ECARX Holdings Inc. Q1 FY2024 Earnings Call

Good day, and thank you for joining us. Welcome to ECARX First Quarter 2024 Earnings Conference Call. I would now like to turn the call over to your host for today's call, Rene Du, Head of Investor Relations at ECARX. Please proceed, Rene.

Good morning, and welcome to ECARX First Quarter 2024 Earnings Conference Call. With me today from ECARX are our Chairman and Chief Executive Officer Ziyu Shen; Chief Operating Officer Peter Cirino; and Chief Financial Officer Phil Zhou. Following their prepared remarks, they will all be available to answer your questions during the Q&A session that follows. Before we start, I would like to refer you to our forward-looking statements at the bottom of our earnings press release, which also applies to this call. Further information on specific risk factors that could cause actual results to differ materially can be found in our filings with the SEC. In addition, this call will include discussions of certain non-GAAP financial measures. A reconciliation of the non-GAAP financial measures to GAAP financial measures can also be found at the bottom of our earnings release. With that, I'd like to hand the call over to Ziyu. Please go ahead.

Hello, everyone, and thank you for joining our call today. We started our year strongly with significant growth momentum from 2023 as electronic vehicle architecture improves. Cars are increasingly becoming computers on wheels. Software-defined vehicles and the technologies that underpin them will determine the winners in the next stage of the auto revolution. This is creating significant growth opportunities globally for underlying software and enriching vehicle experiences, which we are uniquely positioned to capitalize on. The opportunity is enormous. According to recent data, the L3+ assisted driving adoption rate hit 9.8%, while L2 hit 36.1% as of the end of March, reflecting how much room for growth vehicle technology offers. Globally, EV sales are expected to increase from 14 million last year to 17 million in 2024, with 10 million of them expected to be sold in China, while global EV sales in the first quarter grew at roughly the same pace as they did a year ago, increasing by about 25%. They grew on top of much larger bases, but software-defined vehicles are not exclusive to EVs. This mega-trend is reshaping the entire auto industry. The automotive technologies we build are agnostic to the powertrain; they can support any vehicle. This is having a profound impact on traditional vehicle design and is a positive sign for our industry and for our strategy for the future. We believe that our unique strengths, including our ability to adapt consumer technology for automotive markets, our deep understanding of the complete automotive intelligence stack, our strategic partnerships, and our global operations uniquely equip us to build stronger connections with automakers, deliver cost-effective solutions that meet their evolving needs, and build a sustainable path to profitability. We have already made significant progress to support this belief. We are thrilled to report that there are more than 6.4 million vehicles on the road that incorporate our technology across 26 brands offered by our 17 automotive OEM customers. The number of ECARX equipped vehicles on the road grew by 6.2% from the previous quarter and 31.2% from a year earlier, reflecting the growing recognition and the significant value proposition that our solutions offer. This is also reflected in our financial results for the quarter, where revenue increased to RMB 928 million, up 21% from a year earlier. Our global customer base continued to grow during the quarter, expanding our horizons beyond the Geely Group. We recently began working closely with FAW Group to develop the next-generation intelligent cockpit for their newest car models and had our solution for a well-known European automaker begin mass production. We are confident this will open the door to additional opportunities with more partners. Our unique ecosystem of partnerships is key to driving further growth in our customer base and technical innovation across the industry. We recently announced our partnership with Microsoft to jointly develop and integrate new products and technologies. The synergies created by this partnership will uniquely position us to support Chinese automakers as they venture abroad and overseas automakers on a wide variety of car models. We strongly believe that continued technical innovation is critical to showcasing our strengths and standing out amid fierce competition. I will let Peter go into this in more detail. For the last month during our second Tech Day, we unveiled multiple groundbreaking automotive intelligent solutions, ecosystem advancements that have already begun to gain traction globally. This includes 3 new intelligent cockpit platforms, 2 central computing platforms, new ADAS features for the Skyland Pro platform and 2 LiDAR systems, which are part of our strategy to become a provider of new components for intelligent vehicles. To summarize, I’m very optimistic about our future growth prospects, and I'm confident that our pipeline will continue to expand as more users and automakers recognize the value our solutions offer. We are already learning, and the first quarter has provided us with invaluable insights into how we can make the driving experience more intelligent, comfortable, and convenient. Our profile is growing internationally, and with our strong partnerships and cutting-edge solutions, we are in a good position to benefit from the wealth of growth opportunity ahead. I will now pass the call over to Peter, who will go through the operating results for the first quarter in great detail.

Thank you, Ziyu, and good day, everyone. Our customer base continues to diversify as our business gains momentum. Beyond the Geely Group, we brought FAW Group on board this quarter to develop next-generation cockpits for the premium Hongqi brand of vehicles. The 2 FAW Group vehicles we are already working on are expected to start production by the end of this year. We also added a well-known European automaker, which has already begun mass production. With the demand for the Volvo EX30 continuing to grow following its launch last year, we were also awarded a new project by Volvo, which we are very excited about. As Ziyu alluded to earlier, partnerships are key to our success. Ziyu mentioned Microsoft. In that partnership, we will jointly develop and deploy innovative products and solutions that seamlessly integrate cutting-edge large language models into a growing number of vehicles globally. In addition, we will use their AI tools to improve internal software development and efficiency. Synergies created by our growing number of partnerships, which also include the likes of Qualcomm, form part of our strategy to reshape the global automotive technology value chain by jointly developing innovative intelligent cockpits and intelligent driving solutions for our broader range of automakers and brands. The progress we have made over the past quarter continues to highlight the significant opportunity for us to leverage our research and development capabilities and continue to improve our operations. As of March 31, we had 582 registered patents and 592 pending patents globally. We have always valued international certifications, and our robust internal processes and products have obtained 23 global accreditations that cover quality systems, functional safety, and product functionality. On the product side, we unveiled several innovative automotive intelligence solutions and ecosystems through advancements at our Tech Day last month. I'll start with Atlas, Pikes, and Qogir, our newest SoC computing platforms. Atlas and Pikes provide global automakers with platforms to deliver state-of-the-art digital cockpit solutions. The new computing platforms are certified as automotive grade and are powered by fourth-generation Qualcomm Snapdragon chips. The Qogir platform is powered by the third-generation Qualcomm Snapdragon 8 mobile chip and was co-developed by ECARX and another group. Benefiting from the unique ecosystem synergies created between automotive and consumer devices, Qogir's high-end performance configuration enables future-proof evolution of the operating system. We plan on collaborating with Epic Games, the maker of Unreal Engine, and other ecosystem partners to keep pushing the boundaries of the in-vehicle experience. Our deep partnership with Qualcomm is prominently displayed with these platforms, as is our ability with Qogir to convert consumer SoCs into automotive-grade computing platforms. This value proposition for automakers is significant, as it reduces their engineering costs, allows them to bring products to market much faster, and keeps them at the forefront of technological changes. These unified computing platforms will position us to ideally serve markets in China and across the world, leveraging both Flyme Auto and Google Automotive Services. The Polestar 4 and Volvo EX30 are great examples of this. For the China market, we were able to deliver the customized Polestar OS based on Flyme Auto, within 60 days, while deploying Google Automotive Services in the Polestar 4 for markets outside of China. We also built the intelligent cockpit solution for the Volvo EX30 based on Google Automotive Services, which will be delivered to 77 countries globally. Our capability to work with these different solutions for appropriate markets can be an exceptional benefit for our customers. At our Tech Day, we also unveiled significant new advancements and ADAS features for the Skyland Pro computing platform, including Navigate on Autopilot, automatic park assist, remote park assist, and home zone park assist among other capabilities. The new advancements also include highway Navigate on Autopilot for 6 provinces in China, rolled out at the end of April. We also introduced 2 central computing platforms that will offer automakers an all-inclusive and cost-effective solution for integrated digital cockpits, driving, and parking capabilities and AI into a single board and platform. The Super Brain Antora 1000 and 1000 Pro computing platforms will allow automakers to further reduce their bill of material costs without sacrificing safety or efficiency. The Super Brain platform lays the foundation for the future of intelligent vehicles with its ability to integrate AI-driven automated vehicle technology. In anticipation of the growing demand for autonomous driving systems, we released the 200-meter long-range semi-solid LiDAR and the Compact Flash short-range solid-state LiDAR through our subsidiary, Photon Matrix. This is significant as it will allow us to further expand our product portfolio and position us as a provider of new components for intelligent vehicles more broadly. Lastly, we are expanding our manufacturing facilities. We signed an agreement to acquire Hubei Dongjun, which marks a significant step towards building our in-house production capabilities. Within China, we now have 2 manufacturing sites after our facility in another location opened in April. This strategic move is expected to give us greater control over the supply chain and enhance our management over product quality while lowering our costs to fortify our competitive edge through the integration of our in-house research, manufacturing, and sales functions. It also sets a solid groundwork for us to expand our international manufacturing capabilities, which will synergize with ECARX's research and development and operation centers that are already established in serving the global markets. We will continue to report on our progress towards this objective. To summarize, we had a very busy quarter in terms of operations. We will continue to seek new partnerships and develop new products so we can make the in-car experience smarter, more efficient, and be able to meet the diverse needs of automakers and their customers by delivering customized experiences with a wide range of technologies and partnerships. I am very much looking forward to the future here at ECARX. I will now turn the call over to Phil, who will go through our financial results.

Thank you, Peter, and hello, everyone. We began the year strongly as our business continues to grow and our financials improve. Total revenue for the quarter was RMB 928 million, an increase of 21% year-over-year. Computing hardware goods revenue was RMB 757 million, up 27% year-over-year, driven by the continuing demand growth of the new vehicle programs launched last quarter, as well as ramping up ADCU sales volume, which contributed approximately 5% to the total revenue from sales of goods. Software license revenue came in at RMB 75 million, down 26% year-over-year, primarily due to a decrease in volume of old vehicle program software deals, while the new generation software volume is still ramping up. Service revenue increased 39% year-over-year to RMB 96 million. This was primarily due to the launch of the new Lotus Car model and the new overseas TSP contracts signed during the quarter. Gross profit was RMB 205 million, a decrease of 2% year-over-year, which translates into a gross margin of 22%, a decrease of 5% year-over-year and 1% sequentially. With the intensification of the market competition, we expect margin pressure on our hardware products to continue over the medium term. To address this challenge, we will remain focused on driving cost reduction through optimizing supply chain management and the product component cost structure, driving fulfillment efficiencies, focusing on ECARX's offerings, value and portfolio selling, as well as being more deliberate in selecting our revenue opportunities and investments. Operating expenses during the quarter decreased 37% sequentially and increased 8% year-over-year. The sequential decrease reflected spending seasonality and improved operations' efficiencies. The year-over-year increase was mainly driven by increased investment in the global market and international R&D expansions. Loss per share was RMB 0.84 compared to the previous quarter RMB 0.87. Adjusted EBITDA loss was RMB 222 million, up from a loss of RMB 141 million during the same period of last year, which was primarily attributable to an increase in research and development expenses and a change in the fair value of equity investments. Compared to the prior quarter, adjusted EBITDA improved by RMB 10 million or 4%. Moving on to our balance sheet, as of the end of the first quarter, we had RMB 358 million of cash and other restricted cash, which gives us the required resources to invest in our future and accelerate growth, while we continue to improve our working capital and profitability enhancement. Going forward, we will further optimize our cost structure and operating expenses with a particular focus on supply chain and manufacturing strategies, transitioning from ODM to OEM models, driving economies of scale, driving R&D integration and synergies while we continue to invest in our core products roadmap and future tech, as well as tightening controls on operating expenses and capital expenses. In summary, we will continue to focus on ECARX's offerings, value and portfolio selling, as well as cost and expense improvement to enhance our profitability and ensure our business is in a healthier and more sustainable position over the long term. That concludes our prepared remarks today. I would now like to hand the call back to the operator to begin the Q&A section.

We will take our first question, which comes from Megan Jin at Macquarie.

I have 2 questions regarding all the new business of driving domain control. So first, what is generally our pipeline of this business? And do you have a midterm goal and expansion strategy?

Hello, everybody, why don't I take that question? Thank you very much. Our ADCU pipeline, we're very confident about the opportunities going forward. The Skyland Pro product that we've talked about earlier in our call today continues to roll out features with a large focus on improving the driving experience, expanding our highway Navigate on Autopilot and continuing to upgrade the capability of the system through over-the-air updates. We have successes of the Skyland Pro on 2 Lynk & Co models already, the Lynk & Co 08 and the 07. We're continuing to build our product line in that space with recent announcements we've made in our Tech Day regarding establishing some of the ADAS capabilities inside our Super Brain products and with additional SoC products that we helped create through our SiEngine joint venture. As we look at the recent reviews of the Lynk & Co models, they have shown to be quite competitive against some other industry experts in this space. So we're excited about the future going forward, and we're looking for even more opportunities for this platform.

My second question is about the same business. Are there any R&D synergies related to domain control across the cockpit and autonomous driving? I'm interested in understanding the incremental costs or the future profitability, credibility, or any potential dilution as we enter this new business.

For sure, as you look across ECARX as a business, I would start with 2 of our key capabilities and platforms within our organization, is the ability to have a deep understanding on the hardware side and even a deeper understanding of the silicon, and then tremendous software capabilities to maximize the performance of the hardware with high-efficiency, high-performance software. So those capabilities certainly expand both product lines, both in cockpit and autonomous driving. And then, as we mentioned, our announcements as we move towards a Super Brain product, as we call it, as we move towards more essential computing opportunities in the vehicle. We do expect those domains will come together. Especially in vehicles that have a lot of cost pressure, we believe that we can help enable the software-defined vehicle by engineering those solutions into a single box solution for the automaker, providing both ADAS capabilities and in-vehicle infotainment capabilities. So that's a significant game changer for the automakers. A few have started down that path, but we see a trend in the industry that this consolidation of systems inside the vehicle and the move towards the software-defined vehicle will continue. And that's a place where we believe having those 2 capabilities within our engineering organization can help us substantially participate in that future trend.

And I'd like to add more comments on top of Peter's message. The R&D synergies around the topic, ADAS solutions, and the LiDAR mentioned actually allow us to provide a standardized solution and a common platform as a menu for our OEM customers, which can significantly reduce the development cost and the cycle time of launching a vehicle to the market. Meanwhile, it has driven cost optimization through economies of scale, which will eventually improve our margin in the midterm and long term.

Your next question comes from the line of an analyst from SPDBI International Securities Limited.

This is from FPDDI. I have several questions. The first question is about the margin, particularly on the hardware side. I've heard the CFO mention that margin pressure will continue in the midterm. Can you provide some insights on how the average selling price will trend in the second quarter and the second half of the year? You also noted that you are focusing on supply chain management and cost control. Could you provide more details or examples of how we can sustain our margin for the remainder of this year?

Thank you. I'm glad to take your call. As we noted in our last earnings release, pricing competition is very significant in the industry, with most OEMs using it to increase shipments and market share. This leads to margin pressure across the supply chain and the entire industry. However, our gross margin performance in Q1 aligns with our expectations because we took a proactive approach in selling our hardware, software, and service portfolios, alongside effective cost optimization. I believe ECARX will continue to invest significantly and pursue globalization. Our strategy focuses on serving top OEMs in global markets, which is essential for our sustainable and profitable growth. In March, during our Tech Day, we announced several newly added products and solutions that will help ECARX gain a competitive market advantage. We are also working to increase the average selling price of vehicles through new product launches, such as the Lynk & Co 08, which is a very successful model. ECARX offers a comprehensive solution, including computing hardware and a primary auto solution, which can elevate our average selling price by nearly RMB 10,000. Another successful model, the Volvo EX30, showcases high average selling price through our computing hardware solutions. These examples demonstrate ECARX's capability to develop technology that builds momentum and trust with our customers while steadily improving our prices and margins. In terms of cost optimization within our supply chain, we've been able to reduce both commercial costs and enhance value from our R&D efforts. In Q1, despite price pressures from customers, our proactive cost activities allowed us to offset most of the price erosion, helping us maintain our gross margin performance in Q1.

And my second question is about our partnership with Microsoft. Could management give us some insights on how the partnership with Microsoft is applied in the cockpit or in the autonomous driving? What functions will Microsoft bring to our products and how will it help our sales or maybe cost?

Yes. Thank you. This is Peter. Let me go ahead and take that question. I appreciate you asking that question. I think AI has tremendous examples to help us both improve the capability of our external product as well as our internal operations. The activities we're having with Microsoft are quite wide-ranging, and we expect them to impact significant areas of our business. Initially, we're very focused on bringing the large language models into the vehicle within the digital cockpit solutions. So we continue to expand the capabilities of our digital cockpit. ECARX started many years ago with infotainment products and has enhanced them into digital cockpit products. We continue to look at consolidating systems inside the car and adding more features. Phil mentioned the Google Automotive services that we've launched, obviously, in many international markets. We expect that the Microsoft large language model offering will also affect the solutions that we can offer in vehicles through that partnership. Additionally, we're working closely with Microsoft on various internal development tools that will also use AI capabilities to improve our internal R&D and our ability to generate automotive software effectively, in a high-quality way that allows us to bring those solutions into vehicles extremely quickly, which is one of our key value propositions for the industry. We expect we'll continue to explore that partnership in a deeper way and hope that in the future, we can make more announcements about how we influence the future of our products with that solution from Microsoft.

And my last question is about long-term growing momentum. Though we mentioned several times about autonomous driving and software-defined cars, how do we see this trend in overseas markets like the U.S. or Europe? And how is ECARX expanding customers beyond Geely and in overseas markets?

Sure. Fundamentally, the technologies we're engaged with, whether they're the digital cockpit, enhanced infotainment and connectivity inside the vehicle, or ADAS and autonomous driving solutions, or the software-defined vehicle, if you extend those capabilities both into the vehicle architecture and how the vehicle could become a more flexible software-enabled solution, those technologies are driving increased penetration and the future of the automotive industry in every market. So we expect significant changes in those technologies in every market that we're approaching, and frankly, everywhere vehicles are designed and produced. We're quite excited about our ability to continue to expand our capabilities and our business partnerships on a global scale. The China market is moving extremely quickly in terms of these technologies, and we see advancements in the vehicles coming to China at quite a rapid rate, and ECARX has a strong team well positioned in the market. The majority of our 6.4 million vehicles are certainly on the road in China, but the non-China portion, the international portion continues to expand. We are having some very deep conversations now and in some RFQ processes here, primarily in Europe, and we're able to show off the tremendous capabilities that we brought. With the level of maturity we have in our solutions, we are often able to demonstrate solutions that automakers are looking for in production, demonstrating those capabilities. We believe this establishes a great foundation for our growth.

Thank you. Next question comes from Derek Soderberg from Cantor Fitzgerald.

I want to start with some commentary around in-house manufacturing. Is the plan to move the company towards fully in-house production? How long will it take for the company to make that transition? Can you provide any additional color on this?

Derek, this is Peter. Thanks for the question. We are certainly expanding our capabilities in our in-house manufacturing, and we mentioned that we now have 2 facilities that are operating in China. We expect those facilities over the next couple of years to produce a significant portion of our sales. I would expect we're continuing to engage with partners on a portion of our revenue as well. I think we're evaluating, let's say, on a strategic process on places where we should make investments and continue to grow our internal capabilities and also continue to work with partners. I expect us to use both as we move forward in a strategic way to manage both the risk of the supply chain and the cost competitiveness of that supply chain. We also announced in our Tech Day that we're moving down the path of investing in a manufacturing facility outside of China as well, and we expect to announce further details on that in the coming quarters. So I think you’ll see us continue to make selective investments in that space as a tool to improve our margins and cost competitiveness.

And as my follow-up, Peter, the company has made a lot of technological advancements here, definitely made a few key integrations with various tech companies over the past handful of quarters. What do you think is the most significant technological advancement that the company has made maybe over the past 6 months or so? What are you most proud of?

Yes. It's tough to pick one, Derek, thank you for the question. I would honestly pick 2. The Antora product, bringing the Antora product to market, was an SoC developed through our joint venture, came to the China market, launched in vehicle in 2023, and has continued to expand. Now, this year, it should ship in the hundreds of thousands of units, and that will continue to grow. At our Tech Day, we announced we're adding Super Brain capability into that SoC and that compute platform. This enables us to demonstrate many of our internal capabilities to bring the ADAS domain and the infotainment domain closer in the vehicle to run on a single platform, offering great solutions for the automakers and providing them cost savings in vehicle architecture. The other one, I think our close partnership with Qualcomm is certainly highly displayed with the launch of 3 new platforms and even additional activities on next-generation solutions. Both of those pillars enable us to be very nimble and competitive in all the markets that we're trying to target. I think we're quite proud of both of those activities.

Thank you. Your next question comes from the line of Jackie Tang from CICC.

I have 3 questions. The first is actually following up on the previous one. We have seen very amazing new platforms from ECARX, including Qogir, Atlas, and Pikes. Could you give us some color regarding how's the business developments for the 3 platforms, especially for Qogir? If I didn't remember wrongly, during the Tech Day, it was said that this would be a new project reviewed in April, but maybe I have missed that. That's my first question.

Yes, Jack, thank you very much for your questions. In 2 of those 3 platforms, we're already in deep development to bring those platforms to vehicles. Qogir was already sourced, and we're working on developing that platform deeper in our pipeline and bringing that finally to market. We announced the Atlas platform; we expect to see a start of production within the next 12 to 18 months on that platform as well. The pipes platform might take a little longer, as it's more of an international platform for us. The 3 platforms announced during our Tech Day have gained a lot of traction in the market, and we expect they will continue to yield very positive business development activities going forward.

Very quick. For the 6.4 million cars in the pipeline, out of which how many are going for the new platforms?

Sure. The 6.4 million vehicles are cars that we have on the road today as of the end of the quarter. This demonstrates our scale and our historical contribution. We are growing at about 30% a year, and in the last year, we’ve added more than 1 million units to that total. We expect that these new platforms will likely hit the market in the next 12 to 18 months, adding to the overall number of vehicles we have in the marketplace.

For my final question, could you provide some insights into the new projects going on in Europe as we are launching a new project with European OEMs? How did you manage to secure these projects?

Certainly. ECARX as a company started our international journey back in 2020 with the first vehicle that we launched. As we continued down that journey, I believe it was in '22 that we launched platforms with the Smart brand as well as the LOTUS brand that have launched throughout Europe and in other international markets. Last year was a significant milestone for us to bring the Volvo EX30 to market; that vehicle with Google Automotive Services is set to launch in more than 70 countries, making it a worldwide car and demonstrating our capability to bring products to market in all worldwide markets. As I mentioned earlier, we are in deep conversations with a number of automakers here in Europe. We have a handful of RFIs and RFQs in process, and we hope to see some significant traction toward the end of this year. International automakers operate at a different pace compared to what we see in China. This is well within our expectations and our capability to deliver products to market quickly is one of our strengths, and being able to do that with a high-quality automotive approach is critical for our future growth. I believe we're making solid progress in building up our relationships in Europe, and I hope we can announce significant progress there in the coming quarters.

Could you provide the probable timeline for the Super Brain platform where it's going to be?

Certainly, that's a great question. We see the Super Brain platform as just a continued progress of something that's been in the ECARX DNA from the beginning. Along the development path we've followed, starting from the first quarter that we announced as well as the move from our infotainment platforms, our digital cockpit platforms have been continually integrating more and more systems into our compute platforms and have enabled simplification of vehicle architecture through that effort. We demonstrated these capabilities in our latest platforms that are in vehicles today. The Super Brain and Antora 1000 Pro Super Brain solutions are simply the next step in that evolution where we continue to go beyond particular functions that we’re integrating and also start to combine ADAS domains into a single box solution. This is consistent with our goal. Regarding ASP, as Phil mentioned earlier, we are continuing to provide a more capable solution in vehicles, which sometimes translates to increased ASP on our unit, a great trend for our business. However, our ultimate goal in these endeavors is to simplify vehicle architecture through our software and system capabilities and provide cost savings to the overall vehicle. With our close alignment with various brands in the Geely Group, we are well positioned to engineer these solutions in the vehicle and make sure they come to market in a high-quality manner. I expect to see Super Brain launches in the next 12 to 24 months as we bring that capability to the vehicle and the automakers we’re partnering with are excited about driving cost savings inside their car.

Yes. In the March Tech Day, ECARX announced the all-in-one platform Super Brain based on Antora 1000 vehicle and Antora 1000 SPV. Basically, the solution, the platform can provide a top-notch in vehicle performance. Due to Antora 1000, we call that well 1000 Pro SPV; it's a 16-unit NPU, basically AI power. The platform can enable the digital cockpit, parking, and ADAS solution all in one box, providing a very cost-effective benefit to customers. The price range could be RMB 2,000 to RMB 3,000, which is very cost-effective, right? This is a typical example that ECARX can push forward a solution to the market and present our solutions to our customers.

Just one very quick follow-up. How will the development process be structured regarding software development between ECARX and OEMs?

It's a great question. We strive as a business to provide as much common platform as possible in the market. You see us discussing our product road maps and in our effort that drives towards a common platform with great hardware and solid base-level software. Many of the OEMs have different models and structures in the way they do their development. So we often work closely with them on how the balance of that workload fits between the two organizations. Our ideal model sees ECARX in a position where we're providing standardized solutions to the market that we can leverage that R&D capability across multiple customers, then work with the OEM towards customizations for their vehicles. This is achieved through various strategic alliances, joint ventures, and methodologies. Generally, we would like the OEM customer to take the lead when it comes to vehicle apps and customized features, with ECARX focusing on common high-performance solutions at base software and hardware technologies.

Thank you. Your next question comes from the line of Jane Chen from Jefferies.

I have 2 questions. My first question is about the guidance for the second quarter and the second half of the year. Can you provide some insights on that?

Sure, happy to take the question. We all know that market competition has been fierce since last year. Despite the tough competition, ECARX is actually on the right path and on the right growth trajectory based on the customer nominations and engagement. We believe this continued growth can be sustained long-term. Based on nominations from customers, our pipeline mentioned earlier, and newly added technologies, we have full confidence to grow our business by high double digits year-over-year, that's for sure. We have built momentum over several years, and we believe that this momentum will continue and will no doubt reach the next level. Our general goal remains unchanged, and this is our commitment to our current strategy as a company. We aim to achieve breakeven as aggressively as we can, and we are working towards this goal as soon as possible through key actions. Number one, we will maintain lean operating expense control, focusing on narrowing down our operational losses to improve financial performance. Secondly, we will keep pushing for cost optimization. With guaranteed top-line growth and sustained margin growth, while reducing and optimizing operating expenses, we will iterate our targets very soon.

My second question is regarding the cooperation with FAW. As you mentioned before, 2 models will start mass production. Could you provide more details on what products you're supplying, the ASP, profitability, and how can we expect the NASDAQ cooperation expands into the autonomous driving field with more models or brands on FAW?

Yes, certainly, happy to take your question. Peter, you may chime in for the product and solution cooperation with FAW. Our cooperation with FAW is a milestone for ECARX, especially for customer diversification. We anticipate supporting FAW on innovation in digital carpets and smart mobility solutions, including ADAS solutions. This is a strategic partnership aiming to develop advanced intelligent cockpit solutions for FAW's premium brands. Both parties will combine R&D capabilities and technological strengths to build an end-to-end value chain for developing intelligent cockpits, with the goal of setting new industry benchmarks, especially in advanced operating system and software development. We will co-develop and co-design cockpit domain controllers and integrate our products with the brand ecosystem beyond the current scope. This is very strategic, and we look forward to more engagement with FAW on many vehicle developments and launches.

I think you covered it well, Phil. The combination of R&D capabilities and strengths from a technology perspective will help align our solutions with the vehicles that I think fit strongly into the ECARX roadmap. We see a number of our platforms launching into those vehicles and continuing to support the roadmap on a go-forward basis.

Thank you. There seem to be no further questions. I would like to hand back for closing remarks.

Thank you for your participation today. We are happy to announce that ECARX is on the right trajectory, and we will maintain our growth momentum as well as sustainable and profitable growth. We have a consistent goal, as I just mentioned, targeting to drive breakeven as soon as possible through effective operating expense control and cost optimization. Meanwhile, we will support our strategy to focus on R&D development, global expansion, and building our ecosystem, both in China and internationally. Please stay focused on ECARX's development; we are looking to announce a very promising future to the public. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.