Earnings Call Transcript - CCG Q2 2025

Crocker Coulson, Investor Relations

Thanks so much, operator. Good morning, everybody. Good evening to those of you joining us from Asia, and thanks to everyone for joining us on Cheche’s First Half of 2025 Earnings Call. This morning, Cheche posted both the earnings release and related investor presentation to our website, which is at ir.chechergroup.com, and you can find all the materials there. With me on the call today are Lei Zhang, Cheche’s Founder and CEO; as well as Sandra Ji, Cheche’s Chief Financial Officer. After the prepared remarks are concluded, we'll be pleased to open up the call for your questions. But before we begin, I'd like to let you know that some statements in this teleconference will be forward-looking within the meanings of the federal securities law. Although we believe these statements are reasonable, we can provide no assurance that they will prove to be accurate because they are prospective in nature. Actual results could differ materially from those we discuss today. We, therefore, encourage you to review the most recent filings with the SEC for risk factors that could materially impact our results. As I mentioned, you can find our earnings release at ir.chechergroup.com, and we encourage you to review the reconciliations of certain non-GAAP measures that are contained in that release. With those formalities now out of the way, it's my great pleasure to turn the call over to Lei Zhang, Cheche’s CEO. Lei, over to you.

Operator, Operator

Yes, pardon me. It looks like we're having some issues here. I'm going to place music back on and we will get the situation resolved. Please stand by for just a moment. Thank you for holding, everybody. This is the conference operator. I joined the speaker location back to the call. Please proceed.

Lei Zhang, CEO

Okay. Thank you. Thank you, everyone. Thank you for joining us today to review Cheche’s first half 2025 results. The first half of 2025 was a period of relent, adaptation and forward-looking investment for Cheche Group. In the first half of 2025, the number of NEV insurance policies transacted on our platform exceeded 810,000 representing increase of 135% from the prior year, while total written premiums reached RMB 2.6 billion, up to 150% over the same period. Over the past 3 years, our NEV business maintained a compound annual growth rate of 140%. And as this is one of Cheche’s fastest-growing and most promising core business, we continue to diligently strengthen partnership with NEV makers and expand our insurance operations, expecting to serve 30% to 40% of China's NEV market over the next 3 to 5 years. NEV premiums as a percentage of the total written premiums increased to 22.5% from 9.3% in the prior year and gross margins increased a clear reflection of the effectiveness of our business structure and operational efficiency implemented over the past year. Our adjusted net loss for the first half of 2025 improved 47% to RMB 10 million or USD 1.5 million from RMB 24 million in the prior year, and we remain on track to achieve full year adjusted operating profitability in 2025. Throughout the period, we continued to advance our strategy prioritize. China's NEV market is scaling at an unprecedented path, fuelling demand for innovative insurance solutions. Against this backdrop, we are taking decisive steps to invest and commercialize our innovative AI-driven features. This initiative not only aligns us with growth trajectory of NEV, but also establishes the framework for our global expansion road map. In short, while the numbers reflect a period of transition, the strategic process we have made positions future for sustainable long-term growth and leadership in both China and international markets. Looking more broadly at China's automotive industry, the first half of 2025 demonstrated continued momentum for NEV. Global NEV sales reached 9.1 million units, with China contributing 6.9 million units, representing an impressive 75% global share. NEV accounted for 44% of new car sales in China in the first half of 2025 and insurance demand is scaling rapidly. Auto insurance premiums reached RMB 440 billion over the same period, up 4.5% year-over-year, while NEV insurance premiums growing 41% to RMB 66 billion, nearly 10x surpass overall industry growth. This ongoing expansion of NEV ecosystem validates our strategic focus and provides a strong tailwind for future next phase of growth. Cheche's position as the largest auto insurance technology platform by digital auto insurance transaction premiums remains strong, and our growth continues to set the path for the industry. We are building on this leadership position by deepening partnerships with both traditional and NEV automakers with customized systems and embedded insurance products, which firmly established Cheche as a critical partner in the automotive ecosystem. These collaborations provide us with rich data, valuable insights and direct customer access, resources that enable us to broaden our reach and continually enhance the solutions we deliver. This morning, alongside our earnings release, we announced the launch of 2 forward-looking global initiatives. The AI-driven intelligent insurance tool, a resource that will leverage real-world driving data to enhance liability determination, automate claims processing and improve efficiency for insureds and the fintech solution for automakers abroad. A toolbox of digital solutions that will support automakers as they expand internationally, providing financial and insurance infrastructure to enable success internationally. These initiatives are not only designed to strengthen our leadership in China, but also to position Cheche as a digital backbone connecting automakers, insurers and vehicle owners globally. We are also collaborating with insurance companies and OEMs to jointly develop an anti-fraud claims system tailored for intelligent driving scenarios. By analyzing vehicle driving data, the system will improve careers in the liability determination and streamline claims automation. Over the next 3 to 5 years, China's NEV fleet is expected to reach 80 million to 100 million units. Based on the industry average estimated claim rate of 30%, our claim services will cover around 30 million NEV. This vast market opportunity is projected to contribute RMB 300 million to RMB 500 million in AI-driven solutions and services, significantly improving the company's financial and operational structure. Our vision is not limited to China. We are preparing to roll out these next-generation solutions in global markets beginning in the fourth quarter of 2025 and expanding overseas business to serve as a key growth engine beginning in 2026. We have already formed partnerships with several automotive brands focusing on overseas markets. Together, we have developed a comprehensive global road map spanning the Asia Pacific and Europe. This expansion is expected to validate China's mature NEV digital pricing model in global markets, promote alignment in international insurance standards, and enable ecosystem-wide globalization of China's automotive industry. We believe these steps mark a key milestone in Cheche’s global expansion blueprint and reinforce our role as a trusted technology partner in the worldwide transition to intelligent and connected mobility. To summarize, the first half of 2025 reflects a period of transition and strategic position for Cheche Group. We achieved a higher gross margin as a result of business structure improvements, launched plans for 2 transformative initiatives that are expected to extend our leadership beyond China and are preparing for global expansion in partnership with automakers and insurers worldwide. We remain confident that our AI-driven solutions and fintech innovations will not only strengthen Cheche's financial outlook, but also help shape the future of insurance in the intelligent mobility era. I will now turn the call over to our CFO, Sandra Ji. Thank you.

Wenting Ji, CFO

Thank you, Lei. I'd like to start by discussing our operational and financial highlights from the first half of 2025 before we take questions. First, the operational update. Our total written premiums for the first half of 2025 rose by 4% to RMB 11.5 billion, which is equivalent to USD 1.6 billion. The total number of policies issued grew from 8 million in the same period last year to 8.3 million in the first half of 2025. We saw 810,000 embedded policies with premiums of RMB 2.6 billion included in NEV deliveries, marking increases of 135.5% and 150.6% year-over-year, respectively. Now, moving on to our financial update. In terms of net revenues, we achieved RMB 1,348.7 million, or USD 188.3 million, in the first half of 2025, which represents a decrease of 17.7% from the previous year. This shift was due to a higher proportion of NEV premiums, which carry lower service fee rates. NEV policies accounted for 22.5% of total written premiums, compared to 9.3% in the same period last year. Our cost of revenues for the first half of 2025 was RMB 1,282.9 million or USD 179.1 million, down 18.5% from the prior year due to falling net revenues and an improved gross margin from the rapid growth of the NEV business. Gross profit rose by 1.7% to RMB 65.8 million or USD 9.2 million compared to the same period last year, despite the decline in net revenues, as our improved business structure led to better gross margins. We also recorded a 10.6% decrease in selling and marketing expenses during the period, totaling RMB 37.3 million or USD 5.2 million, primarily due to lower staffing costs, amortization of assets, and expenses related to share-based compensation. General and administrative expenses also decreased significantly in this period, falling by 39.7% to RMB 37.3 million or USD 5.2 million from RMB 61.8 million the previous year, mainly due to reductions in share-based compensation, staffing costs, and professional fees. Research and development expenses saw a slight decrease to RMB 18.3 million or USD 2.6 million. Overall, total operating expenses dropped by 23.9% to RMB 92.8 million or USD 13 million from RMB 121.9 million in the prior year, largely due to reduced staff costs and share-based compensation. Excluding share-based compensation and dispute resolution expenses, total operating expenses fell by 13.7% year-over-year. The net loss for this period improved by 53.4% to RMB 25.6 million or USD 3.6 million compared to the first half of 2024. The adjusted net loss narrowed to RMB 10.5 million or USD 1.5 million, a 56.9% reduction from the adjusted net loss a year ago. On our balance sheet, we reported RMB 167.2 million or USD 23.3 million in cash, cash equivalents, and short-term investments compared to the prior year. Looking ahead to the full year of 2025, Cheche is revising its net revenue guidance to approximately RMB 3 billion to RMB 3.3 billion, down from the previously anticipated range of RMB 3.6 billion to RMB 3.8 billion, reflecting recent business structure changes. However, we maintain our expectations for the following: total written premiums placed between RMB 25.5 billion and RMB 27 billion, NEV written premiums placed between RMB 7 billion and RMB 8 billion, and a shift from a loss to a profit in adjusted operating results. With that, we're happy to take your questions. Thank you.

Operator, Operator

Today's first question comes from Chen with CICC.

Unidentified Analyst, Analyst

I appreciate the chance to pose a question to the management. And my question is, could you add some color on the recent significant progress or strategic roadmap for the NEV business? Building on the company's years of technological expertise and industry accumulation, what future innovation opportunities do you foresee?

Lei Zhang, CEO

Thank you, CICC. I will answer this question in Chinese. The company is focused on its intelligent NEV insurance platform, which provides comprehensive AI-driven digital insurance solutions for OEMs. These solutions cater to various requirements including pricing, risk control, underwriting, and claims. In the first half of 2025, the number of NEV insurance policies transacted on our platform surpassed 8 million, with policy volume and premiums increasing by 135% and 150%, respectively, achieving a compound annual growth rate of approximately 140% for three consecutive years. These results highlight strong demand in the NEV market and reinforce the effectiveness of our strategy to support NEV growth through digital insurance technology. In 2025, the company will pursue strategic opportunities in the intelligent and connected NEV sector, leveraging partnerships with 15 major NEV manufacturers. We intend to fully address NEV risk control management gradually. This NEV segment is expected to generate a flywheel effect for our revenue and margins over the next 3 to 5 years. Additionally, we plan to expand into international markets in the fourth quarter of this year, having established partnerships with several major automotive brands. Together, we have developed a comprehensive roadmap for the Asia Pacific region, Europe, and Latin America. This initiative aims to validate and refine China's established NEV digital pricing models in global markets, align international insurance standards, and facilitate the global expansion of China's automotive industry through various models. We anticipate this overseas business to become a significant growth driver starting in 2026. Thank you.

Operator, Operator

And our next question today comes from Derek Greenberg at Maxim Group.

Derek Greenberg, Analyst

You guys have mentioned that your goal is to get to a 30% to 40% market share in the NEVs in the next 3 to 5 years. I was wondering where you're starting at now, what that market share is scaling from.

Lei Zhang, CEO

Thank you. As previously mentioned, our target in the NEV market is currently around 10% market share, which reflects our new car deliveries. Considering the current inventory costs in the NEV sector, we are optimistic about achieving over 100% growth each year, allowing us to reach our target within the next 3 to 5 years. We are quite confident in this goal.

Wenting Ji, CFO

This is Sandra. Let me add something. For the past few years, the CAGR for our NEV business has been over 140%. We are quite confident that we will keep that high growth momentum for the next 3 to 5 years. For the whole industry, the NEV insurance growth rate for last year is 40%, but as I just mentioned, we enjoy a CAGR of 140%, far faster than the industry's growth rate, which means we are gaining more and more market share during this process. That's why we are quite confident that after 3 to 5 years, we can achieve 30% to 40% of the total NEV insurance market.

Derek Greenberg, Analyst

And then I think earlier in the call, you may have mentioned, I wanted to reaffirm that I think NEVs are 22.5% of the mix, which is up from 9.3% prior. First, I just wanted to verify that. And then second, given that scale and market share and the growth you're seeing, what do you see the mix shifting to as you achieve your market share goals?

Wenting Ji, CFO

Yes, we already saw the trend that NEV business accounted for more and more percentage proportion of the overall business picture. Yes, actually, the growing rate is becoming faster and faster. And for the next 3 to 5 years, we estimate that the NEV business would account for over 50% or even higher, 50% to 70% of our total business.

Derek Greenberg, Analyst

And then just real quickly, I was wondering if you could help us understand there's strong performance on the bottom line, and it looks like you're reaffirming written premiums. But I wanted to kind of parse out the net revenues and how that's impacted by this business. Is it just a lower policy rate or take rate on the NEV or what explains the variance there in terms of growth in all other segments, but a little bit lighter on revenue? If you can just help us understand.

Wenting Ji, CFO

The take rate for new energy vehicle insurance in China is significantly lower than for traditional car insurance because the NEV insurance market is still in its early stages. Most insurers are currently facing losses in this market, which prevents them from offering a higher take rate. However, as the NEV insurance market matures, we anticipate that insurers will transition from losses to profits, allowing them to provide us with a more favorable take rate. Despite the lower take rate for NEV insurance, we experience a much higher gross margin in this segment compared to traditional car insurance. Therefore, even with lower net revenues, we maintain a stronger gross margin, indicating improving profitability and a better overall business structure compared to previous years. The quality of our revenue is higher than that of traditional cars due to this increased margin.

Derek Greenberg, Analyst

I'm going to ask one more, and then I'm going to hop back in the queue so others have an opportunity to ask questions. But I wanted to touch on the announcement this morning of the 2 new AI products and the international expansion. I was wondering if you could just talk a little bit about what the rollout will look like in terms of those products and the go-to-market strategy, maybe what geographies you're targeting first and if there are additional resources and investment in that area.

Lei Zhang, CEO

Okay. For the two products we announced this morning, we are currently collaborating with a major automaker in China to utilize AI-driven solutions that aim to enhance their claims processing accuracy by about 50%. In terms of our global strategy, we are actively working in the Asia Pacific region, including countries like Thailand and Australia, with local partners, and we have signed several agreements. At this moment, we are focused on delivering financial insurance technology services to these partners.

Operator, Operator

Our next question comes from Mark Long at Prime Impact Capital.

Mark Patrick Long, Analyst

Congratulations on a strong first half of leadership in the NEV insurance sector and positioning the company to become profitable in the second half of 2025; that's very impressive performance. Could you briefly explain, Lei, how you're leveraging AI and data analytics to deliver your new claims and fintech solutions?

Lei Zhang, CEO

Currently, most of the new energy vehicles are smart and connected, which provides a significant amount of data. We are using AI tools to determine the circumstances of accidents in real-time, helping to identify who is primarily responsible when an incident occurs. Additionally, by leveraging this data, we can implement anti-fraud measures. After an accident, we can improve the accuracy and efficiency of claims processing. Our goal is to integrate loss determination and claims processing into a single suite, enabling us to complete this type of claim service in just a few minutes. This approach helps insurance companies enhance their operational efficiency.

Wenting Ji, CFO

Yes. According to the industry statistics, the average accident rate is over 30% among total NEV cars. Based on these numbers, we can cover over 30 million NEV units, which means according to our estimation, that will bring us RMB 300 million to RMB 500 million in revenue to our business. Since the product is AI-driven, it has a very high gross margin, so RMB 300 million to RMB 500 million in revenue also translates into profit for our business. Actually, we are in a very good position, and we are quite confident we can keep the operating expenses under control. The total operating expenses and investments won't go up drastically. We will keep it under very good control, so profitability and net margins will increase significantly in the foreseeable future.

Operator, Operator

And our next question today comes from Derek Greenberg at the Maxim Group.

Derek Greenberg, Analyst

I was wondering with operating expenses and the decline we saw year-over-year, if you could just remind us the reductions across the 3 segments, how you're achieving that?

Wenting Ji, CFO

Yes. Over the past 2 or 3 years, we have exercised very good control over our headcount, and we have also developed a robust technology network, which limits the need for significant investments in R&D and other expenses. Additionally, we also have much lower share-based compensation. This is why total operating expenses are decreasing significantly compared to last year. For the next 3 to 5 years, we anticipate that operating expenses will remain stable and not grow very fast.

Derek Greenberg, Analyst

And then could you just talk a little bit about some of the initiatives you have towards autonomous driving?

Lei Zhang, CEO

Yes. We are currently collaborating with Huawei and XPeng to develop protective measures for intelligent autonomous driving scenarios. In the fourth quarter of this year, we are also partnering with the China Insurance Automotive Research Institute to create a strategy to address standard issues related to NEV insurance.

Derek Greenberg, Analyst

And then my last question is just, I guess, looking at the macro, is there anything you can point to in terms of how the consumer is holding up or if there are changes in government regulations and stimulus either recently or on the horizon?

Lei Zhang, CEO

In terms of policies for NEV insurance, we believe that both China and other countries need well-designed and accurate insurance policies. Currently, in China, the inventory of NEVs is significant, which provides us with valuable hands-on experiences and pricing models for NEV insurance. We are actively discussing expanding internationally and aiming to share these experiences and models with other countries and partners. We anticipate that NEVs will become a major growth driver in the future, predicting that their global share will exceed 15%.

Operator, Operator

This concludes the question-and-answer session. I'd like to turn the conference back over to the company for any closing remarks.

Lei Zhang, CEO

Okay. Thank you. We appreciate you taking the time to join us on the call today. Please reach out to Investor Relations with any questions. Thank you very much.

Operator, Operator

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.