EHang Holdings Ltd

NASDAQ:EH

Earnings Call Analysis

EHang Reports Revenue Surge Amid Expansion Plans

EHang reported exceptional financial results for Q2 2024, exceeding revenue guidance by over 13% and achieving a net income of RMB 1.2 million. Revenue reached RMB 102 million, a 919.6% year-over-year increase, driven by strong sales of EH216 series products. Gross margin improved to 62.4%. The company delivered 49 units of EH216, up from 5 units a year earlier. EHang forecasts Q3 2024 revenue of RMB 123 million, a 329.8% year-over-year growth. Cash flow remains positive for three consecutive quarters, and EHang secured three crucial certifications for commercial operationsm, strengthening its position in the eVTOL market for future growth.

Outstanding Growth and Revenue Performance

In the second quarter of 2024, EHang showcased impressive financial results, with total revenue soaring to RMB 102 million. This marked a staggering 919.6% increase year-over-year and a substantial 65.3% increase from the previous quarter. The primary driver behind this remarkable growth was the heightened demand for EHang's EH216 series, with 49 units delivered compared to just 5 units in the same quarter last year. Such growth signals a robust recovering momentum in EHang's operations, indicating strong customer interest and market demand.

Maintaining High Margins

EHang's gross margin was healthy at 62.4%, an improvement from 60.2% year-over-year and slightly up from 61.9% in the previous quarter. This increase is attributed to an enhanced revenue mix, showcasing EHang's competitive edge in the eVTOL sector. Maintaining such a high gross margin indicates EHang's capability to manage costs effectively while benefiting from increased sales volumes.

Operational Expense Management

The company’s adjusted operating expenses stood at RMB 70.6 million, marking a 21.6% increase from RMB 58 million a year ago. The rise in expenses primarily resulted from increased sales commissions and investments in expanding sales channels. However, EHang demonstrated marked improvement in its adjusted operating loss, which reduced significantly to RMB 4.7 million—an impressive 90.9% decline from last year, indicating better operational efficiency.

Profitability Milestones

For the first time, EHang reported an adjusted net income of RMB 1.2 million for the second quarter, a significant turnaround from a loss of RMB 51.8 million in the same period last year. Achieving profitability this early in the fiscal year is a strong indicator of the company's operational improvements and financial health. The positive cash flow from operations also marks the third consecutive quarter of positive cash flow, which is crucial for sustainable growth.

Strategic Partnerships and Government Support

EHang is actively engaged in expanding its services, particularly involving partnerships for eVTOL tourism and cargo transportation within China. Several local governments, including those in Shenzhen and Guangzhou, are backing eVTOL commercial routes with subsidies between RMB 100 to RMB 300 for every passenger, fostering a favorable operational environment for EHang. As it builds its presence, the company has established strategic collaborations in the Middle East, notably in Abu Dhabi and Saudi Arabia, further enhancing its international footprint.

Future Growth Outlook and Revenue Guidance

Looking ahead, EHang has provided guidance for the third quarter of 2024, projecting revenues to be around RMB 123 million, which represents a growth of 329.8% year-over-year and 20.6% sequentially. This optimistic outlook stems from the company's booming pre-orders, which now exceed 1,100 units in China alone. Management is confident in maintaining a high growth trajectory, with expectations of triple-digit percentage growth continuing into subsequent quarters.

Investment in R&D and Infrastructure Expansion

EHang remains committed to advancing its research and development efforts, targeting enhancements to the EH216-S model and the upcoming VT-30 model for intercity travel. The company plans to allocate significant resources to R&D, with expenditures expected to remain around 45%-50% of total operational expenses over the next few years. Furthermore, with plans for facility upgrades and new headquarters in Guangzhou, EHang is positioning itself strategically for increased production capabilities.

Commitment to Safety Standards and Regulatory Compliance

With its Air Operator Certificate applications successfully accepted, EHang is taking proactive measures toward ensuring effective operations. The development of operational standards for eVTOLs indicates the company’s dedication to positioning itself not just in the market but as a leader in establishing safe operational practices. This is critical as they prepare to launch commercial operations and scale up their deployment strategies amidst stringent regulatory environments.

Earnings Call Transcript 2024-Q2

[Operator]

Good day, ladies and gentlemen, thank you for standing by and welcome to the EHang Second Quarter of 2024 Earnings Conference Call. As a reminder, we are recording today's call.

Now we'll turn the call over to Anne Ji, EHang's Senior Director of Investor Relations. Ms. Anne, please.

[Anne Ji, executive]

Hello, everyone. Thank you all for joining us on today's conference call to discuss the company's financial results for the second 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. The management team will [ successfully ] give prepared remarks. Remarks to deliver in Chinese were followed by English translations. All translation is for convenience purpose only. In case of any discrepancy, the management 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 the numbers presented are in RMB and are for the second 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.

[Huazhi Hu, executive]

[Interpreted]

Hello, everyone. Thank you for joining EHang's earnings call. Since the second quarter of this year, as a leading company in the eVTOL industry, EHang has achieved remarkable results in multiple aspects, including financial performance, orders and deliveries, production ramp-up, industry standards and certifications, operation sites deployment and R&D of next-generation technologies and products. This is enabling us to continue leading the global urban air mobility industry.

This April, we successfully obtained a production certificate, which is the PC for our EHang 216-S. We are proud to be the world's only eVTOL designer, developer and manufacturer to possess 3 certifications for the pilotless passenger-carrying eVTOL aircraft. With these 3 certifications in hand, we have also benefited from China's variable policies that bring strong support for the development of the low-altitude economy as a national strategic emerging industry. Driven by the widespread development plans across the country and our strong market demand for innovative low-altitude aircraft, our eVTOL product, as a representative of the new quality productive forces promoted by the nation, have garnered a large number of customers and bulk orders.

Our delivery volume and revenues both reached record highs in Q2. We delivered 49 units of EHang 216-S, a ninefold increase year-over-year. Quarterly revenues surged to RMB 102 million, also a ninefold increase year-over-year, and a 65% increase quarter-over-quarter. Moreover, we achieved a quarterly adjusted net income earlier than we expected, which marks a very promising start. The company's Q2 growth margin was as high as 62.4%, with both year-over-year and a quarter-over-quarter increase.

Since Q4 last year, we have received over 1,100 units in bulk preorders in the Chinese market. This number is continuing to grow. After securing the PC, our Yunfu production facility has started a production ramp-up of the certified EHang 216-S. We will continue to improve production efficiency, strictly in accordance with aircraft production procedures and a quality management system, and steadily increase our production and deliveries according to the customer's order requests.

To meet the continuous delivery of long-term bulk orders, we are also planning for the future production capacity expansion. Based on the [ four-party ] strategic cooperation agreement we signed in Q1 this year with the Management Committee of the Guangzhou Airport Economic Zone, the Administrative Committee of Guangzhou Economic and Technological Development District and the GAC, which is Guangzhou Automobile Group.

We further signed an MOU with GAC in June with the intent to establish a joint venture. This joint venture will leverage GAC's expertise and advantages in intelligent manufacturing and automated production line for electric vehicles to produce pilotless passenger-carrying aircraft in Guangzhou. We look forward to this cooperation to further enhance our future production capacity, which will allow us to respond to the market demand more quickly and the lifting efficiency and the scale of our product deliveries.

Delivery is merely the starting point, whether for EHang or our customers. Equally important are the provision of exceptional after-sales support, personnel training, site planning, operational standards and system development. Our current customer service and business focus are both sales and operations, while maintaining a steady stream of our product deliveries and ensuring safe operations. As the global pioneer of a pilotless eVTOL provider, we are taking the responsibility to explore commercial operations through collaborating closely with the regulatory authorities, customers, and partners to co-create a sustainable ecosystem that foster the industry's growth and development.

With that, we are focusing on 3 key areas in which we have achieved significant progress. The first one is talent cultivation. We have developed a customized eVTOL aircraft personnel training program and assessment system designed to equip our customers with qualified operational team, ensuring safe operations. Secondly, infrastructure development. We not only actively participated in the formulation of China's first group standards for technical requirements of eVTOL vertiports, but also collaborated with local governments and the customers to establish EHang 216-S vertiports and the low-altitude urban and mobility operation center demonstration projects in Guangzhou, Hefei, Shenzhen, Zhuhai, Taiyuan, Wencheng, and among other locations.

Thirdly, operational standards and certification. In July, the CAAC accepted the Air Operator Certificate or OC applications submitted by the EHang General Aviation and Hefei Heyi Aviation. As the world's first OC project for the pilotless passenger-carrying eVTOL aircraft, it is paving the way for the establishment of the world's first commercial operation standard for the pilotless passenger-carrying eVTOLs. As an innovative technology company, we will not slow down our pace in R&D for new products and technologies while pushing forward with sales and operations.

Building on the VT-30 prototype, we have conducted a comprehensive redesign and a technological upgrade of our lift and cruise eVTOL model, aiming to achieve more exceptional flight performance. We will be releasing this soon, so please stay tuned for the exciting news.

We are also continuously optimizing the performance of our EHang 216-S in the critical areas of battery technology. We are developing next-generation eVTOL battery solutions that meet the 4H standards, which means high energy density, high cycle life, high instantaneous charge discharge rate and high safety.

For example, in April, we partnered with Greater Bay Technology, a battery provider incubated by Guangzhou Automobile Group, for the research and development of the world's first ultra-fast charging battery solutions for eVTOLs. This is expected to significantly improve the eVTOL operational efficiency and meet the demands of the large-scale, high-frequency UAM operations. Furthermore, we are also testing the solid-state lithium battery cells developed in collaboration with Inx. Meanwhile, we are also continuously researching and developing new technologies and solutions for core components, such as electric motors, propellers, and materials, iterating and upgrading them to achieve sustained improvement.

We have also cooperated with more high-quality suppliers, such as Zhuhai Enpower Electric Company, a leading EV powertrain provider into our system. This not only enhances the flight performance of our aircraft, but also helps to strengthen the stability of our supply chain and support our industrial layout. Also, our newly upgraded R&D laboratories are nearing completion at our new headquarters, designed to support the development and testing of new technologies and components, such as batteries and electric motors.

I'm also delighted to share with you that our new headquarters and supporting facilities located on the banks of the Pearl River in Guangzhou Huangpu district are currently under construction. This complex will feature a state-of-the-art exhibition center and a brand-new command and control center and a futuristic office space. Furthermore, we will integrate with the surrounding communities and commercial complexes to launch aerial sightseeing and transportation routes with our eVTOLs, connecting ground, air and water transportation, and creating a new urban landmark, EHang future city, as well as a UAM demonstration area for low-altitude economy in the Greater Bay Area.

As we celebrate EHang's 10th anniversary, we reflect on our journey from humble beginnings to becoming a global trailblazer and a leader in the UAM industry. Throughout, we have remained steadfast in our commitment to exploring pilotless passenger-carrying aircraft and its applications, driving innovations in technologies, concepts and standards, from pioneering the world's first pilotless passenger-carrying eVTOL prototype to achieving the safe and reliable flights of pilotless eVTOLs.

From the absence of industry standards to establishing and shaping them, and subsequently obtaining the world's first type certificate, production certificate and standard airworthiness certificate, we have consistently pushed the boundaries from 0 to 1 through innovations and perseverance, contributing to shaping this urban air mobility industry.

Today, our years of hard work and dedication have led to strong and stable financial performance and a long-term growth trajectory. With our passion and the respect for the aviation industry, we will continue to drive over into the next exciting phase of commercial operations, creating greater value for our stakeholders, supporters and shareholders.

Next let me turn over to our COO, Mr. Wang to elaborate on our Q2 operational performance.

[Zhao Wang, executive]

Thank you, Mr. Hu, and hello, everyone. Since securing the production certificate in April, we have been authorized for mass production of our EH216-S and secure standard airworthiness certificates for each aircraft that we have delivered. Our sales and deliveries continue to grow. In the second quarter, we delivered 49 units of EH216-S, generating revenue of RMB 102 million, representing a year-over-year increase of over 9x and a quarter-over-quarter increase of 65%.

Let me highlight some key examples of customers and partnerships. In June, we partnered with Wencheng, Zhejiang Province and received a purchase order with an additional purchase plan for up to 300 units of EH216-S. We have already delivered a first batch of 27 units in the second quarter and conducted the debut flight at a local sailing area in Wencheng. The customer also made a prepayment for the remaining aircraft and subsequent orders will be placed as the customer expands its operations.

Wencheng has become our first authorized distributor in East China to obtain provincial-level distribution qualifications and will establish a comprehensive sales network for our aircraft across Zhejiang Province. We also delivered the first batch of 10 units of EH216-S to Xishan Tourism for low-altitude tourism services in Taiyuan.

In July, EH216-S completed its debut passenger carrying flights in Taiyuan, making a milestone for development of the low-altitude economy in Shanxi Province. This delivery is part of a 50-unit order from Xishan Tourism that has been fully paid with the customer plans to purchase an additional 450 units over the next 2 years. These units will be deployed in landmark scenic areas in Taiyuan and create a series of low-altitude tourism demonstration products, further advancing the construction of the low-altitude economy demonstration area in Shanxi Province. Furthermore, in the second quarter, EHang also delivered EH216-S to our customers in Guangdong, Hainan, Jilin, Liaoning, and Japan.

In July, we signed a sales and operation cooperation agreement with KC Smart Mobility, a subsidiary of Hong Kong's largest non-franchise bus operator, Kwoon Chung Bus Holdings Limited. KC Smart Mobility plans to purchase 30 units of EH216-S for development and operations in Hong Kong, Macau and Hubei Province, further boosting market development in Great Bay Area and Mainland China.

Our company has received over 1,000 units pre-orders for the EH216-S eVTOLs in China market. With the production capacity expansion, we expect to maintain a growing delivery trend in the third quarter. We anticipate the revenues of the third quarter will reach RMB 123 million, as we continue to receive more new orders. The increasing orders also mean a higher demand for production capacity. While ensuring that every aircraft meets delivery standards, we are also actively working with large intelligent manufacturing enterprises, such as GAC, to establish a joint venture focused on production upgrading to automated production lines.

At the same time, we are expanding our Yunfu factory to scale up our production and establishing a new manufacturing base at EHang, East China regional headquarters in Hefei City, which will meet the growing delivery demands in the East China region. We are fully committed to ensuring production and delivery while advancing commercial operation preparations, providing customers with operation training, and creating application demonstration projects.

In terms of operation personnel training, we provide our customers with sufficient training courses after the delivery, including theoretical learning aircraft safety operation, operation, daily maintenance and emergency management, and so on, to ensure that personnel are certified and on duty to ensure operation safety. This comprehensive training program ensures that our customers are capable of operating our eVTOL aircraft in a proficient and compliant manner and providing safe flight services to the public.

At the same time, we also plan to cooperate with domestic aviation colleges and professional institutions to carry out personnel training and jointly establish systems for academy education, license management and so on. For the industry's future large-scale, standardized and professional operations, our joint training program with the Civil Aviation Flight University of China is now in a state of curriculum design.

On the operational infrastructure front, EHang collaborates closely by providing technical requirements and design solutions, while the infrastructure construction is managed by local governments and our customers. Operation sites in key locations have been launched, including Shenzhen OH Bay, Hefei Luogang Central Park, Guangzhou Jiulong Lake, Zhuhai Tangjia Port and Wencheng Tianding Lake. Each of these sites is equipped with facilities, including dedicated water ports for EH216-S, hangars and passenger service areas.

In addition, many local governments are planning to build operation networks for future air mobility. For example, Shenzhen targets to set up 1,000 low-altitude take-off and landing platforms and Guangzhou plans to invest RMB 10 billion into low-altitude infrastructure. This will include over 100 regular-use verticals and hundreds of community landing pads. Our EH216-S is ideally suited for future urban air transportation. It's compact, lightweight, can fly autonomously, easy to manage fleets and cost-effective.

In May, we were actively involved in shaping China's first group standard for eVTOL vertiports. This will set the stage for future industry standards. Notably, all vertiports built in accordance with this standard will be able to accommodate EH216-S. In terms of operation standards and certification, as Mr. Hu mentioned, in July, the CAAC accepted the Air Operator Certificate or OC applications by 2 operators. One is EHang General Aviation, our subsidiary for UAM operations. The other is Heyi Aviation, our operation joint venture in Hefei. The CAAC has finished reviewing our Heyi Aviation's application documents and is about to conduct on-site inspection soon.

The first OC for pilotless passenger-carrying eVTOL is expected to receive within this year, allowing the operator to launch commercial operations with EH216-S. Afterwards, we will have more customers and partners in applying OC with our accumulated experience and established safety standards. This will also help expanding our operation network.

In July, we also formed a strategy partnership with China Southern General Aviation, a leading general aviation service provider under the China Southern Airlines Group. Together, we are planning to introduce a range of services, including eVTOL tourism, cross-island flights and cargo transportation at Zhuhai Airport, Chimelong Ocean Kingdom, and surrounding islands. Moreover, we are thrilled to see several local governments, including those in Shenzhen, Guangzhou, Hefei and Zhuhai, are offering direct subsidies for eVTOL commercial routes. These subsidies range from RMB 100 to RMB 300 per passenger per flight, providing robust support for eVTOL service operators.

In the international market, we continue to expand into the Middle East market in the second quarter. In April, we reached a strategy cooperation with the Abu Dhabi Investment Office and the Multi Level Group. They will support our development in the UAE and the Middle East region. In May and June, our EH216-S completed debut flights in UAE and Saudi Arabia. Since then, our eVTOL footprint has expanded to 16 countries worldwide. In the third quarter, we will continue to expand our business in overseas markets, such as Africa, the Middle East, Central America and Europe.

Looking ahead, we will focus on executing our business strategy on sales and operations and delivering results consistently. Our goal is to play a key role in commercializing China's low-altitude economy and global UAM industry, with safety as our top priority.

Next I will turn the call over to our CFO, Conor Yang, on financial performance. Thanks.

[Chia-Hung Yang, executive]

Thank you, Mr. Wang. Hello, everyone. This is Conor. Before I dive into details, please note that all numbers presented are in RMB and are for the second quarter of 2024. Unless stated otherwise, detailed analysis are available in our early press release on our IR website. I will now highlight some key points.

I am pleased to report that our continued diligent execution has led to another quarter of exceptional financial results in second quarter 2024. We exceeded our revenue guidance by over 13%, achieved adjusted net income, and have generated positive operating cash flow for 3 consecutive quarters. Notably, our OC application has been formally accepted by CAAC, marking a significant step closer to commercial operations and accelerated growth.

Now let's dive into details of our second quarter results. Total revenue in second quarter were RMB 102 million, representing a significant increase of 919.6% year-over-year and a 65.3% increase from prior quarter. The increase were primarily driven by higher sales volume of EH216 series products. We delivered 49 units of EH216 series products in second quarter, a significant growth from 5 units a year earlier and 26 units in first quarter 2024.

Gross margin remains consistently high at 62.4% in second quarter, up 2.2 percentage points from 60.2% in second quarter 2023 and a 0.5 percentage points increase from 61.9% in first quarter 2024. The increase were mainly due to changes in revenue mix. Our high gross margin continued to underscore our competitive edge in the eVTOL sector.

In second quarter, our adjusted operating expenses, which are operating expenses excluding share-based compensation expenses, were RMB 70.6 million, up 21.6% from RMB 58 million in second quarter 2023, and up 29.6% from RMB 54.5 million in the prior quarter. The increase was mainly due to higher sales-related compensation, expansion of sales channel and increased expenditures on different models of eVTOL aircrafts.

Second quarter adjusted operating loss was RMB 4.7 million, a notable 90.9% improvement from RMB 51.3 million in second quarter 2023, and a 62.9% improvement from RMB 12.6 million in first quarter 2024. This quarter, we are proud to have achieved adjusted net income earlier than anticipated. Adjusted net income in second quarter was RMB 1.2 million, compared to adjusted net loss of RMB 51.8 million in second quarter 2023, and adjusted net loss of RMB 10.1 million in first quarter 2024.

Thanks to our prudent cash management and improved credit controls, we have achieved positive cash flow from operations for the third consecutive quarter, adding strength to our balance sheet. At the end of second quarter, our cash, cash equivalents, short-term deposit, restricted short-term deposit and short-term investment balances were RMB 988.2 million.

Additionally, we have raised more than U.S. RMB 76 million from the At Market offering as of today, with a strengthened liquidity position and our confidence in future growing operating cash flow. We will not continue selling ADS under the At Market offering in 2024. The proceeds already raised will fill the next phase of our development and growth strategy, aforementioned by Mr. Hu, including R&D for next-generation eVTOL technologies and products, team and product expansions, new headquarters in Guangzhou, upcoming commercial operations and other business purposes.

With EH216-S having secured 3 certificates and our OC applications accepted by CAAC, we are well positioned to commence commercial operations setting the stage for a new phase of growth. We expect total revenue for the third quarter of 2024 to be around RMB 123 million, representing an increase of 329.8% year-over-year and 20.6% quarter-over-quarter. Having achieved positive operating cash flow for the third consecutive quarter and adjusted net income in second quarter, we are confident that this upward trend will continue and ultimately lead to full-year positive cash flow in 2024 and foreseeable adjusted net income in 2025.

That concludes our prepared remarks. Let's now open the call for questions. Operator, please go ahead.

[Operator]

[Operator Instructions] We're going to take the first question. And it comes from the line of Laura Li from Deutsche Bank.

[Xinran Li, analyst]

Congratulations on the strong quarter. So my first question is thinking about the timeline of commercial operation to oversee markets, when would you expect to start that? Is that 2025 realistic?

[Huazhi Hu, executive]

[Interpreted] We have been actively extending our presence in the international markets. But starting commercial operations in overseas countries depends on getting the local regulatory approvals and certifications. Right now, EHang is working with CAAC in advancing bilateral airworthiness agreements for the validation of tax certificates or VTC of the EHang 216-S with other countries' aviation authorities, such as UAE, Brazil, Indonesia and Thailand, et cetera.

The timeline depends on the local regulator's schedule and the progress. And throughout the process, EHang will actively cooperate and provide the required documents to push forward the process. And besides, we have already made a few deliveries in overseas markets, like the Middle East and Indonesia, and conducted a demo flight there. And this helped us not only to extend the market, to educate the public, but also to enhance the communication with local authorities for their recognition of our aircraft and our aircraft's safety features, paving the way for the VTC certification.

[Xinran Li, analyst]

And my second question is, I think we get a really impressive growth margin of over 60%. I'm just trying to understand what percentage of our supply chain actually we share or overlap with the EV or drone business?

[Chia-Hung Yang, executive]

Okay. Most of our procurement are from China, domestic, with some electric components or chips imported from overseas. And battery design is different than the EV car. So we design our own battery as well as we design our own electric motors, and we outsource to suppliers in China. And so, in general, there are certain portions overlapping with the EV car, but mostly different. [Technical Difficulty] So for the most part we produce and we assemble in our own factory in Yunfu factory, so far.

[Operator]

And the next question comes from the line of Ting Song from Goldman Sachs.

[Ting Song, analyst]

So I will ask it together. My first question is about the progress of EHang obtaining the TC of VT-30, as we see that the VT-30 and EH216 are in different size and features. So what are the key challenges of VT-30 when you develop compared to the EH216? And my second question is on the R&D spending. So what's your expectation of R&D spending in the next 3 years? And what would be your key focus on the R&D investment? Will you spend more on the new model or the enhancement of the existing model?

[Huazhi Hu, executive]

[Interpreted] This is the English translation. Leveraging the VT-30 prototype, our R&D team is currently redesigning and upgrading our lift and cruise eVTOL model for enhancing the flight performance. And we will keep you updated on this. And we will also submit the TC application for our lift and cruise model once it's released. And since the EH216-S now has 3 required certificates, so our main focus is on its sales and operations.

And the EH216-S is perfect for the air transportation within the city because it is compact and it does not need large takeoff and landing areas. While the VT-30 series lift and cruise model is meant to complement our current product portfolio and use cases. And it is designed specifically for intercity air transportation. It's not a replacement for the EH216-S. That is suitable for the air taxi uses within the urban areas.

[Chia-Hung Yang, executive]

Okay. This is Conor. I'll answer the second question regarding R&D. On the second quarter, R&D expenses is about adjusted total OpEx of 46%. So going forward, we're expecting that the R&D expenses will be around 45% to 50% of our total OpEx. And we are committed to our R&D development. And for example, if you compare the number of first quarter R&D expenses, actually we have improved, increased about 42% with R&D expenses for first quarter.

And our future R&D efforts will focus on optimizing the EH216-S performance improvement and developing the long-haul eVTOLs and other aircrafts for both passenger carry as well [Technical Difficulty]. And that will include expenses on the R&D materials and our R&D team expansion, test flights and airworthiness certification expenses.

I would say that we believe our gross rate of revenue will be – year-over-year, will be a lot higher than overall OpEx. So even though we continue to increase our R&D expenses, the R&D expenses as percentage of the revenue will continue to drop in the coming years.

[Operator]

And the next question comes to the line of Cindy Huang from Morgan Stanley.

[Cindy Huang, analyst]

Congratulations on remarkable 2Q results. My first question is regarding your order backlog. I see EHang has made significant progress in securing new orders. Could you give us a quick update on how many purchase orders we have on hand and when they will be delivered? And also, could we have a rough idea on geographic mix in terms of the order backlog? So that's my first question.

[Huazhi Hu, executive]

[Interpreted] Currently, our orders and the pre-orders has over 1,100 units in China market. We plan to deliver this by batches over the next 1 to 3 years for our customers' requests and their business development and the pace of their placing orders. We are getting more and more new customers and orders. So we expect the deliveries to keep growing.

In the next phase, our focus will be on expanding production facilities, accelerating the deliveries of our existing order pipeline and the new orders. And for this year, we will also help our customers to apply OC, setting up demonstration projects in pioneer cities to exemplify eVTOL operation. And in the future, we aim to replicate these operational sites and share our experience in more locations around the country.

[Chia-Hung Yang, executive]

To add on your question about distribution on the geographic mix, the orders, if you recall, that fourth quarter last year as well as the first quarter this year, our order revenue contributed around 20% to 25% of our total revenue. But since the PRC government is promoting no other delivery [Technical Difficulty], we've seen a very rapid growth for the time. So we're expecting that in terms of geographic mix, that will be 90% from China for this year and next. And the percentage of the overseas revenue will decrease from last year, even though the international demand is still quite strong.

[Cindy Huang, analyst]

That's very comprehensive. And my second question is regarding gross margin. So how should we think about the gross margin over time, especially after we take off commercial operations?

[Chia-Hung Yang, executive]

Right, gross margin, right now, we are the only company that can provide product for commercialization. Therefore, we have the pricing power, even though as we scale up, we will have a leverage in terms of our procurement. But on the other side, we'll continue to improve certain features of our 216. So net-net, after we get the TC, we'll still maintain the 46% plus gross margin. That's the current situation.

In terms of the overall net margin, we have achieved adjusted [Technical Difficulty] second quarter. As we have seen that the very, very strong revenue growth, so we're expecting with the revenue growth [Technical Difficulty], net income margin will continue to improve in the many years to come.

[Operator]

And the question comes from the line of Cindy Huang from -- from Yu Chen from Haitong Securities.

[Yu Chen, analyst]

Congratulations for the company's business progress. I have 2 questions. The first one is, could the management team provide some insight into the company's plans for EH216 operations, including the planned flight commercials and pricing schedules for each flight for starting commercial operations?

My second question is, we noticed that the company is actively promoting the establishment of UAM operation sites and personnel training across various places. What is your current operation cooperation model with local governments or customers?

[Huazhi Hu, executive]

[Interpreted] For your first question, besides EHang General Aviation and Hefei Heyi Aviation, our partners in Guangzhou, Shenzhen, Taiyuan and Wuxi, among other cities, are also actively preparing their OC applications. Once the local operators have obtained the TC, they will first start operations at our new headquarters in Guangzhou and Hefei Luogang Central Park and more sites in Shenzhen, Wuxi, Taiyuan and Wencheng. And starting from the aerial sightseeing use cases. And throughout the process, we will accumulate operational experience and continuously refine our operational manual which will serve as a reference for new operators to mitigate their operational risks and uncertainties.

And for the question on the pricing, aerial sightseeing is currently our targeted use case compared to the helicopters, our price can be half of them or even lower. It's very competitive because the EHang 216-F acquisition cost and maintenance cost is much lower than the helicopter and we don't have pilot costs. Moreover, the local governments are offering subsidies for eVTOL route operations. For example, in Shenzhen and Hefei, they plan to offer subsidies for eVTOL operators for aerial sightseeing and air transportation within and between cities. And the subsidies range from RMB 100 to RMB 300 per person each flight.

And for your second question, EHang General Aviation is our wholly-owned subsidiary and serves as an operating platform company to provide operational services to our customers, setting up demo projects and the models. We have established a joint venture with the local government or partners through the EHang General Aviation to provide eVTOL operation services such as Heyi Aviation in Hefei and Pengcheng Wings established our customer Boling Group in Shenzhen.

So our cooperation model works like this. EHang provides the necessary support including the after-sales services, operational guidance, technical specs and personnel training. While the government and customers, they are responsible for planning and building the infrastructure. The joint venture forms an operational team and a system to obtain the OC for commercial operations. By working together, we can ensure the safe operations and create a commercial model that can be scaled up and replicated and sustained.

[Operator]

And the next question comes from [indiscernible] from TF Securities.

[Unknown Analyst]

So congratulations on the company's outstanding performance this quarter. I have 2 questions. The first one is -- so do you expect to maintain the quarterly growth trend looking forward? How do you view the company's revenue growth trajectory?

[Chia-Hung Yang, executive]

This is Conor. We have pre-ordered over 1,000 units in China. And our production has been ramping up. So we expect to maintain the revenue growth in the third quarter. So our guidance for the third quarter is 123 units. That's more than 300% of our revenue growth year-over-year and 20% growth quarter-over-quarter. We are confident that our revenue will achieve triple digit growth year-over-year in the coming quarter.

As we explained aerial sightseeing market in China, there are over 10,000 units in demand [indiscernible]. And when it's applied to transportation purpose in various cities in China, that demand will be even larger together with the international demand. So we believe that we should achieve a very high growth rate for the next 3 to 5 years.

[Unknown Analyst]

So my second question lies in the overseas market. So we have noticed that you have expanding Middle East market recently. So what's your competition like advantage in the market like Middle East? Do these countries tend to favor eVTOL models that can fly longer distance?

[Huazhi Hu, executive]

[Interpreted] EHang is the first eVTOL company to conduct test flights. Yes. Here's the translation of the answers to your question. EHang is the first eVTOL company to conduct test flights in the Middle East, which our first pilot eVTOL flight in Dubai was back in 2016. Sorry 2017. In terms of the airworthiness certification, we also have an advantage over our peers. The UAE's General Civil Aviation Authority or GCAA is moving forward a framework agreement with CAAC for mutual recognition of airworthiness certification.

We will be conducting some test flights for the GCAA within this year. And in May, we conducted the first passenger carry flight in Abu Dhabi, making the first of its kind in the UAE with GCAA's approval. It's a very significant milestone that lays the foundation for our future VTC. And Abu Dhabi are planning UAE infrastructure now, including the vertiports and the eVTOL terminals.

We are very confident with the support of our local customers and partners in the UAE and Saudi Arabia, we can be the first to commercialize eVTOL operations in the region. And we believe that the flight range is not a key issue for eVTOLs. What really matters is to meet the needs of the passengers and to feed the specific use cases. We've been seeing growing interest and demand for EHang 216-S in the Middle East market, particularly for the urban air transportation. And we will be introduce a new type of aircraft to serve for more diversified needs.

[Operator]

And the question comes from the line of Rong Zhao from CITIC Securities.

[Unknown Analyst]

So first, congratulations on the company's strong performance and business progress this quarter. Here I have 2 questions. So for the first, so I mean, with the cap state expansion plans underway in Guangzhou, Hefei and other locations. So could management provide more insight into its cap state expansion plans and what can we expect in terms of the capital expenditure over the next two years? So this is my first question.

[Chia-Hung Yang, executive]

In our current Yunfu facilities, we plan to do more automation. As you know, we have signed a strategic agreement partnership with GAC and they have lots of experience in automation, in supply chain management. So in Guangdong province, we will improve the automation in Yunfu factory, the current one, as well as we plan to build new facilities in Guangzhou together with GAC. And on the other side, Hefei will build the assembly plant, that's our plan. So overall, in the next year, we should add an additional 1,000 annual productions for next year.

In terms of CapEx, we're building our -- we're re-innovating our new headquarters, we're building lots of facilities, we're building our R&D labs, also building a test supply center together with all these factory expansions. So we're expecting -- now expecting the CapEx for 2024 will be around US $15 million and CapEx for 2025 will be around US $20 million.

[Unknown Analyst]

And my second question is could management provide more information on recent ATM financing and have companies financing plans for the future?

[Chia-Hung Yang, executive]

Since April, we have raised USD 76.2 million through our ATM program without disturbing the market. Our average price actually for all this USD 76 million average price is [ USD 16.5 per share]. And right now with the rapid revenue growth and consistent positive cashflow from operation, we decide not to continue selling ADS under the ATM program for this year. And we're always looking for the best financing strategy and also the optimize our capital structure to help the company to build a strategy and also to drive our business growth.

[Operator]

Thank you all. Given the time is limited, let me turn the call back to Ms. Anne for closing remarks.

[Anne Ji, executive]

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

[Operator]

That concludes our conference for today. Thank you for participating. You may all disconnect. Have a nice day.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]