EHang - Q2 2024

Transcript

Operator (participant)

Good day, ladies and gentlemen. Thank you for standing by, and welcome to the EHang Q2 of 2024 earnings conference call. As a reminder, we are recording today's call. Now I will turn the call over to Anne Ji, EHang's Senior Director of Investor Relations. Miss Anne, please proceed.

Anne Ji (Senior Director of Investor Relations)

Hello, everyone. Thank you all for joining us on today's conference call to discuss the company's financial results for the Q2 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. Connor Yang, Chief Financial Officer and Director of the Board. The management team will successfully give prepared remarks. Remarks delivered in Chinese will 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 the 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 Q2 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 (Chairman and CEO)

[Foreign language]

Anne Ji (Senior Director of Investor Relations)

This is the English translation of Mr. Hu's remarks. Hello, everyone, thank you for joining EHang's earnings call. Since the Q2 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 three certifications for the pilotless passenger carrying eVTOL aircraft. With these three certifications in hand, we have also benefited from China's favorable 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 a strong market demand for innovative low-altitude aircraft, our eVTOL product, as a representatives of the new quality productive forces promoted by the nation, have garnered a large number of customers and bulk orders. Our delivery volume and the revenues both reached record highs in Q2. We delivered 49 units of EH216-S, a ninefold increase year-over-year. Quarterly revenues surged to 102 million RMB, 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 pre-orders in the Chinese market.

This number is continuing to grow. After securing the PC, our in-full 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 quality management systems, 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 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 lines 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 lift the efficiency and 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 three key areas in which we have achieved a 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 customers to establish EHang EH216-S vertiports and a low-altitude urban air mobility operations 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 VT30 prototype, we have conducted a comprehensive redesign and technological upgrades 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 EH216-S.

In the critical areas of our battery technology, we are developing next-generation available battery solutions that meet the four H 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 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 improvements.

We have also cooperated with more high-quality suppliers, such as Zhuhai Enpower Electric Company, a leading EV powertrains 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 to 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 the 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 tenth 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 our 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 zero to one 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 forward into the next exciting phase of commercial operations, creating greater value for our stakeholders, supporters, and shareholders. Next, let me turn the call over to our COO, Mr. Wang, to elaborate on our Q2 operational performance. Thank you.

Zhao Wang (COO)

Thank you, Mr. Hu, and hello, everyone. Since securing the production certificate in April, we have been authorized for mass production of our EH216S and secure standard airworthiness certificate for each aircraft that we have delivered. Our sales and deliveries continue to grow. In the Q2, we delivered 49 units of EH216S, generating revenue of CNY 102 million, representing a year-over-year increase of over nine times 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 EH216S. We have already delivered the first batch of 27 units in the Q2 and conducted the debut flight at a local scenic area in Wencheng.

The customer also made a prepayment for the remaining aircraft, and the 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 two 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 Q2, 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-franchised bus operator, Kwoon Chung Bus Holdings Limited. KC Smart Mobility plans to purchase thirty units of EH216-S for development and operations in Hong Kong, Macau, and Hubei Province, further boosting market development in Greater Bay Area and Mainland China. Our company has received over one thousand units pre-orders for the EH216 series eVTOLs in China market. With the production capacity expansion, we expect to maintain a growing delivery trend in the Q3.

We anticipate the revenues of the Q3 will reach CNY 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 products.

In terms of operation personnel training, we provide our customers with sufficient training courses after the delivery, including theoretical learning, aircraft safety 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 vertiports for EH216S, 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 takeoff and landing platforms, and Guangzhou plans to invest RMB 10 billion into low-altitude infrastructure. This will include over 100 regular use vertiports and hundreds of community landing pads. Our EH216S 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 EH216S. In terms of operation standards and certification, as Mr. Hu mentioned, in July, the CAAC accepted the Air Operator Certificate or OC applications by two 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 of 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 EH216S. Afterwards, we will have more customers and partners in applying OC.

With our accumulated experience and established safety standard, this will also help expanding our operation network. In July, we also formed a strategic 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-RMB 300 per passenger per flight, providing robust support for eVTOL service operators. In the international market, we continued to expand into the Middle East market in the Q2. In April, we reached a strategic 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 sixteen countries worldwide. In the Q3, 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 the global UAM industry, with safety as our top priority. Next, I'll turn the call over to our CFO, Connor Yang, on financial performance. Thanks.

Conor Yang (CFO)

Thank you, Mr. Wang. Hello, everyone, this is Connor. Before I dive into details, please note that all numbers presented are in RMB and are for the Q2 of two thousand and twenty-four, unless stated otherwise. Detailed analyses are available in our earnings 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 Q2 two thousand twenty-four. We exceeded our revenue guidance by over 13%, achieved adjusted net income, and have generated positive operating cash flow for three consecutive quarters. Notably, our OC applications have been formally accepted by CAAC, marking a significant step closer to commercial operations and accelerated growth. Now, let's dive into details of our Q2 results.

Total revenue in Q2 were CNY 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 Q2, a significant growth from five units a year earlier and 26 units in first quarter 2024. Gross margin remains consistently high at 62.4% in Q2, up 2.2 percentage points from 60.2% in Q2 2023, and a 0.5 percentage point increase from 61.9% in first quarter 2024. The increase were mainly due to changes in revenue mix. Our high growth margin continued to underscore our competitive edge in the eVTOL sector.

In Q2, our adjusted operating expenses, which are operating expenses excluding share-based compensation expenses, were $70.6 million, up 21.6% from $58 million in Q2 2023, and up 29.6% from $54.5 million in the prior quarter. The increase was mainly due to higher sales-related compensations, expansion of sales channel, and increased expenditures on different models of eVTOL aircraft. Q2 adjusted operating loss was $4.7 million, a notable 90.9% improvement from $51.3 million in Q2 2023, and a 62.9% improvement from $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 Q2 was CNY 1.2 million, compared to adjusted net loss of CNY 51.8 million in Q2 2023, and adjusted net loss of CNY 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 Q2, our cash, cash equivalents, short-term deposits, the restricted short-term deposit, and short-term investment balances were CNY 988.2 million. Additionally, we have raised more than $76 million from the at-the-market offering as of today. With the strengthened liquidity position and our confidence in future growing operating cash flow, we will not continue selling ADS under the at-the-market offering in 2024.

The proceeds already raised will fuel 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 the EH216-S having secured three 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 Q3 of 2024 to be around CNY 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 Q2, 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 (participant)

Thank you, dear participants. As a reminder, if you wish to ask a question over the phone, please press star one one on your telephone keypad and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by. We'll compile the queue in order, so this will take a few moments. Now we're going to take the first question. It comes from the line of Laura Li from Deutsche Bank. Your line is open. Please ask your question.

Laura Li (Analyst)

Hey, thank you for taking my question, and congratulations on the strong quarter. So my first question is, thinking about the timeline of commercial operation to overseas markets, how, when would you expect to, like, start that? Is that, like, twenty twenty-five realistic?

Huazhi Hu (Chairman and CEO)

Hey, Ning Yang, [Foreign language]

Anne Ji (Senior Director of Investor Relations)

Here's the English translation. We've been actively extending our presence in the international market, but starting commercial operations in overseas countries depends on the getting, the local regulatory approvals and the certifications. Right now, EHang is working with CAAC in advancing bilateral airworthiness agreements for the validation of type certificate or VTC of the EHang two one six S, with other countries aviation authorities, such as UAE, Brazil, Indonesia, and Thailand, et cetera. The timeline depends on, the local regulators, schedule and the progress. Throughout the process, EHang will actively cooperate and provide the required documents to push forward the process. Besides, we have already made a few deliveries in overseas markets like the Middle East and Indonesia, and they conducted a demo flight there.

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 safety features, paving the way for the VTC certification. Thank you.

Laura Li (Analyst)

Okay, thank you so much. Appreciated, Carla. And my second question is: I think we get a really impressive gross margin of over, like, 60%. Just trying to understand what percentage of our supply chain actually we share or overlap with the EV or the drone business?

Conor Yang (CFO)

Okay. Most of our procurement are from China, domestic, with some electric components or chips are 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, that there are certain portion overlapping with the EV car, but mostly are different. The fuselage, fuselages of the aircraft. So for most products, we produce and we assembly in our own factory, in Yunfu factory so far. Thank you.

Laura Li (Analyst)

Okay. Yeah, thank you for the color. Yeah, congratulations again for the record deliveries. Thank you.

Conor Yang (CFO)

Thank you.

Operator (participant)

Thank you. Now we'll go and take our next question, and the next question comes from the line of Tim Hsiao from Goldman Sachs. Your line is open. Please ask the question.

Hi, thank you for taking my question. So I will ask it together. My first question is about the progress of EHang obtaining the TC of VT30. As we see that the VT30 and EH216-S are in different size and features. So what are the key challenges of VT30 when you developed 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 three years? And, what's the your key focus on the R&D investment? Will you spend more on the new model or the enhancement of the existing model? Thank you.

Conor Yang (CFO)

Thank you.

Huazhi Hu (Chairman and CEO)

[Foreign language]

Anne Ji (Senior Director of Investor Relations)

This is the English translation. Leveraging the VT-30 prototype, our R&D team is currently redesigning and upgrading our recent cruise digital model for enhancing the flight performance. We will keep you updated on this, and we will also submit the TC application for our recent cruise model once it's released. Since the EHang 216-S now has three required certificates, our main focus is on its sales and operations. The EHang 216-S is perfect for the air transportation within the cities, because it is compact and it does not need large takeoff and landing areas. The VT-30 series lithium cruise model is meant to complement our current product portfolio and use cases. It is designed specifically for intercity air transportation.

It's not a replacement for the EH216-S, that is still suitable for the air taxi uses within the urban areas. Thank you.

Conor Yang (CFO)

Okay, this is Connor. I'll answer the second question regarding R&D. On the Q2, actually, R&D expenses is about adjusted up total OpEx about 46%. So going forward, we're expecting that the R&D expenses will be around 45%-50% of our total OpEx, and we are committed to our R&D development. For example, if you compare the number of first quarter R&D expenses, actually, we have increased about 42% with R&D expenses from first quarter. Our future R&D efforts will focus on optimizing the EH216 performance improvement and developing the long-haul eVTOLs and other aircraft for both passenger carry as well as cargo.

And that will include expenses on the R&D materials and our R&D team expansion, test flight, and airworthiness certificate certification expenses. I would say that we believe our growth rate of our revenue will be year-over-year a lot higher than overall OpEx. So even though we are continuing to increase our R&D expenses, the R&D expenses as percentage of the revenue will continue to drop in the coming years. Thank you.

Operator (participant)

Thank you. Now, we're going to take our next question. The next question comes from the line of Cindy Huang from Morgan Stanley. Your line is open. Please ask your question.

Cindy Huang (Research Analyst)

Thanks for taking my question, and congratulations on remarkable Q2 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 (Chairman and CEO)

[Foreign language]

Anne Ji (Senior Director of Investor Relations)

Currently, our orders and the backlog has over 1,100 units in China market. We plan to deliver this by batches over the next 1 to 3 years, per our customers' request 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. For this year, we will also help our customers to apply OC, setting up demonstration projects in pioneer cities to exemplify eVTOL operations. In the future, we aim to replicate this operational site and share our experience in more locations across the country.

Conor Yang (CFO)

To add on your question, distribution on the geographic mix. The orders, if you recall, in the Q4 last year and as well as the first quarter this year, our overseas order revenue contribute around 20%-25% of our total revenue. But since the Chinese government is promoting drone delivery, we're seeing a very rapid growth from China. 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. Thank you.

Cindy Huang (Research Analyst)

Thank you. 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?

Conor Yang (CFO)

Right. The 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 like a-

leveraging in terms of our procurement. But on the other side, we'll continue to improve certain features of our EH216. So net net, after we get the TC, we'll still maintain 30% plus gross margin than the current. In terms of the overall net margin, we have achieved adjusted net income in Q2. And as we have seen that the very, very strong revenue growth. So we are expecting with the revenue growth rapidly, net income margin will continue to improve in the next many years to come. Thank you.

Cindy Huang (Research Analyst)

Thank you.

Operator (participant)

Thank you. Now we're going to take our next question. And the question comes from the line of Cindy Huang, from, my apologies, from Yu Chen, from Haitong Securities. Your line is open. Please ask your question.

Yu Chen (Analyst)

Okay. Congratulations for the company's great business progress, and thank you for taking my question. I have two questions. The first one is, could the management team provide some insight into the company's plans for EH216 operation, including the planned flight commercial routes and pricing strategies for each flight when 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 provinces. What is your current operation cooperation model with local governments or customers?

Huazhi Hu (Chairman and CEO)

[Foreign language]

[Foreign language]

Anne Ji (Senior Director of Investor Relations)

For your first question, besides EHang General Aviation and Hefei Heyi Aviation, 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, Wencheng. And starting from the aerial sightseeing use cases. And throughout the process, we will accumulate operational experience and continuously refining 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 cases. Compared to the helicopters, our price can be half of them or even lower.

It's very competitive because the EH216-S acquisition cost and maintenance cost is much lower than a 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. The subsidies range from CNY 100-CNY 300 per person each flight. Thank you.

Huazhi Hu (Chairman and CEO)

[Foreign language]

[Foreign language]

Anne Ji (Senior Director of Investor Relations)

For your second question, the EHang General Aviation is our wholly owned subsidiary. It serve as our operation platform company to provide operational services to our customers, setting up demo projects and models. We have established a joint venture with the local government for partners through the EHang General Aviation, to provide eVTOL operation services, such as HeYi Aviation in Hefei, and the Pengcheng Wings established with our customer Boling Group in Shenzhen. 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 form and operational team and system to obtain the OC for commercial operations.

By working together, we can ensure the safe operation and create a commercial model that can be scaled up and replicated and sustained. Thank you.

Yu Chen (Analyst)

Thank you for your answers.

Operator (participant)

Thank you. Now we'll go and take our next question. Just give us a moment. And the next question comes from the line of Gareth Zhao from TF Securities. Your line is open. Please ask your question.

Gareth Zhao (Analyst)

Okay. So, congratulations on company's outstanding performance this quarter. I have two questions. The first one is that, so do you expect to maintain the course of the growth trend? Looking forward, how do you view the company's revenue growth trajectory?

Conor Yang (CFO)

Thank you for your question. This is Connor. We have a pre-order over 1000 units in China, and our production has been steadily ramping up in the Q3. So we expect to maintain the revenue growth in the Q3. So our guidance for Q3 is $123 million. That's more than 300% increase year-over-year, and more than 20% growth quarter-over-quarter. And we are confident that our revenue will achieve a triple digit growth year-over-year in the coming quarters.

We explain for the aerial sightseeing market in China, there are over 10,000 units in demand of EH216, and when it applied to transportation purpose in various cities in China, that demand will be even larger and together with the international demand. So we believe that we should have achieve a very high growth rate for the next three to five years. Thank you.

Gareth Zhao (Analyst)

Okay. Thank you. That's very clear, so my second question lies in the overseas market, so we have noticed that you have expanded 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 (Chairman and CEO)

[Foreign language]

Anne Ji (Senior Director of Investor Relations)

EHang is the first eVTOL.

[crosstalk] to conduct test flights in... Yeah, 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 pilotless eVTOL flights 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 flights 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 TC.

Abu Dhabi is planning UAM 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. 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 fit the specific use cases. We've been seeing growing interest and demand for EH216-S in the Middle East market, particularly for the urban air transportation. We will introduce a new type of aircraft to serve for more diversified needs. Thank you.

Operator (participant)

Excuse me, Gareth, any further questions? Thank you. Now we're going to take our next question, and the question comes through the line of Yongqian Zhou from CITIC Securities. Your line is open. Please ask your question.

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

Conor Yang (CFO)

Yes, thank you. You know, we, 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, that Hefei, we'll build the assembly plant. That's our plan, so overall, in the next year, we should add some additional 1,000 annual productions for next year. In terms of CapEx, we are renovating our new headquarters.

We're building a lot of facilities, we're building our R&D labs, also, building a test supply centers. And together with all these, factory expansion. So we are expecting, now expect, the CapEx for 2024 will be around $50 million, and CapEx for 2025 will be around $20 million. Thank you.

Okay, thank you for your answers. And my second question is, could management provide more information on recent ATM financing and company's financing plans for the future?

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

Okay. Thank you very much for your answer, and congratulations again for the company, so thank you.

Thank you. Operator?

Operator (participant)

Thank you.

Conor Yang (CFO)

Thank you.

Operator (participant)

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

Anne Ji (Senior Director of Investor Relations)

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