Good day, ladies and gentlemen. Thank you for standing by and welcome to the EHang's Third Quarter 2024 Earnings Conference Call. Please note that the management’s prepared remarks and the subsequent Q&A session will be primarily conducted in Chinese. And the corresponding simultaneous or consecutive interpretation can be accessed on the English line. As a reminder all translations are for convenient purposes only. In any case of any discrepancy the management statement in the original language will prevail. To listen to the original marks by the management, please join the Chinese line. Additionally, both the Chinese and English lines are open for questions, and today's call is being recorded. I will now turn the call over to Anne Ji, EHang's Senior Director of Investor Relations. Ms. Anne, please proceed.

Hello everyone. Thank you all for joining us on today's conference call to discuss the company's financial results for the third 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 the Director of the Board. Before we continue, please note that today's discussion will contain forward-looking statements may 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 this 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 replicable law. Also, please note that all numbers presented are in RMB and are for the third 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.

Okay, hello everyone. Thank you very much for joining EHang’s earnings call. Since the third quarter of this year, our order deliveries and financial performance hit a record high again. We have also made exciting progress in multiple aspects such as the Air Operator Certificate Application and Certification Review, the development of low-altitude ecosystems, R&D of next-generation technology and products, as well as the expansion of overseas markets. All of these achievements underscore EHang’s commitment and capabilities in accelerating our pace towards commercial urban air mobility operations. We have become the world's first eVTOL company to obtain the three airworthiness certificates for pilotless aircraft, demonstrating we have the capabilities for mass production and deliveries. In July, the Civil Aviation Administration of China officially accepted the OC application submitted by Guangdong EHang General Aviation and Hefei Heyi Aviation. This is the world's first OC project for pilotless passenger carrying aircraft, signifying that the first related operational standards are about to be established, which will provide safety assurance for the commercial operations of EH216-S in China. Currently, the OC review is progressing well, and the first OC is expected to be issued by the end of this year. Simultaneously, we are actively assisting our customers and partners in Shenzhen, Guangzhou, Wuxi, Zhuhai, and Wencheng, Wenzhou in preparing their OC applications as well, with the aim to speed up the commercial operations of EH216-S nationwide and promote the development of low-altitude economy demonstration zones across more cities. Since Q3, China's central and local governments have enhanced their support for the low-altitude economy industry, further highlighting its strategic role as an emerging economic growth engine. China's National Development and Reform Commission plans to establish a dedicated bureau for low-altitude economy, which will better coordinate resources across different segments for fostering the industry development. In…

Thank you, Mr. Hu, and hello, everyone. Let me first provide an overview of our product delivery status for the third quarter. In Q3, we received repeat orders from existing customers as well as new customers. Specifically, we completed the deliveries of 40 units to the Shanxi client in the third quarter, reaching a total of 50 unit deliveries to this client. We also delivered 3 units to our Wencheng client in Wenzhou, Zhejiang province in the third quarter, reaching a total of 30 units delivered. Additionally, we delivered 5 units to each of Shenzhen Boling and Hefei Heyi customers for their repeat orders in the third quarter to be deployed in their expanded site at the UAM operation Center in Luohu District, Shenzhen, and the newly established UAM hub at Luogang Park in Hefei. Furthermore, we also secured new orders and completed deliveries for clients in Fujian, Chongqing, Tianjin, Guizhou, Shaanxi and [Indiscernible] this quarter. In summary, we delivered a total of 63 units of the EH216-S series in the third quarter. Currently, our domestic order book is more than a 1,000 units. As an aircraft manufacturer, EHang is not only responsible for the production and sales of the aircraft, we're also providing customers with maintenance, repair, and related consulting services. Due to the special nature of the aircraft, we are also assisting our customers from various regions in preparing for their operational certification applications, striving to obtain approvals from the CAAC as soon as possible. Before that, we are also assisting customers with services including operational site design, route planning, and business process planning. For those operation companies that have submitted to their OC applications and are under regulatory review. We provide full technical support to assist to them in safety improvements to meet the safety operation requirements…

Thank you, Mr. Wang. Hello, everyone. This is Conor. Before I dive into the details, please note that all numbers presented are in RMB and are for the third quarter of 2024 unless otherwise stated. Detailed analysis are available in our earnings press release on our IR website. I will now highlight some key points. In Q3, our efforts have once again delivered robust results. We exceeded our revenue guidance by 4%. Recorded adjusted net income for the second quarter in a row, and maintain positive operating cash flow for the fourth consecutive quarters. We are also making steady progress on the OC front as we gear up for upcoming commercial operations. Turning to the specifics for Q3, our total revenues were RMB128.1 million, resulting in a 347.8% year-over-year increase, and a 25.6% increase from the prior quarter. This was primarily driven by the higher sales volume of EH216 series products. In this period, it delivered 63 units of EH216 series products, achieved a new record high for quarterly deliveries, compared to 13 units in Q3 2023 and 49 units in Q2 2024. Q3 gross margin was 61.2%, compared to 64.6% in Q3 2023 and 62.4% in second quarter this year. Despite the modest decrease, our gross margin remained high, reflecting our competitive advantage in the eVTOL sector. Adjusted operating expenses, which exclude share-based compensation, were RMB86.9 million at a 60.9% increase from RMB54 million in Q3, 2023 and up 23.1% from RMB70.6 million in the prior quarter. The increase were mainly due to expanded sales related expenses, higher employee compensation, expansion of sales channels, and increase investments in various eVTOL models. The quarter's adjusted operating income was RMB9 million, compared to an adjusted operating loss of RMB34.2 million in the third quarter of 2023, and an adjusted operating loss…

Thank you. [Operator Instructions] Your first question comes from Cindy Wang from Morgan Stanley. Please go ahead.

Hi, thanks for taking my question and congratulations on remarkable 3Q results. My first question is regarding to solid state battery. Could management share more details on battery development with Inx? And what's the key hurdle for solid-state battery to commercialize now, and when do we expect to mass-produce it? [Foreign Language]

[Foreign Language] [Interpreted] Thank you for your question. I am Wang Zhao. On the first question, our joint battery development with Inx began early on. Developing a new battery, especially one requiring significant technological breakthrough like a solid-state battery, is a complex progress. It involves not only increasing battery capacity density, but also enhancing cycle life, maintainability, and safety features, requiring significant R&D resources to protect a new battery technology for mass production and commercialization. Currently, many companies are investing in the development of solid-state batteries, and it typically takes about two to four years for these technologies to mature and reach mass production. With support from the Hefei International Advanced Technology Application Promotion Center, we have collaborated with Inx Energy to develop our batteries, combining our strengths with impressive progress. We have significantly increased the EH216-S's flight endurance to 48 minutes and 10 seconds. And this is just the beginning. We expect to further extend this to 60 minutes sometime next year. And additionally the energy density of this battery has increased from 250 watt per kilogram to 480 watt per kilogram. And the temperature rise during the entire flight has been reduced from 60 degrees Celsius to 80 degrees Celsius. Well, I should let you know that currently these solid-state batteries are only in small batch testing, and its costs are twice that of existing batteries. But of course the energy density has been doubled. I think the production costs will gradually decrease as we mass produce them. Our goal is to achieve certification and mass production of these solid-state batteries for the EH216-S sometime by the end of 2025. Next question, please.

Thank you for the answer. And my second question is regarding the progress of operator certificate. As we enter into more in-depth review phase, can we expect that EHang still can receive OC by the end of this year?

[Foreign Language] [Interpreted] Well, in response to answer your second question, you should know that, yes of course the progress of OC application is closely watched by the industry. However, there are no readily available standards that we can refer to for the OC review. Therefore, it takes a lot of -- it requires improvements and innovations on the current regulations. Therefore, the OC approval process is also a process of setting up standards. And most of the work on the OC review has been completed and also based on the feedback of the Civil Aviation Administration of China, we have recently submitted necessary adjustments and we are still waiting for further feedback from them. Our company has been quick to respond and also make adjustments. So our goal is to meet the safety operational requirements of the Civil Aviation Administration as soon as possible. If all goes well, the first OC is expected to be issued within this year. However, we also hope everyone understands that this is a process of certifying operational safety, which requires a lot of rigorous work and responsibility to the passengers. So please stay tuned for further updates. Thank you. Next question, please.

Thank you. Your next question comes from Laura Lee at Deutsche Bank. Please go ahead.

Hey, thank you for taking my question. So my first question is about production. So I think last quarter we talked about there will be additional 1,000 units per year capacity by next year. So does that include the capacity from like the third-party manufacturer or partners, as you mentioned today, or is it mainly on the like the Yunfu factory? Also, is there any update on the CapEx of this and next year?

[Foreign Language] [Interpreted] First, on your CapEx question, so this year our CapEx is around $15 million and it will be $20 million for the next year. And with your question on the production ramp up, so we will start technical upgrades to our existing and only factory in Yunfu, Guangdong province in Q4. Meanwhile, we will also prioritize constructing new factories in Guangzhou, Hefei, and Guangxi. These new factories may involve joint ventures. We may bring in new partners in the manufacturing industry to leverage their experience and management models with our products for better aircraft production and delivery. Next question, please.

Okay, got it. Just a quick follow up. So think about the technical upgrades in Yunfu factory in 4Q. Will that cost any kind of downtime or influence the delivery cadence for this year? Or no?

I expect the impact or disruption to the production and delivery would be minimum. We actually have considered the potential impact of this technical upgrade on the deliveries, you know, from Q2 all the way to Q3. However, the -- we want to mitigate and minimize the impact as we upgrade to the capacity. However, we believe the short-term disruption, if there were any to the production, actually may be offset by the increase to production later on. Meanwhile, we are also considering scheduling the construction of other facilities. So with the synergies between these upgrade, as well as additional production facilities we might be able to minimize the impact and ensure future smooth deliveries.

Okay, got it. Yes, thank you for the call.

[Foreign Language] [Interpreted] Next question, please.

Thank you. Your next question comes from [James Hall] (ph) at UBS. Please go ahead.

Thanks for taking that question. My question is regarding that since the battery price lowering and our scale is growing up, what are we expecting our breakeven would be at what kind of scale or at what kind of time period?

[Foreign Language] [Interpreted] Yes; you can see that in the third quarter we have a [Multiple Speakers]

Sorry, I was -- sorry, Conor, I was on mute. Would you like to go for this bit or?

Oh, I'm finished, yes. You please go ahead.

Okay.

Please go ahead, I’ll change the…

Okay. Apologies, I was on mute. Yes, so as we ramp up production, the price of battery as well as the key components will definitely come down, that's the trend. However, you should know that we are constantly iterating these models and also introducing new features. This will potentially push up some of the costs of these aircraft, but our gross profit margin is at a healthy level. Let me point you that we have achieved a positive adjusted net profit for the past quarter, and we'll definitely see a faster growth in our revenue than our expense. So in other words we are having better operational efficiency and a stronger capacity of a stronger profitability.

Thank you for the color. My second question is regarding our supply chain strategy. What kind of investment and research and development strategy are we adopting in the electric motor and the solid-state battery?

[Foreign Language] [Interpreted] Thank you for your question. I'll take this one. So let me start by saying that in this emerging UAM industry, so air taxis are set to play a critical role in the future low-altitude economy. And for us, the key is to enhance the EH216-S based on its airworthiness certification and will continually upgrade the core components and key technologies to maintain our product and technological leadership. And based on this strategy, we have chosen and focused on over 10 core areas, including batteries, motor, propellers, AI, composite materials, and communication technologies. And through collaborative development, strategic investments, as well as joint venture. So we maintain active communication and cooperation with these top-level suppliers in this industry chain. We are constantly exploring new patents and also new technological directions. So perhaps in the future, we might even offer some key components that we developed to our peers in the industry to actually push forward innovation in this sector. And for example, recently we completed a 45 -- 48 minutes endurance to flight test on the EH216-6 using high energy solid state lithium batteries developed with Inx Energy. This marks a significant breakthrough in the technology in this industry. We aim to extend this to 60 minutes in the future. Additionally, we're developing a new generation of power systems to improve efficiency. On the product side, other than the EH216 series, the VT-35 will also be a strong complement to our current product lineup. Next question, please.

Thanks for taking my questions. Yes, that’s it from me.

Thank you. Your next question comes from Gareth Zhao at Tianfeng securities. Please go ahead.

Okay, yes. Management, thank you for taking my question. So I have two questions. The first one is regarding -- my first one is regarding the gross margin. So we saw there is a slight decline in the gross margin in this quarter. So how does the company view the potential for cost reduction in the future? Thank you.

[Foreign Language] [Interpreted] In the third quarter we are very delighted to see some repeat orders from our existing customers. However, we actually sell them based on last year's contract prices. Therefore, it slightly affected our average selling price and therefore caused us small -- a minor decrease in our gross margin. But it remains still at over 60%, so the impact is minimal. And on the cost side as we scale up production, we expect some cost reductions due to economies of scale. At the same time, we will continue to enhance the performance of core components like motors and batteries, which could increase costs to some extent. These factors will likely balance each other out, so we anticipate maintaining a gross margin of around 60% in the future. That's my answer.

Okay, thank you. So my second question is regarding the VTC progress. So could you provide more insights about the progress of VTC certification in overseas market? Thank you.

[Foreign Language] [Interpreted] You know, EHang has conducted flights in 18 countries worldwide and engaged with various national aviation regulators across the world. We understand that countries take a cautious approach to certifying new types of aircraft. And also in these areas, they lack experience and certification systems. Therefore, for us, while we were advancing our overseas certification process through bilateral airworthiness channels with the Civil Aviation Administration of China, we are also actively exploring some pilot programs abroad to get our eVTOL operational internationally, so as soon as possible. For instance in September Brazil’s Aviation Authority granted our EH216-S an experimental flight permit, allowing us to conduct flight tests and trials extensively in Brazil. So this would help us to gather data for future VTC certification. And also moving to Thailand, we are actively exploring a sandbox pilot model with the Thai Aviation Authority. We're aiming to begin commercial flight operations in some selected regions next year. Thank you. Next question, please.

Thank you. Your next question comes from Ling Liu at [Guxing Securities] (ph). Please go ahead. [Foreign Language]

[Foreign Language] [Interpreted] Congratulations on the strong results. We noticed the recent announcement of the Hefei Hub completion. Could management to share some insights on the future operational plans in Hefei?

[Foreign Language] [Interpreted] Thank you for your question. I'm Wang Zhao, I'll answer your question. The Hefei Hub is the major operating site built to OC standards, complementing existing sites to pilot various air transportation operations. The Hefei municipal government has announced plans to build over 30 eVTOL takeoff and landing points in Hefei over the next three years. The operational plan is quite extensive in its size, with existing size integrated with operations at Luogang Park. So it will serve as a air transport hub. Once operational qualifications are obtained, ticketed operations will start very soon. Next question, please.

Thank you. Your next question comes from Yiming Wang at China Renaissance. Please go ahead.

[Foreign Language]

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[Foreign Language] [Interpreted] My question is on the capacity ramp up following the technical upgrades. How much do you think it is going to help increasing our capacity and how much help or assistance is going to landed to our deliberate to our existing orders? Thank you.

[Foreign Language] [Interpreted] Current production capacity is being enhanced through means of supply chain optimization and improved worker skills, as well as efficiency. However, the factory requires a technical upgrade to further increase capacity. Additionally, if we were to increase the capacity significantly, that means we need to build out new factories. It looks like the demand for our aircraft has exceeded our expectations. So we are in the process of selecting new sites and designing new factories. Existing orders are right now being delivered at a stable pace. The testing of aircraft is relatively time-consuming and complex, so the current focus is on maintaining stability and thorough testing to ensure aircraft safety. Additionally, other infrastructures such as takeoff and landing points, operational centers, and training for operators and maintenance personnel also require time. So once the new factories and test sites are operational next year, the infrastructure for operational centers in various locations is mature and delivery speed will pick up. Next question please.

Thank you. Your next question comes from [Indiscernible] Zhao at [Citix] (ph). Please go ahead.

[Foreign Language] I've got two questions. One is regarding the future of CapEx investment expectations in the solid-state battery? And the other one is what forms of collaboration we're taking in this collaboration in the solid state of battery? If new property rights were generated on this solid state of battery. So how are we going to split the ownership of it? So that's my first question.

[Foreign Language] [Interpreted] You know, as early as July last year, we proactively participated in the strategic investment in Inx Energy. And over the past year, both technical teams have continued to collaborate on research and development with very good coordination and responsiveness, allowing us to achieve phased goals in a relatively short time. The technical breakthrough is also supported by the Hefei Municipal Government. Last October, we reached a cooperation agreement with the Hefei Municipal Government, continuously implementing low-altitude projects in Hefei to promote the development of the local low-altitude economy. The Hefei Government is also very supportive of these technical breakthroughs. And under the incubation of the National First Center Low-Altitude Economy Battery Energy Research Institute, we and Inx Energy have successfully completed the solid-state battery R&D breakthrough and installed it on the EH216-S and have successfully tested the fluid. And we'll continue to increase our R&D investment in fast charging and solid state batteries. These expenses are primarily recorded as R&D costs and not included in the capital expenditures. And also, we are doing contract manufacturing, so there aren't any CapEx included for the production of these batteries. And also the intellectual property for the core technologies and components will be jointly owned by EHang and our partners. Thank you. And that's the end of the Q&A session.

Thank you. Yes, that concludes the question-and-answer session. I'd like to hand the call back to Ms. Anne for closing remarks.

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

[Foreign Language]

Thank you all again. You may now disconnect. Thank you.