Good day, ladies and gentlemen, and thank you for standing by, and welcome to the EHang Third Quarter 2023 Earnings Conference Call. As a reminder, we are recording today's call. Now, I will turn the call over to Anne Ji, EHang's Senior Director of Investor Relations. Ms. Anne, please proceed.

Hello, everyone. Thank you for joining us on today's conference call to discuss the company's financial results for the third quarter of 2023. The earnings release is available on the company's IR website. Please note that conference call is being recorded and 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. Xin Fang, 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's 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 U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve 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 numbers presented are in RMB and are for the third quarter of 2023, unless stated otherwise. With that, let me now turn the call over to our CEO, Mr. Huazhi Hu. Please go ahead, Mr. Hu.

[Foreign Language] [Interpreted] This is the English translation of Mr. Hu's remarks. Hello, everyone. Thank you all for joining our conference call today. The third quarter of 2023 marks a significant milestone in our journey as we have successfully reached one of the most highly anticipated and thrilling achievements. Our self-developed EHang 216-S passenger-carrying unmanned aerial vehicle system has obtained the type certificate from the CAAC on October 13 this year, making it the world's first TC for an unmanned eVTOL aircraft. It is not only a milestone for EHang, but also serves as a guiding light for the entire eVTOL industry, paving the way for its future development. As the saying goes, being the pioneer in the new industry is no easy feat. It requires innovation from the ground up and unwavering determination from the outset. At EHang, we have always been committed to this principle to keep in mind our humble beginnings and never give up. In early days, when there were no established method for eVTOL airworthiness certification worldwide, we embarked on a journey of continuous exploration, experiment and improvement. It was in January 2021 that the CAAC officially accepted our TC application for the EHang 216-S. After that, over more than 1,000 days and nights, we persevered with relentless effort, overcoming challenges and demonstrating innovation. We also faced additional hurdles posed by the epidemic. Today, we have successfully completed the entire process of TC certification, starting from scratch, leading the way for unmanned eVTOL type certification. The EHang 216-S stands out as a disruptive and innovative product, boasting a range of unique features such as its all-electric nature, autonomous flying, fully back-up systems and cluster management, among others. As a result, it differs significantly from traditional piloted aircraft in terms of technical architecture, configuration, performance, functionality,…

[Foreign Language] [Interpreted] This is the English translation of Mr. Fang's remarks. Thank you, Mr. Hu, and hello, everyone. The achievement of the EHang 216-S TC in October this year makes EHang's transition from the product certification phase to the next stage of commercial operations. Aligned with our strategic positioning as an urban air mobility platform operator, the company is set to implement an integrated business model, driven by both product sales and operational services. Therefore, production, sales and operations are the three key drivers to our business growth. I will now share the latest updates and plans of our company in these three areas. Regarding sales, we successfully delivered 13 units of EHang 216 series products in the third quarter, marking a notable year-over-year and quarter-over-quarter growth. With the EHang 216-S receiving its TC, we're seeing a significant increase in business collaborations and product purchase demand from customers around the globe, especially from China. For instance, Shenzhen Boling intends to purchase 100 units of EHang 216-S, and we have delivered an initial five units for operational preparations. Moreover, in accordance with our strategic partnership with the Hefei Municipal Government is set to facilitate orders for at least 100 units of EHang 216 series products. As of now, the total sales pipeline for the EHang 216 series in China have more than 245 units, which will be delivered in phases as per customers' requirements. Regarding production, guided by the CAAC Central and Southern Regional Administration, we are steadily moving towards producing EHang 216-S according to its TC at our Yunfu factory. The initial batch of EHang 216-S produced based on its TC is scheduled to roll out our production line for deliveries to our customers in the fourth quarter of 2023. In terms of operations, the growth and the sustained…

Thank you, Mr. Fang. Hello, everyone. This is Conor. Before I go into details, please note that all numbers presented are in RMB and are for the third quarter of 2023, unless stated otherwise. Detailed analyses are contained in our earnings press release, which is available on our IR website. I will now highlight about some of the key points here. In third quarter, total revenue was RMB28.6 million, an increase of 248% from RMB8.2 million in the same period last year, and 186% increase compared to RMB10 million in second quarter. The increase was primarily attributed to the increase in our sales volume of EH216 series products. We delivered 13 units of EH216, up 225% year-over-year and 160% quarter-over-quarter. We've been seeing growing demand for our products upon obtaining the TC, and expect our revenue further increase and cash flow generation continue to strengthen in the next few quarters. Gross margin continued to stand at a high level of 64.6% in third quarter, an increase of 4.4 percentage points from 60.2% in second quarter, primarily driven by higher average selling price of our EH216. Furthermore, our distinctive advantage in the UAM industry allow us to enjoy higher margin over other type of electric transportation vehicles. In third quarter, our adjusted operating expenses, which are operating expenses excluding share-based compensation expenses, were RMB54 million, down 9.5% from RMB59.7 million in the same period last year and down 7% from RMB58.1 million in the second quarter. These decreases were primarily due to a reduction in professional service fees and a healthier situation in accounts receivable compared to last year, demonstrating effective cost control and improved operational efficiency. As a result, our adjusted operating loss in third quarter was RMB34.2 million, an improvement from a loss of RMB52.9 million in the same…

Thank you. [Operator Instructions] The first questions come from the line of Tim Hsiao from Morgan Stanley. Please ask your question. Your line is open.

Thank you for taking my question, and congratulations on receiving the type certificate from CAAC. I am Tim's colleague and will ask the question on behalf of him as he lost his voice due to a bad cold. Just a quick question about order backlog. Can we get a sense of the composition of current order backlog in terms of geographic mix and model mix? When...

Yes, thank you.

[indiscernible] EHang's revenue since company has obtained the type certificate?

Hi. Thank you for the question. Currently, our sales pipeline reached more than 450 units of unmanned eVTOL aircraft from China and other parts of Asia. This includes more than 245 units from domestic customers and 210 units of pre-orders from Asian overseas markets. There are also other countries -- from other countries that will be delivered after obtaining validation TC in these respective countries. And over 90% of our sales pipeline in the domestic and Asian markets are for EH216-S, and less than 10% orders from EH216 logistic version and also EH216 firefighter version. These sales pipeline will be delivered in stages per our customers' request. For instance, our [indiscernible] customers, they typically start with an initial purchase of three to 10 units for training and trial operations and local sites. Subsequently, as operation expands and demand increase, they will buy more products. So, these are precious timeline typically spans one to three years. So, we can see a significant increase in delivery volume in the fourth quarter upon obtaining the TC. Moving forward, we will provide revenue guidance for the next quarter in our quarterly financial reports. Thank you.

Thank you.

Thank you. We are now going to proceed with our next question. And the questions come from the line of Ting Song from Goldman Sachs. Please ask your question. Your line is open.

Thank you for taking my questions. Just a quick one. What's EHang's progress on getting TC certification in overseas market like Middle East or some other countries? Thank you.

[Foreign Language] My English is poor. I need translated by Anne. [Foreign Language] [Interpreted] Okay. The type certificate we have obtained is by CAAC. As we all know that in the past few years, the CAAC has reached a lot of bilateral recognition agreement with other aviation authorities in other countries. Now, we are promoting the communication between CAAC and with other civil aviation authorities. For example, recently, the Brazil Civil Aviation Authority had came to China. So first, we will prioritize the -- to work on the regions that we have orders in the local market. We believe we will make efforts to promote the VTC procedure, which means the verification of the type certificates in the local [counties] (ph) and we will provide support to that work. Before we obtain the VTC, we can deliver some products to the local market and do some training for the local clients. We will extend our market expansions at a proper pace to the international market. We believe that soon we will see our global exposures. So, the VTC is administrative work, so it's not as complicated as the type certificate. Yeah. That's my answer. Thank you.

Thank you. We are now going to proceed with our third question. The questions come from the line of [Rong Zhao from TS] (ph). Please ask your question. Your line is open.

Okay. Thank you for taking my questions. So, I have two questions on my side. And the first one is on EH216. So, I would like to ask whether the company sees the need to upgrade the product so as to increase the range of mileage judging from the current feedback from the demand side? And if so, what is the timeline and the cost outlook? And second question is about airworthiness certification in the EH216 logistic operation. What is the expected time to get TC? Thank you.

[Foreign Language] [Interpreted] Thanks for your questions. The EHang 216-S is designed for the short-distance air transportation within the city. So, according to our test, our product is capable to do the air taxi services within the city. In order to achieve the longer lifetime, we will continue to optimize our power system and the battery system. As you know that there are many companies in China have invested in the solid-state lithium batteries, for example, CATL, and recently, we have also invested in a domestic solid-state lithium battery company. So, we are making efforts to achieve the goal that to tackle the flight performance in the future. Our goal is to achieve a longer range, but meanwhile, we will ensure safety. During we are doing type certification with EHang 216, the VT-30 development pace is much slower, but now we are -- after the type certification of EHang 216, we are also developing and working on the long-range model, which is the VT-30, a lift-and-cruise model for the intercity longer-range air mobility. The EHang 216L have obtained the operations -- trial operation certificate for the cargo transportation previously. So after there is a certification standard for this kind of aircraft, we will supply for type certification for the EHang 216L. Before we obtain the type certificate of the EHang 216L, we can still expand our business based on the trial operation permit that we have obtained. As the EHang 216L and S share the same flight platform, so we can leverage the experience from the type certification for the passenger model, so we can expect to take a shorter time on the EHang 216L type certification than that of the passenger one. Thank you.

Thank you.

Thank you. We are now going to proceed with our next question. And the questions come from the line of [Laura Li] (ph) from Deutsche Bank. Please ask your question. Your line is open.

Hey, thank you for taking the questions, and congratulations on receiving the first type certificate. My first question is, we already talked about the backlog orders, but just clarification on this. Would you expect to be able to collect deposits? And also, when do you expect the first customer paying flight to occur? And my second question is, how should we think about the cash burn trajectory and your future financing plans? Thank you.

Yeah, thank you for the question. For your first question, as mentioned before that we are -- after securing the TC, we have seen a surge in interest and encourage from many domestic and global customers for our pre-order and order of intent. We charge a small non-refundable deposit which varies by customers to confirm their commitment to purchase. And for the purchase order, right now, we collect about 30% for down payment and then for the remaining 60% to 70% before delivery. So, for your second question on the cash burn situation and capital need, our current average monthly cash burn rate of our operation is less than RMB10 million or roughly less than about US$1.4 million. At the end of the third quarter, we have RMB295.6 million of cash, cash equivalent and short-term investments and restricted short-term deposit. Therefore, we believe that our current cash and cash equivalents of our anticipated cash flow from operations will be sufficient to meet our anticipated working capital requirement. Looking forward, as we sell and deliver more products per customers' request and steadily expand our commercial operations in the future, our cash flow will improve, and we are confident that our company can generate positive cash flow in the later part of 2024. Thank you.

Okay. Thank you so much.

Thank you. We are now going to proceed with our next question. And the questions come from the line of Xuan Chen from Haitong Securities. Please ask your question. Your line is open.

[Foreign Language]

Yeah. I'll kind of briefly repeat your question that -- your first question is the -- how about the order for the next two years, and then, the validation of type certificate in overseas, how long will it take, and thirdly, regarding the ASP price of 216. As we see that our guidance for the fourth quarter basically, the 216 volume has increased quite a lot, and for the next three years actually, I will say that the first year of -- next year of 2024, the majority of the order will come from domestic sightseeing places or scenic spots in China. We estimate that in China, there are over 6,000 scenic spots that can apply our products in their location to enhance their revenue. Even we use like 10% penetration rate in each site and use five units, that will be like over 3,000 216 demand from domestic scenic spot in the next several years. So 2024, we'll see strong demand coming out from scenic spot in China. And the application for oversea validation of TC will be a lot shorter than the TC we have obtained from CAAC. We are expecting that roughly about -- should not be -- maybe 12 months more or less for the local -- for the foreign government to get approval for validation TC. So, even though we have seen a strong demand from globally right now, but we expecting give a year of getting validation TC from different countries globally. We're expecting that global demand will come in a great way in 2025. So, in 2025, the growth driver will be the domestic scenic spot demand as well as the international order in 2025. And then, coming to the later part of 2025, for transportation purpose demand of our 216 will start…

Okay. Thank you for your color.

Thank you. Seeing no more questions in the queue, let me turn back the call to Ms. Anne for closing remarks.

Thank you, operator, and thank you all for participating on today's call. If you have any further questions, please contact our IR firm by email or participating our following investor events through the calendar information provided on our IR website. We appreciate your interest and look forward to our next earnings call. Thank you.

Thank you all again. This concludes the call. You may now disconnect your lines. Thank you.