if you look at the short-term financial performance, this may drag down on our gross margin in the way that the cost of revenue will go up. And to respond to your second question, we are very optimistic and positive on the prospects of an NEV market. As you know, we work deeply with Li Auto, and we still held 8 million shares ADS of Li Auto. And our plan is to hold them for a long term. Besides Li Auto, we're also a nationwide service partner. And we cooperate with a lot of NEV brands, including Xiaopeng, BYD, HOZON, Aiways, Polestar and Beijing EV as well as other NEV vehicle models produced by Dongfeng DF, et cetera. So at present, our financing and insurance capabilities allow us to provide products and services to those NEV manufacturers on a relatively large scale. And based on our strength, we can also help those NEV manufacturers to better enter into the lower-tier markets. And based on our offline scenarios and service network, we can empower them to acquire customers and to provide better services in those lower-tier markets.

As we have no further questions at this time, this concludes our question-and-answer session, which also concludes today's call. Thank you for attending today's presentation. You may now disconnect.