Ladies and gentlemen, thank you for standing by and welcome to Pony AI Inc's Fourth Quarter and Full Year 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the management prepared remarks, there will be a question-and-answer session. As a reminder, today's conference call is being recorded and a webcast replay will be available on the company's Investor Relations website at ir.pony.ai. I will now turn the call over to your host, George Shao, Head of Capital Markets and Investor Relations at Pony AI. Please go ahead, George.

Thank you. This is George speaking. Hello everyone, we appreciate you joining us today for Pony AI's fourth quarter and full year 2024 earnings call. Earlier today, we issued a press release with our financial and operating results, which is available on our IR website. Joining with me today on the call are Dr. James Peng, Chairman of the Board, Co-founder and Chief Executive Officer; Dr. Tiancheng Lou, Director, Co-founder and Chief Technology Officer; and Dr. Leo Wang, Founding Member and Chief Financial Officer. They will provide prepared remarks followed by the Q&A session. Please note that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to defer material from our current expectations. Further information regarding these and other risks and uncertainties is included in the relevant public filings of the company, as filed with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statements except as required under applicable law. Please also note that, Pony AI’s earnings press release and this conference call include discussions of both an audit GAAP information and an audit non-GAAP financial results. For reconciliation of these non-GAAP measures to the most directly comparable GAAP measures, please refer to Pony AI’s disclosure document available on our IR website. I will now turn the call over to our Chairman, Co-founder & CEO Dr. James Peng. Please go ahead.

Thanks, George. This is James Peng, Founder and CEO. We consider this is exciting time for Pony AI as we report our first earnings results as a public company. Our NASDAQ listing marks our significant milestone and is timed perfectly with the imminent mass commercialization of our Robotaxi services. With ample financial resources now available, we are well-positioned to lead and capitalize on the upcoming large scale rollout of robotaxis, making this year our inflection point for the widespread adoption of autonomous transportation solutions. We are taking robotaxis first, China first as a tier-1 cities first approach. This is our current focus is on scaling robotaxi operations in China, which not only generates sizable recurring revenue, but also offers a solid foundation for further expansion into various global markets. China's online ride-hailing market is exceptional. The country's tier-1 cities [indiscernible] Beijing, Guangzhou, Shanghai and Shenzhen offer a unique combination of demand, consumer readiness and regulatory clarity, making them ideal for large scale robotaxi deployment. We estimate each city can easily support a fleet of over tens of thousands of robotaxis. With technology that meets regulatory standards and backed by the fully driverless fair charging licenses we have already secured. We are all ready for quick scale up. Launching large fleet in tier-1 cities will enable us to validate our business model, optimize our operations and establish these markets as a benchmark and a scalable framework for future growth, either into other Chinese cities or extends to international markets. Next, I will explain why we anticipate our robotaxi service will soon achieve mass commercialization. First and foremost, we have achieved technological readiness for mass commercialization. Our operational records proved that our robotaxi has achieved level four driverless operation 24/7 in all weather conditions, making it commercial ready. Our technology is empowered…

Thanks James. Hello everyone. This is Tiancheng. I'm delighted to have this opportunity to share with you the latest progress of our technologies. Pony’s technological development centered-around enabling the mass commercialization of robotaxi. To achieve successful robotaxi commercialization, autonomous driving technology must meet three key criteria. First, it must attend a high sufficiently high standard of safety. Overall experience, show that a magnitude safer than a typical human driver is attainable and should be needed. Secondly, cost control is essential, cost should be managed across various aspects, including sensors, company hardware, daily operation, and insurance. Low cost ensure that robotaxi service remains economically sustainable. Finally, robotaxi service should cover large enough geographical area to enable large scale operations. According to our operational and safety records, Pony’s technology have matured to a level that can support mass commercialization, focusing on safety, cost effective and intensive service coverage. Through years of average, we have been commercially operating fully driverless robotaxi for over two years. During this time, safety has already surpassed typical human driver by an order of magnitude. As we progress cost are expected to decrease by 70% in next generation, which will be mass produced in the second half of this year. Moreover, over 70 coverage have received regulatory approval, a licenses in all Tier 1 cities in China, which are capable of operating tens of thousands of robotaxis. Moving forward, our technical goal will remain focused on casting cost efficiency and the operational capability result compromise and safety. In the competitive landscape of the robotaxi services. Only companies that can run drive commercial operation with a significant fleet called position at the forefront. Years of Novation, the diligence has given us a strong competitive edge. It took us four years to progress from initial garbage deposition to fully launching…

Thank you, Tiancheng. And hello everyone. I'm pleased to present Pony AI's financial results on our inaugural earnings call. Looking back on 2024, we've cut kicked off our seventh generation autonomous driving system development with three OEM partners, which is critical to execute our robotaxi first, China first and Tier 1 city first strategy. We also deepened the partnership with industry leaders creating a robust ecosystem that accelerates the adoption of these technologies. During our IPO late last year, we raised over US$400 million, which provided us with ample five power to drive our strategy. Looking forward, we'll concentrate and accelerate our seventh generation autonomous driving system development and deployment in China's Tier 1 cities. Hence to solidify Pony AI's position for sustainable growth. Moving to our financial performance, please note, as we navigate the early stages of commercialization, we are experiencing volatility in our quarterly revenue and margins, which is expected to continue in the near-term. But we are focused on executing our go-to market strategy and achieving key milestones laid-out by James and his remarks, which we expect to reduce variability in our financial performance in the future. Now, let's take a closer look at our financial results for 2024. For additional quarterly results, please refer to our earning release, which is posted online. Our full year revenue total US$75 million and increase of 4.3% year-over-year. Robotaxi services revenue was US$7.3 million down 5.3% year-over-year. The decrease was primarily driven by reduced service fee from providing autonomous vehicle engineering solutions based on our project progression schedule. Our robotaxi services revenue also include the passenger fares, which saw a significant year-over-year increase driven by the expansion of our public facing fair charging robotaxi operations in Tier 1 cities. We expect this part of growth will continue and even accelerate…

[Operator Instructions] The first question today comes from Verena Jeng with Goldman Sachs.

I have two questions. My first question is about the business strategy. So what's the strategic rationale behind your robotaxi first, China first, and also the Tier 1 cities first approach. If you could share more color behind this will be appreciated.

I'm James Peng, I'll take the first question regarding our three one strategy. Actually from day one that Pony was founded, autonomous mobility everywhere has always been our company model. This model actually reflects our vision to bring autonomous transportation to all global markets and across all types of vehicles. We certainly have the ambition for other markets down the road. The fundamental reason behind our China first robot, taxi first and Tier 1 cities first strategy, likely our confidence in an imminent opportunity for mass commercialization. China has the largest ride-hailing market with around 40% of the global market measured by the number of orders. This is roughly twice the size of the U.S. market within China itself, Tier 1 cities represents the largest share backed by supportive regulatory environment and growing users demand. In 2024 and 2025, we expanded our operations of paid robotaxis to more railway stations, international airports, and the city centers in Beijing, Guangzhou, and Yizhuang. We also observe that China has established the regulatory framework for robotaxis in a swifter and more transparent manner compared to many other regions. As a result, we believe the Tier 1 cities in China are right and idea for mass deployment of robotaxi. Not only is robotaxi representing the largest market, it is also representing the most difficult technical and the deployment challenges, the safety requirements in handling the bad weather conditions such as rain and snow and other unpredictable corner cases are very challenging. We have proven our capability to handle such challenges by successfully operating fully driverless robotaxis in the last two years. It is from a commercialization perspective that we are currently more focused on robotaxi in China’s Tier 1 cities, but certainly our know-how can enable us to transfer to other transportation modes and also the global markets in the future. So, thank you. Now back to the second question.

Thank you, James. My second question is about the business model. Could you differentiate your business model against the OEM ride sharing company and also the taxi company and any collaboration with these companies?

For this question, I think our CFO, Leo is the right one to answer.

Thank you, James. I'll take this question. So for our Robotaxi air-charging service, actually it's focusing on providing a virtual driver, who takes charge of the driving in the transportation service. And if you look at the traditional transportation service, that's actually provided by a human driver to take charge of the driving. And we charge our passenger based on the distance driven by our virtual driver. During the ride, actually we provide a more private and safer experience to the passengers. So, if you look at this business model, you can regard them as like upgrade to the current ride-hailing business model not a disruption. From a ride-hailing platform company perspective, its business still will be matching passenger demand with driver resources, in which you can consider our virtual driver to be part of the driver pool. Automakers are OEMs on the other hand. They get revenues from selling purposely built vehicles that are co-developed with Pony. And these vehicles will be sold to robotaxi operators for example, Pony itself. In a nutshell, actually each party in the value chain in ride hailing business will still play its role in the transportation mobility service sector. We consider this will be a win-win concept. And because this concept not only supported by us, but also supported by our partner. You can see that we have secured mass production plans with OEM partners such as Toyota, Beijing Auto and Guangzhou Auto. We have also integrated into different traffic net companies such as Amap, Alipay, OnTime and et cetera. So this is my answer to your question, now I will turn back to the operator.

The next question comes from Ming-Hsun Lee with Bank of America.

So, my first question, do you foresee any challenges before mass commercialization? Maybe we can elaborate more in terms of the user acceptance, technology maturity and the regulation.

I'm James Peng, I'll take this one first thanks Ming-Hsun. As I described in my opening remarks, I'm very confident that the four key pillars for the mass production of robotaxi, namely the technology, regulation, mass production and the large scale deployment are actually all in place for Pony. I particularly want to emphasize that our technology has advanced the safety of our robotaxis to a level that actually allow us for the large scale commercialization of robotaxis. We do not foresee any insurmountable challenges that prevent us from achieving mass commercial. Thirdly, we work hand-in-hand with OEMs and the supply chains to launch a new generation of cost effective robotaxis, successfully reducing our unit cost by 70%. Along with continued improvements in operational efficiency, we're now on the right check to achieve breakeven at the individual vehicle level. In other words, we will have a positive contribution margin from the seventh-generation robotaxis. In general, we have seen supportive regulatory environment from both the central and the local governments. We take pride in being among the first companies in China to secure licenses for operating fully driverless robotaxi across all 4 Tier 1 cities. Furthermore, we are the owning autonomous driving technology company that has obtained all the necessary regulatory permits required to offer commercial public facing robotaxi services in Tier 1 cities. Moving forward, our main priority will be expanding our three sites, operational areas and the vehicle density to scale up revenue and enhance our profitability. So that's the answer to your first question.

Thank you, James. So my second question, what are the key technological milestones that need to be achieved to enable your mass production of robotaxi service in 2025?

Thank you, Ming-Hsun. I think this one is related to technology. So I'll hand over to Tiancheng.

Yes, sure. This is Tiancheng. So as I described in my remarks, so Pony technological development is centered-around enabling match composition of robotaxi. To achieve successful robotaxi commercialization, autonomous driving technology must need the three key criteria. They are safety, cost effectiveness, and intensive service coverage. So through years of effort, we have been commercially operating fully driverless robotaxi for over two years. During this time, safety has already surpassed typical human driver by an order of magnitude, and the cost wise as will progress costs are expected to decrease by 70% in the next generation, which will be mass produced in the second half of this year. Moreover over 70 coverage have received regulatory approval licenses in all Tier 1 cities in China, which are capable of operating tens of thousands of robotaxis. So according to our operational and safety red card, we believe Pony’s technology hasn't matured to a level that can support match commercialization. And moving forward, our technical goal will remain focused on enhancing cost efficiency and operational capability without the compromise safety. Yeah. Thank you. And back to the operator.

The next question comes from Bin Wang with Deutsche Bank.

I actually have one question about the technology. How do you achieve the very high safety level compared to human driver and why you believe the level four autonomous driving technology depends on more? You generate high quality data lot and the massive data you gather from the street.

Tiancheng, this one still yours.

So, this is Tiancheng. So, yes good point. Let me reemphasize that the L4 AI driver is trained using reinforcement learning in a virtual world where data is generated. So as a result, reinforcement learning does not require huge amount of real-world data. Let me further elaborate on why using real-world driving data to mimic human driving behavior cannot meet our four safety requirements. The fundamental reason lies in the double standard applied to human drivers versus AI drivers. Sociality holds AI to a much higher standard than human drivers. People are far less tolerant to AI mistakes, where AI is perceived as a machine, except to -- expect it to eliminate human shortcomings. This creates a paradox. Air Force systems not meet safety expectations far beyond that human driver can achieve. Imitation learning by its nature is limited by the ceiling of human performance and the cells cannot satisfy these safety requirements. So, although the amount of data used for imitation learning driving is extremely large, it still cannot ensure that the driving capability can surpass data procurement. Another important factor is that leveraging real-world data cannot understand the reasoning behind driving behavior, because it only mimics the driving path of human drivers. There is a common theme that describes this phenomena. One knows what's stated, but doesn't know why it is stopped. Merely mimicking the action of human drivers does not guarantee our understanding of the reasoning behind this action. So, in summary, compared to most L2 systems, L4 systems use a different data solution, where generated data is the key, not the real world data. Thank you back to the operator.

The next question comes from Purdy Ho from Huatai Securities.

My questions are from the real address, because most of them are on cost and revenues. So, would you mind giving some colors on why your 2024 costs and expenses were higher year-over-year and also any guidance on costs going forward that you can provide?

So, I'll take this question. So, as I mentioned in my earlier remarks, actually excluding share based compensation, our non GAAP R&D expenses were US$137.8 million It represents an increase of 14% compared to US$120.9 million in 2023. That's mostly because since the second half of 2024, we have been working on three vehicle models of our seventh generation autonomous driving system. This incurred the corresponding R&D expenses growth. We consider this ongoing development is very critical to implement our robotaxi first, China first and Tier one city first strategy. And much of this development work will be accomplished in this year. So, on the other hand, during our IPO late last year, we raised over US$400 million. So, now we have a strong balance sheet with a total of US$825.1 million combined with cash, cash equivalents, restricted cash, short-term investments and long-term debt instruments for wealth management as of December 31, 2024. This provides amplified power to execute our strategy, but also as a startup, we still need to care for the manager, our resource allocation and the investment to seek for the best efficiency and the returns. So we will continue and even accelerate our seventh generation system development as our top priority and deploy this vehicle in Tier 1 cities from hundreds to thousands. Therefore, we expect the corresponding expenditure will continue to this year. So get back to you.

Yes, I got a follow up. We also noticed that revenues in the entire year, 2024 was up, but for the quarter, the fourth quarter revenue was down. So any comments on that? And any guidance going forward?

So I'll continue to take this question, so if look at our current revenue, it consists of recurring revenue such as we provide a robotaxi fair charging service to the public. We also provide robotruck logistics service to our business partners. And we also have so called a project based revenue. For example, launching a proof-of-concept of robotaxi fleet with our partner for a certain amount of time in certain markets. Given we have a portion of revenue that is tied to milestone based projects, so that revenue will be recognized upon delivery of contractual obligations. Revenue recognition naturally would fluctuate across different quarters. This is very common for this type of revenues, but look, we are focusing on our seventh generation autonomous vehicle development and the deployment. And these new and more cost effective vehicle will be put into robotaxi fair charging operations later this year, starting from hundreds to thousands. So, as such, I think it will increase the recurring revenue portion and gradually to change our revenue mix. Hence, we think that we can mitigate the fluctuation in the revenue stream in the future, and we also expect our overall revenue will gradually to grow in the near-term. Following the revenue trajectory in the recent years. So this is my answer to your question. Get back to the operator.

The next question comes from [indiscernible] Lee with Jefferies.

I have two questions. My first question is from the technology perspective, given a recent emergence of disruptive technologies like deep seek, how do you see these play out in the development of L4 autonomy from the industry level, while they have a positive or negative impact on your technology robo map? And also will they impact Pony's timeline for the mass deployment of robotaxi? This is my first question.

Tiancheng?

Yes. Thank you. This is Tiancheng. I can take this one. First, I would say that broaden the topic a little bit. In the past few years, many disruptive technologies have emerge, including end-to-end architecture, transformer, and also other technologies using the [dipsy]. They all are giving companies like Pony a greater but greater advantage. For example, the integration of the end-to-end technology has significant enhanced Pony service coverage. More importantly, the successful commoditization of robotaxi involves multiple factors. The disruptive technology can only impact the welfare. For instance, the factors include number one, driving capability such as safety, comfort and efficiency. Number two, cost such as sensors, computing, operations and then lastly, partnerships such as OEM suppliers, TNCs. The key to success through a successful commercialization of robotaxi is ensuring that all these factors meet certain standards. Destructive technology can only affect one aspect and any singular breakthrough only provides marginal help for the entire autonomous driving system. Yes, thank you and back to you.

And my second question is regarding your cooperation with OEMs. Could you please share more details about the current progress? How does such partnership help you to achieve your mass production goals?

This is regarding partnership, so I'll take it. I'm James. So our deep collaboration with OEM is one of the keys to actually ensure ensuring our robotaxi commercialization at scale. We work closely with OEMs to co-develop and produce autonomous vehicles across various vehicle platforms. Most importantly, as I mentioned earlier, scale will be instrumental to enabling us to achieve positive unit economics at a quicker pace. Our collaboration with OEMs are set to significantly reduce unit costs, slashing the bomb by 70% compared to our sixth-generation robotaxi. In 2024, we have reached agreements with three OEMs Toyota, Beijing Auto and Guangzhou Auto to produce three new vehicle models. Our collaboration with BAIC and the GAC will also endow us with more robust government support in our key markets. So, in summary, I think our partnership with OEMs actually also goes beyond manufacturing. For example, the joint venture we established with Toyota last year is actually have a more comprehensive partnership. It will provide capitals for vehicles, operate as a fleet company to burden the CapEx and also utilize the existing Toyota dealer network for the vehicle maintenance. So that's the answer to the question. Now back to the operator.

There are no further questions. Now I'd like to turn the call back over to management for closing remarks.

Hi, this is George Shao again. Thank you everyone, once again for joining us today. If you have any further questions, please feel free to contact our IR team. We look forward to speaking with you in the next quarter.

This concludes the conference call. You may now disconnect your lines. Thank you and have a great day.