On March 22 2023, EHang reported fourth quarter and fiscal year 2022 financial results and held subsequent conference call.

 

Q4 2022 Earnings Report

 

Highlights for Q4 2022

• EH216-S Type Certification (“TC”) Process Over 90% Completed
•  Post-TC Order Pipeline of EH216-S Exceeded 100 Units in China & Growing

Financial Highlights for Q4 2022

• Sales and deliveries of EH216 series AAVs3 were 6 units
• Total revenues were RMB15.7 million (US$2.3 million)
• Gross margin was 66.1%, representing a continued high gross margin level
• Net loss was RMB110.1 million (US$16.0 million), compared with RMB76.5 million in Q3 2022.
• Cash, cash equivalents balances were RMB249.3 million (US$36.1 million) as of December 31, 2022.

 

Conference Call

 

Remarks by Huazhi Hu, Founder, Chairman & CEO

Hello, everyone. Thank you for joining our earnings conference call today. 2022 as a year of opportunities and the challenges for EHang. Against the ever-changing backdrops of macroeconomic volatilities, political uncertainties and pandemic, we remain committed to our strategies and continue to make meaningful progress during the year in our main priorities of airworthiness certification, business development and ecosystem establishment.

TC progress

This not only strengthens our resilience for long-term development, but also reinforce our leadership in a global urban mobility industry. In the fourth quarter of last year, the EHang 216-S type certification successfully entered the final phase of the demonstration and verification. However, due to the massive infections after China lifted COVID control policies, until this year’s Chinese Dragon holiday, a relevant TC project was delayed to a certain extent.

But now we have manufactured the confirming aircraft for the purpose of airworthiness verification at our Yunfu production facility, past the aircraft manufacturing conformity inspection and are conducting compliance tests at a flight basis in Guangzhou, Hezhou and other locations.

In February this year, the CAAC Chief Engineer and officials from the Department of the Aircraft Airworthiness Certification, the Department of the Flight Standard, the office of Air Traffic Operations, the Central and South Regional Administration as well as the experts from the TC team, gathered in Hezhou.

We worked together effectively and the joint efforts of all parties not only accelerated the compliance flight test and are in review process in the final stage, but also made plans and arrangements for the next steps, which boosts our confidence in post certification operations.

As of today, we have been actively carrying out the work for demonstration and verification compliance based on the means of a compliance agreed by the CAAC. Our work includes submission of compliance test plans, laboratory tests, ground test and inspections, flight tests, et cetera.

Over 90% of TC process completed

At present, over 70% of compliance tests has been either completed or to be signed soon. It means we have substantially completed over 90% of the entire type certification process. We believe EHang is leading among the few eVTOL type certification projects that have been officially accepted by civil aviation regulators worldwide. Although the TC process for such a new innovative aircraft is full of difficulties, I’m proud of our teams award-winning efforts and groundbreaking achievements over the past few years. At the same time, we are very grateful to China Civil Aviation Regulator, the CAAC, for their full support and high attention to this innovative AV.

We believe we will bring expected good news in the near future. Therefore, we believe we’re particularly entering a new year of air mobility in 2023 and anticipate witnessing and milestone in a global UAM industry.

Promising China market and government policies

What is worth mentioning other than EHang being the industry leader is the large Chinese market that we are in and its huge potential for the UAM development. According to Morgan Stanley’s forecast, China is expected to account for about 30% of the global UAM market. In recent years, Chinese central and local governments have introduced a series of supportive policies for emerging sectors related to aviation, electric aviation, low altitude economy, urban 3-dimensional transportation, aviation tourism and so on. This has provided us with beneficial policies, a favorable market environment and a growing demand from government and enterprise customers.

Favorable China manufacturing and supply chain environment

On the other hand, China has been a leader in the global UAV industry, and has accumulated a profound expertise in aspects of upstream and the downstream industry chain and professional pilots. Besides, China has the supply chain advantages of higher cost effectiveness and the delivery efficiency. This leads to a solid foundation for our product R&D, manufacturing and product delivery.

Overseas market

The overseas market, we are committed to actively engaging in Asian market and participating in multiple air mobility projects in Europe as an aviation pioneer. We will continue collaborating with local customers, partners and governments to jointly explore a safe, intelligent, efficient and a sustainable UAM operational system.

To date, the EHang 216 Series AAVs have successfully completed over 34,000 autonomous sites across 12 countries in Asia, Europe and Americas, which is the top line record in the global aviation industry. Looking ahead, we will remain dedicated to expanding our reach and bring our AAV solutions and flight experiences to more customers, partners and passengers worldwide.

 

Remarks by Xin Fang, COO

Thank you, Mr. Hu, and hello, everyone. Since the fourth quarter of last year, our top priority remains the TC project. We are pleased to report that we are now in the final sprint.

Preparation for post certification

In preparation for post certification, sustainable long-term growth, we are capitalizing our leading first mobility advantages to explore both domestic and overseas market. We have been expanding our business and cooperation opportunities throughout the entire industry chain related to air mobility and the low-altitude economy.

With the building of order demand, enhancing our partnership and cooperations, we are laying a solid foundation for commercial delivery and operational services following certification.

Air tourism in China

In China, the tourism industry, which has seen heavy impact from COVID, has rapidly recovered this year after control policies were lifted. The China Tourism Academy predicts that in this year, the number of domestic tourists will reach 4.55 billion, up 8% compared to last year, and the domestic tourism revenues will reach RMB 4 trillion, about USD 508 billion, an increase of 95% compared to last year. This presents excellent development opportunities for the low-altitude tourism.

Air tourism is the first market where we plan to launch commercial operations after certification as well as for our tourism industry customers. Since last year, we have been dedicated to developing our domestic market in China against the backdrop of macro policies promoting low altitude tourism and economy, building a more than integrated transportation system and developing new smart cities.

We have continued extensive and deep business cooperations and industry layout with local governments, tourism and aviation enterprises in many provinces and cities such as Guigang in Guangxi, Jishou and Changsha in Hunan, Huangshan in Anhui, Qingdao, in Shandong, Ganzhou and Jiujiang, in Jiangxi, Xi’an, in Shanxi, Shenzhen in Guangdong, et cetera.

EH126 order and partnership growth

To date, we have received orders for over 100 units of the EHang 216 series AAVs in China. These orders are expected to be fulfilled within 1 to 3 years after the TC process is completed. Additionally, with the approach of TC completion, there has been a significant growth in our customers’ inquiries and the demand for new orders from all over China.

For example, most recently, Xiyu tourism, a leading tourism company in Xinjiang and listed on Shenzhen Stock Exchange announced its intention to sign a cooperation framework agreement with us. It plans to establish our joint venture and operate a minimum of 120 units of EHang 216-S, with our comparable passenger-grade AAVs in 5 years for conducting low-altitude sightseeing tourism projects in key scenic locations in Xinjiang, such as the heavenly lake of Tianshan.

Another example, in March this year, Xi’an Aerospace Investment Company signed their strategic partnership agreement and an indicative purchase order with us. They plan to buy 20 units of EHang 216 aircraft within 3 years in order to develop a smart air city and the low-altitude flight demonstration area in the Northwest China.

Meanwhile, Hong Kong partnerships with strategic investors who are willing to cooperate with EHang for long-term growth. For example, last December, Qingdao West coast new area reached a long-term strategic partnership with us over investment and business. It has not only provided a USD 10 million investment, but will also facilitate the local government applications of our entire product portfolio, which is expected to generate project demand worth of RMB 100 million, about USD 15 million within the next 2 years. They will also provide full support to our local business operations, sales and services, production and infrastructure constructions, among other things with the goal of building Qingdao City into an outstanding world-class pilot zone for UAM demonstration and applications.

UAM and diversified applications

In the future, we plan to adopt an integrated business strategy that both selling products and providing operational services for government and enterprise customers. Based on the principles of high standard, low cost and high efficiency, we will utilize a complete set of AAV common control system platform and UAM operation system to support our 3 major businesses, which are air mobility, smart city management and aerial media. Therefore, we are able to meet our customers’ demand for diversified applications in low-altitude tourism, urban transportation, aerial logistics, firefighting emergency, medical rescue, smart city management and aerial media, et cetera.

Building up first mover advantages

In the past 2 years, under the CAAC guidance, we have been taking the lead in carrying out trial operations while conducting type certification. To date, we have developed 18 operations spots for aerial sightseeing in 16 Chinese cities. More than 8,200 safe operational trial flights have been completed with EH216 AAVs.

During this process, we have cultivated professional and AAV operations team, develop a digital platform for AAV operation management and services, and accumulated to reach feasible and replicable cloud operation experience. All of these give us ample confidence and ability to create a considerable UAM price service values together with our customers and partners in the future upon obtaining certification and beginning commercial operations. This is also our first mover advantages and operation benchmarks that we have built over the long term and are ahead of other companies in the industry.

Developing the ecosystem

Additionally, we have been actively working on expanding cooperation across the UAM upstream and downstream industry chains as well as building the ecosystem. For example, we are very pleased to partner with Haeco Group, a subsidiary of Swire Group, in last October. This partnership tends to be an after-sales maintenance service system for EHang AAVs to provide our customers worldwide with more high-quality and efficient maintaining service while empowering our continued airworthiness following certification.

Overseas markets

In overseas markets, such as Asia, last year, we actively explored market in Japan, Malaysia, Indonesia and Thailand, secured more than 200 units of preorders for EHang 216 series and established cooperations with local partners to carry out local trial flights surrounding AAV application scenarios such as low-altitude, sightseeing tourists and mobility and logistics transportation.

This February, we successfully conducted the first passenger-carrying EHang 216 demo flight in an open air space overseas in Japan. This is also the first ever passenger-carrying flight of an autonomous aviator in Japan with approval.

In Europe, in the fourth quarter of last year, we completed the EHang216 first flight in Spain and used AMU-LED project to successfully verify the UAM concepts of operations. We also joined the UAM SAMVA project to explore an aircraft system traffic management. In addition, we assisted the Spanish National police to complete EHang216 Maiden flights for their travel operations.

2023 — crucial turning point year

As noted by Mr. Hu, 2023 is a crucial year for us. As the turning point of airworthiness certification approaches, EHang and even the entire UAM industry are about to enter into commercialization. We are prepared and confident and feel responsible to be a pioneer for commercialization in the global aviator industry.