[Foreign Language]

[Foreign Language] Thank you, Mr. Hu. Hello, everyone. I'm Edward Xu, Chief Strategy Officer of EHang. First, I'm glad to help translate the CEO's remarks into English. [Interpreted] Hello, everyone. Thank you all for joining our earnings conference call today. I would like to start by sharing with you our business progress for the first half of 2021. Then I will give you some highlights on our business plans for the second half. As I shared with you in our last quarterly earnings call, EHang has leveled away UAM operation with the aim to become an urban air mobility platform operator, empowered by our autonomous aerial vehicles. To achieve this exciting goal, we have made relentless efforts and careful preparations in the past few months. As you know, we newly released our VT-30 passenger-grade AAV as one of our flagship product besides the EHang 216. The release of the VT-30 fully demonstrated our technological strength in the field of AAV industry, and it is also complementary to the EHang 216, which is designed for short to medium range intra-city air mobility. Our priority is to launch intra-city air mobility first, with application of EHang 216 to make urban air taxi a reality. I believe many of you know that we have made quite a number of trial flights carrying passengers and cargoes during recent years. There are still people looking forward to taking a ride with our EHang 216 for flight experience. But I think what EHang has done essentially in the past few years is not only to build AAVs, but to build safety. Over the years, we have been making trial flights with good safety record. Meanwhile, we have accumulated abundant experiences and also products that may help us think seriously for further improvement, which we have been…

Thank you, Edward, and hello, everyone. Before I go into details, please note that all numbers presented are in RMB, unless stated otherwise. All percentage changes are on a year-over-year basis, unless otherwise specified. Detailed analysis are contained in our earnings press releases, which are available on our IR website. I'm going to highlight some of the key points here. As our business is strategically transitioning into a more operation platform-oriented model, we sell AAV product to third parties and at the same time are shifting towards an operation platform-oriented model. The shift is gradual and important. Our revenues indicated a delicate balance during this strategic transition period. In Q1 2021, total revenues were CNY 23 million, an increase of 22.1% year-over-year. The EHang 216 series of passenger-grade AAVs sold in Q1 was 15 units compared to 9 units in Q1 last year. Q2 revenues were CNY 12.2 million, a decrease of 65.9% year-over-year because 3 units of AAVs were sold in Q2 compared to 16 units sold in Q2 last year. This revenue decrease in Q2 is sending anticipated impact of this strategic transition. We continue to optimize the cost structure of our air mobility products and improve overall gross margin. Q1 gross margin was 53.2%, an increase of 3.9 percentage points from that in Q1 last year. Q2 gross margin reached a record high of 68%, 10.4 percentage points increase year-over-year. This was mainly due to the completion of a higher-margin command-and-control system for smart city management project in addition to continuous cost structure optimization in Q2. Adjusted operating expenses, which are operating expenses, excluding share-based compensation expenses, increased by CNY 3.4 million to CNY 34.5 million in Q1 and by CNY 24.5 million to CNY 59.9 million in Q2 compared to the numbers in the same period…

[Operator Instructions] We have the first question coming from the line of Tim Hsiao from Morgan Stanley.

Congrats on the results. Question from my side. The first one I think Mr. Hu at the beginning of this call mentioned that the company has a good progress in terms of transforming into the urban air transportation operator. So on a full year basis, could you please share some further information? How much of the revenue or how many percentage of the revenue could be contributed by this kind of air or urban transportation-related operation? And my second question is about the volume sales, because you mentioned EHang shipped 18 units in the first half. So just based on your guidance, it means that second half we still need to have some progress. But in light of the rising COVID lockdowns, what's our latest guidance regarding the volume? And how many of the units would be contributed by something like the government project, for example, EHang 216F? So those are my questions.

Okay. Thanks, Tim. This is Edward. I'll answer your first question -- I'll try to answer your first question because we may not have everything -- the numbers there. As you know that in the first half, we have been moving gradually from sales-centric model more towards the operation -- platform operator model, right? And -- but now the key bottleneck is still the regulatory issue, i.e., the Type Certification. So that's why we are also very focusing on this Type Certification. But why we are moving towards the operation so early is because in order to achieve this goal, we need to do more preparations and especially to set up our team. As you know, we recruited professionals from world-class organizations and set up a very talented team. And also, we need to accumulate enough experiences. And so as you can see, especially in the second quarter of this year, we made a lot of this preparation technically and in human resources. And also we visited so many places and did screening and testing of different spots for real operation, right? So that's all. I think we are in still in the very early stage to prepare all these necessary elements. This is a very necessary step for us to do, right? And so far, I think we made a very good preparation. And looking into the second half, we are going to launch the operation very smoothly. And yes, in the next few months, you are going to see the release of more operational routes and -- so which is a proof of our work. But in terms of revenues, as I said, so far, based upon our estimate for each AAV, our target is to generate about CNY 1 million of revenues. But this is based upon…

Tim, this is Richard. Thanks for the question. The second question I understand regarding the kind of the product sales situation. As we discussed a lot in our remarks, we're in the strategic transition from a product sales focused model to an operation platform-oriented model. And also, as Edward mentioned earlier, in the second quarter, the reattack by the COVID-19 outbreak in Guangdong had adverse impact on the product sales of our AAV in the quarter. But looking into the second half or the remaining period of this year, it is expected that our product sales focus will be more towards the firefighting model, EHang 216F, which -- that the technical examination by an SFE has been completed. After the technical examination completion, we actually have been working with the local emergency department and fire department of several cities, as we explained in our earnings release such as Qingdao city, Guangzhou city, Hezhou City, et cetera, to utilize EHang 216F in the urban fire rescue drills in those cities with those departments. So this has helped laid a good solid foundation for ongoing onward commercialization of EHang 216F. And our business teams have been following up with the relevant department in those cities trying to materialize the actual order. And there will be more cities in the progress.

[Operator Instructions] We have the next question. This is coming from the line of [ Vitovio from Drumal DP ].

Okay. Yes. Just one question to try to better understand the shift of your business. Basically you are saying to the investors that you are not more interesting to sell product. But you still have some facility as far as I understand going forward. So going into the future, do you think that the product making would be the big guys like just to mention some guys like Boeing, Airbus and so on? And you will be only -- let's say, you say managing the road infrastructure, all this kind of new frameworks that these aerial urban mobility will you need. But I don't know if you have a sort of projection when you say, okay, we need authorization or need approval, you mentioned you already have 16 routes. You may add 20 routes. The difficulty I have, maybe you have as well, is it's a completely new business, is how to tend to translate effect you get, let's say, 35 routes into potential free cash flow. So the question is, can you give to me, if you may, a flavor of one authorized route, let's say, in China or in Spain and Italian or in Italy, can translate for you in term of operating free cash flow? And -- because I think vis-à-vis the product -- because I never believed that we could make the product because to make the product, frankly, you need a lot of CapEx, maybe. Frankly speaking, investors doesn't like to make a lot of CapEx for a pretty interesting really new company like you because the CapEx for units to have a lot of money that you have for your current business but you don't have lot too much. So if you just can give to me a flavor of how to tell, let's say, one is the right route with one platform move into operating free cash flow?

Thank you for your question. Let me clarify that we are not saying that we are not selling our products. Actually, we are -- our new facility in Yunfu has just been launched and -- which increased our capacity to 600 units per year, right? So basically, as Richard mentioned, our sales were still going on and maybe we'll be more focused on the EHang 216F, the firefighting version, and as well as maybe some logistics version as well. But in terms of the standard EHang 216, we are more focusing on the operation because operation is very important. Without operation, there is no way for the ultimate commercialization. So -- but meanwhile, we still receive a good interest from our customers who are willing to buy. So the reason we are launching our sales operation model is just to set the model for our customers. And we are launching our operation route successfully and so that it can demonstrate the real value, right? Because as we estimate the operating margin of the -- of operating AAV can be as high as about 35% or even 40%, right, depending on the scale. So -- which can prove to be a very successful investment, right? So be attractive for our customers who would buy our AAVs for commercial purposes, right? So we are actually doing 2 ways. On one hand, we are launching the operation on our hand. And we are also helping our customers to launch operation. And so that's what this 100 Air Mobility Route Initiative is about. But on the other hand, we are welcoming our customers and new customers to buy the AAVs from us. And we -- but we integrate and consolidate all the operations on our platform. So that's the value of our platform. So I hope I make this very clear. And hopefully, this answers your question.

Okay. Yes. Yes. So when you say you shift internal is still an integration between your production and this, let's say, all other kind of peculiar facility? But still -- you still are going to produce for the retail basically?

Yes. We will still remain the OEM producer. We will continue to produce our AAVs, yes. That's for sure.

Seeing no more questions on the line, I would like to hand the conference back to Mr. Liu. Please go ahead, sir.

Thank you, operator. And thank you all for participating on today's call and for all your support. We appreciate your interest and look forward to reporting to you again next quarter on our progress.

Thank you. Ladies and gentlemen, that concludes -- thank you. Ladies and gentlemen, that concludes our conference call for today. Thank you all for your participation. You may disconnect now. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]