ECARX Holdings Inc. Q2 FY2024 Earnings Call

Good day, and thank you for joining us. Welcome to the ECARX Second Quarter 2024 Earnings Conference Call. At this time, all participants are in listen-only mode. After management gives their prepared remarks, there will be a question-and-answer session. As a reminder, today's conference call is being recorded. I would now like to turn the call over to your host for today, Rene Du, Head of Investor Relations at ECARX. Please proceed, Rene.

Thank you, operator. Good morning, and welcome to ECARX second 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.

Thank you, Rene. Hello, everyone, and thank you for joining our second quarter earnings call today. We maintained robust growth momentum during the second quarter, building upon the strong performance we had at the start of the year. The automotive industry continues its rapid evolution toward software-defined vehicles, which ECARX remains at the forefront of. Let me start with a brief market update here. While the sector faces some global headwinds, the overall trajectory remains positive, particularly for electric vehicles and intelligent car technologies. Global car sales were mixed but remain on track, on which around 88 million vehicles are expected in 2024, an increase of almost 2% to 3% year-over-year. China's automotive sector experienced similar mixed sales during the first half of the year but restarted exports. China vehicle sales were approximately 12 million during the first half of the year, with exports reaching about 3.8 million, up 6% and over 30% year-over-year. Chinese electric vehicle sales, in particular, were robust, reaching 8.49 million during the same period, a 32% year-over-year increase. The market continues to yield significant opportunities for us. Our evolving product portfolio, diverse customer base, and strategic global partnerships uniquely position us to capitalize on the enormous opportunities in this space. The scale of our business is key to building a sustainable path to profitability, and I'm pleased to report that we made substantial progress in this regard. By the end of the quarter, there were over 6.9 million vehicles on the road incorporating ECARX technology, with 472,000 vehicles added in this quarter alone. This translates into an increase of almost 32% year-over-year or 7% sequentially. We now serve 17 automotive OEMs across 26 brands, maintaining our reach from the first quarter and deepening relationships with existing customers. This can also be seen in our financials with revenue increasing 31% year-over-year to RMB1.3 billion. We continue to expand our customer base and broaden our project pipeline with five new design wins during this quarter, primarily for overseas projects. These wins demonstrate the appeal of our unified computing platforms, both overseas and in China. Our relationships are growing across the board, with a new design win from a well-known European automaker that builds upon our existing mass production projects from last quarter and four additional projects from the Geely ecosystem targeting overseas markets. Discussions are also underway with FAW Group for additional projects beyond two currently in development. We are also currently working on five global RFQs beyond the Geely ecosystem. This diverse ecosystem of partnerships is fueling our project pipeline with cutting-edge innovation that sets new industry benchmarks and keeps automakers at the forefront of technology change. Building upon our initial collaboration in 2019, we strengthened our partnership with Tencent Smart Transportation in June. This partnership is intended to join different intelligent driving and cockpit solutions, which seamlessly integrate their robust suite of technologies and services for the domestic China market. For overseas markets, we began working with DXC Luxoft to accelerate the development of in-vehicle capabilities with a focus on enhancing the user experience of our full stack of infotainment, digital cockpit, and advanced driver assistance hardware and software. Continued technical innovation is critical for showcasing our strategies and maintaining a distinctive edge in the market. As our customer base grows, we are creating opportunities to replicate and scale our existing solutions for different vehicle models and markets. I'll let Peter go into specifics in more detail, but I want to highlight that our technology's versatility and adaptability makes it the ideal solution for global automakers looking to offer the best user experience while keeping bill of materials costs low. I am highly confident in our ability to drive significant growth going forward. Our technology is mature and ready to be deployed more widely as our relationships with auto manufacturers deepen. Our comprehensive product portfolio and our ability to innovate and scale solutions across multiple brands and markets underscore our competitive edge and are accelerating our global expansion. With our profile growing globally, we are well positioned to generate sustainable growth and create long-term value for our shareholders, and I look forward to building on this momentum in the second half of the year and beyond. I will now pass the call over to Peter, who will go through the operating results of the quarter in more detail.

Thank you, Ziyu, and good day, everyone. Our customer base continues to diversify and grow as our business scales and gains momentum. We secured five new design wins during the quarter, primarily for overseas projects. These wins directly reflect the unique value proposition we offer automakers with our unified computing platforms for markets in China and across the world. A number of these wins were generated from deepening relationships with existing customers, which are opening the door to additional opportunities. As Ziyu said, one of those five design wins was from a well-known European automaker that builds upon our existing mass production project from last quarter. The remaining four projects are for various brands in the Geely ecosystem targeting overseas markets. Beyond the Geely ecosystem, discussions are also underway with FAW Group for additional projects in China beyond the two previously announced projects, which are still progressing smoothly through the development process and remain on track to begin starter production later this year. We're also actively participating in five global RFQ processes. Synergies created through strategic partnerships form a key part of our strategy to reshape the global automotive technology value chain. We're working with partners to develop innovative, intelligent cockpits and intelligent driving solutions for a broader range of automakers and brands. In June, we strengthened our partnership with Tencent Smart Transportation, the Smart Mobility division of Tencent to jointly develop intelligent driving and cockpit solutions. This will reinforce our position in the China market by seamlessly integrating our unified computing platforms with Tencent's robust suite of technologies and services in big data, cloud computing, artificial intelligence, mapping services, and infotainment ecosystems. Together, we will initially focus on integrating Tencent's fully cloud-based lightweight maps product and broader ecosystem of apps and services. Over the longer term, we intend to develop a sophisticated platform to train and operate large language models that can be deployed in intelligent cockpits for our broader range of automakers worldwide. For international markets, we partnered with DXC Luxoft in June, a trusted global automotive software systems integrator, to jointly accelerate the development of in-vehicle capabilities. ECARX's full-stack hardware and software offerings will now support a wider range of services with the addition of DXC Luxoft's expertise in software integration and engineering, and its ability to develop customized solutions for automakers globally. Put simply, together, we will be able to help automakers integrate our world-leading hardware and software stack according to their individual needs, developing a bespoke user experience. Our technological leadership is further evidenced by our robust intellectual property portfolio with 598 registered patents and 656 pending patent applications globally as of June 30. On the product side, we had several exciting new vehicles launched this quarter that showcased our technological strengths and demonstrate our remarkable versatility to replicate and scale our solutions across various brands and models. Following the successful launch of the Lynk & Co 08 last year, we rapidly adapted its solution powered by the Antora Pro computing platform integrated with Flyme Auto to several other high-profile models, including the Lynk & Co 07 in May and the LEVC L380 in June. The two FAW projects moving through the various stages of development will also use the same solution. The Lynk & Co 07 and 08 in particular, come integrated with our full-stack solution, which includes the Skyland Pro ADAS computing platform. This shows the popularity of the solution and its ability to meet the needs of multiple automakers and also helps us focus on iterating and improving this platform with feedback from multiple launched vehicles. The integration of our dashboard in in-vehicle systems with the mobility ecosystem, such as Flyme Auto, is one way that we can work to future-proof the driving experience. We are also driving innovation in other areas to ensure that our offer to automakers and drivers remains at the cutting edge. As an example, this year, we will see the first vehicles using our pioneering Makalu computing platform entering the market. Makalu is powered by the AMD Ryzen Embedded V2000 processor and is the first platform to offer automakers the power of this advanced chip. Makalu is not only able to support ambitious applications, including unparalleled 3D graphics, AAA gaming, and other powerful entertainment and security features, but it also provides the processing headroom to allow automakers to continue to upgrade the driver experience with software upgrades well into the future, fostering a deeper relationship with their customers. The new Lynk & Co flagship BEV, the Z10, will be the first car to bring the advanced features of Makalu to the road with vehicle deliveries expected to begin next month. The Smart Number 5, which debuted in April at the Beijing Auto Show, will also be driven by the power of Makalu. As chips become more powerful and capable, we also have an opportunity to create more efficient and less expensive systems that meet infotainment, assisted driving, and security requirements in a single unit. The Geely Galaxy E5, the first vehicle to integrate digital cockpit and parking capabilities into a single board using the Antora 1000 platform under Geely's new EV architecture, will significantly reduce the bill of materials cost for the vehicle and serve as the foundation for their next-generation vehicles. It's clear that our Antora computing platform is increasingly broadening its appeal to the market, and we plan on replicating the solution in other vehicles in the future. By providing scalable, replicable, and cost-effective solutions, we are clearly becoming a crucial partner for automakers in their transition towards software-defined vehicles. Our ability to commercialize and deliver the integrated vehicle solutions at scale maximizes cost efficiency and accelerates speed to market for automakers globally. We achieved a significant milestone with the start of production at our Fuyang facility in April. This new manufacturing facility marks a crucial step in our strategy to vertically integrate our manufacturing and supply chain capabilities. The Fuyang factory has already begun contributing to production capacity, enhancing our ability to control product quality, further reduce costs, and streamline operations. This vertical integration allows us to better manage the entire process from research and development to manufacturing and sales, strengthening our competitive edge in the market. As we continue to ramp up production and optimize operations there, we expect this to increase efficiencies and cost savings, which will ultimately benefit our customers and shareholders and build a sustainable path towards profitability. To echo what Ziyu said earlier, I am very confident and optimistic that we will continue to see tremendous growth based on the progress we have made so far, especially as we lean into our investments in technological innovation, diversify our customer base, and expand our business globally. I will now turn the call over to Phil, who will go through our financial results.

Thank you, Peter, and hello, everyone. Our strong start of the year continued into the second quarter as our business continues to grow and our financials improve. Total revenue for the quarter was RMB1.3 billion, an increase of 31% year-over-year. Computing hardware goods revenue was RMB944 million, up 41% year-over-year, driven by growing global demand and shipments, mainly for the Volvo EX30 and Polestar 4, as well as the ramping up of sales volume for the Antora series digital cockpit and autonomous driving control unit. This contributed approximately 14% and 8%, respectively, to total revenue. Software license revenue came in at RMB57 million, down 50% year-over-year due to a decrease in intellectual property licenses revenue, which was RMB80 million during the same period last year. Service revenue increased 45% year-over-year to RMB257 million. This was primarily due to the launch of the new and upcoming vehicle programs and the continued growth of our overseas TSP business, which accounted for approximately 9% of the service revenue. Gross profit was RMB292 million, a decrease of 3% year-over-year, which translates into a gross margin of 23%, an increase of 1% sequentially. As competition and pricing pressures across the automotive industry hit us, margins on hardware products will remain challenging over the midterm. As discussed on the last earnings call, to address this challenge, we are maintaining our focus on driving growth momentum in our premium products and balancing sales across our portfolio. We are also reducing costs through supply chain optimization, improving our overall cost structure and manufacturing strategy, and optimizing operating expenses and capital investments. OpEx during the quarter increased 12% year-over-year. This was primarily driven by an increase in share-based compensation. Excluding share-based compensation, OpEx increased 3% year-over-year due to continued R&D investments in core products and future technologies. This was partially offset by decreases in SG&A expenses, which decreased 21% during the quarter as a result of improved operational efficiencies. Loss per share was RMB0.84, flat sequentially. Adjusted EBITDA loss was RMB210 million, up from a loss of RMB156 million during the same period last year, primarily attributable to equity investment losses. Compared to the prior quarter, adjusted EBITDA improved by RMB14 million or 6%. Moving on to our balance sheet. As of the end of the second quarter, we had RMB788 million of cash and restricted cash, which gives us the required resources to invest in our future key initiatives, business expansion, and accelerate growth while we are continuing to improve our working capital and profitability enhancement. In summary, we continue to drive growth momentum inside and outside the Geely ecosystem, further expand our customer base, and push sales of our premium products in the second half of 2024. We will also continue to optimize our cost structure, operational and fulfillment efficiencies, and operating expense investments. Our global expansion strategy, including R&D, will provide us with the flexibility to mitigate ongoing and potentially newly emerging geopolitical challenges. I'm highly confident that we are on track to gain profitability and place our businesses in a more sustainable position for the longer term. That concludes our prepared remarks today. I would now like to hand the call back to the operator to begin the Q&A session.

For our first question, Jiaqi Zhang from CICC.

Thank you, management team. My name is Jiaqi Zhang from CICC. I'm pleased to see the sustainable growth in both revenue and profits, so congratulations on that. I have two small questions regarding the financial results. Firstly, regarding the service revenues, we have observed a significant increase in service revenue compared to the first quarter. Could you explain what has contributed to this increase? Secondly, concerning the gross margin, we noticed a decrease in the gross margin of goods sales and revenues, approximately 3.2 PBT. Could you clarify what has led to this decrease? That would be my first question.

Thank you, Jiaqi. This is Phil. Thank you for your question. So let me address your first question regarding our service revenue growth. In Q2, our service revenue was RMB257 million. That is pretty decent in terms of year-over-year growth; it's 45%. From the dollar amount, that's about RMB18 million more. This growth is primarily due to the launch of the new Antora series vehicle programs we introduced last time. We supported Volvo to launch the EX30, and we further expanded our penetration into the global market as well. That is related to the online revenue growth. The EX30 provided about RMB75 million more in the current quarter. We also supported the Lynk & Co 07 to launch, and LEVC has a new model called the L380, all contributing to our high revenue growth. Meanwhile, in Q2, we also generated overseas TSP business, which is also part of our service revenue growth. So in conclusion, we see very strong service growth driven by our dedicated focus on the online generation that follows new vehicle program launches. As for your second question about our gross margin performance, looking at our gross margin percentage, it's 23%. That's a 1% improvement sequentially compared to Q1 reported. Yes, from a year-over-year perspective, there’s a decline. This is due to pricing erosion and pricing pressure from the industry. Starting from the second half of last year, the entire industry faced pricing challenges, and all OEM customers desired to maximize their shipments and used pricing as a weapon for trade-offs. The entire industry was impacted, including ECARX as a Tier 1 player. Nevertheless, we maintained strong performance in supply chain management, optimizing our cost structure despite the overall market challenges to stabilize our gross margin performance. I hope that explains our profitability situation.

Yes, that's very clear. My second question is that we have seen a wide variety of vehicles launched with the Geely Group, including Lynk & Co, Smart, and others. So, what is the strategy of ECARX to secure projects with Geely? Is it more focused on higher-end products or lower-priced options? How do you decide which projects to pursue with Geely?

Jiaqi, this is Peter. I'll grab that question. Thank you very much for joining the call today. ECARX has a long history with Geely; we know the organization very well. Recently, many of our launches have been on their global products. So we talk about the Smart launches. There are other products in their portfolio that are launching on a global scale. And we've built out that capability in our organization very successfully. The Volvo EX30 launch was an important launch for us last year. That vehicle is doing very well, especially in Europe, and it continues to expand globally, also with the Polestar brands. We're also well positioned to continue growing with core brands, such as Geely and Lynk & Co. We are focused on diversifying our customer base; we talked about launches coming later this year with FAW. FAW will continue to be a very important customer for us, and those critical vehicles are progressing well in our pipeline through our development process. I would expect that we will deepen our relationship across the FAW Group, as we've done with other customers in our space. Also, we have a strong effort to grow the business globally. So we're participating in a significant number of RFQs globally. We're working closely with several different OEMs across Europe to show our capabilities and build strong technical solutions that are based on our core tech. So we're quite excited about the progress we're making both with the Geely Group and with our broader customer set in China while also continuing to expand the Company's position and relationships on a global scale.

Right. So for my last question regarding the product portfolios, we have seen a very rich product portfolio as we go through the slides you provided. I have counted there are 10 domain controllers for the cockpit and three central computers for the central domain. So my question is, could you provide guidance regarding the targeting vehicle prices for each of these individual platforms? I guess some of these platforms overlap in their performance, etc. So could you give us more guidance on this?

Yes. I would hope you look at our product portfolio; I think we're very effective at scaling across a broad set of vehicles at different price points. We have delivered very high-end products into vehicles like the Lotus vehicles. That launch that happened in '22 was a very high-end launch with significant capabilities in 3D. We see a similar price point and performance level in the Makalu product that we're launching, based on AMD technology, which brings unique capabilities into the Z10 and Smart vehicles first. I expect we will continue launching across a broader set of vehicles as well. We're also strong in delivering highly cost-effective solutions into higher volume products. Some of our older E02 Venado solutions are very cost-effective, as are our newly launching Antora solutions. They integrate a lot of systems within the vehicle and provide a very cost-effective solution to the OEM. Our digital cockpit solutions are quite mature, allowing us to serve a broad set of applications, from high-end performance down to more cost-effective solutions.

Megan Jin with Macquarie.

I have two questions. First, congratulations on a very good Q2 results. My first question is about the hardware; what do you think is driving the strong 40% growth in sales? Is it primarily due to an increase in per car value or volume? Which is the largest segment in this hardware category? Specifically, which product is the leading driver of sales in this segment? Additionally, congratulations on exceeding the target of adding around 1 million more vehicles with our products ahead of schedule. Do you have a new target for the total number of vehicles carrying our products? How should we consider the second half of the year given that this target was achieved early? That's my first long question.

Thank you, Megan. This is Phil. I'm happy to address your question, and Peter can chime in for additional information. So, Megan, we are making very good progress developing and delivering many vehicle programs. I would say we are on track. For example, we have succeeded in launching the Lynk & Co 08, Volvo EX30, and Polestar 4 since last quarter. As we move into the first half of 2024, we also expect the launch of Lynk & Co 07, LEVC L380, and Galaxy E5. All these programs are widely accepted and praised by our customers. The Lynk & Co Z10 with our Makalu solution is also set to launch very soon. We anticipate new vehicle programs coming from FAW later in the year. In summary, we have had a very strong start and will continue to expand our business in these vehicle programs, including non-Geely business. Regarding your breakdown of computing hardware, in Q2, our Qualcomm solutions still accounted for nearly 80% of our company hardware business. Our Antora series made up nearly 20%, and the Makalu business just started, with revenue expected to grow as well. Our Antora series module pricing ranges from RMB400 to RMB1,400, while the traditional high series ranges from RMB1,200 to RMB1,800, and our major product, the digital business ASP, ranges from RMB3,000 to RMB13,500. We will shift focus to higher price premium products to enhance our revenue and profitability. I believe this concludes my answer. Peter, do you have anything else to add?

Yes, Phil, you did a great job covering it. I would just echo that as we look across our customer segments, we have significant growth with the Geely brands, as well as significant growth with our shipments with Volvo and Polestar on a global scale. They show significant year-on-year performance in our second quarter results. So I think the global expansion and servicing new customers is making a significant impact on the top line for the Company.

Thanks so much, Phil. That's very helpful and very clear. Okay. Then my second question is on our overseas business. In terms of the expansion, I'm wondering how we assess the market size to estimate our success in replicating the software platform services to Volvo EX30 with other clients? What are we offering, how competitive is it, and what is the target market size, and who are the major competitors? Furthermore, with recent news on Biden proposing to ban autonomous driving software in the U.S., do you think allies will follow suit and ban our Chinese auto software for national security reasons? How do we address or think about this geopolitical risk potentially in the future?

Okay. Yes, let me take that question in two parts here. In terms of international growth and how we assess the market, the Volvo EX30 that we launched toward the end of last year has been a great proof point for us. We built that system in the vehicle by utilizing our global capabilities. We started our international growth as early as 2000, setting up our team around four years ago to make those investments. We've built a strong software team in Europe, in addition to opening our international headquarters in London and a site in Germany to further cement our position in the global market. We're approaching very large OEM customers here in the European market. By utilizing our core technology developed and built in China, we can offer global IP and ensure it's a global offering. ECARX has a strong position relative to owning the full software stack. We provide both high-performance capabilities and cost-competitive solutions. We are having positive discussions with potential customers in the European market and hope to share successes over the next six months to a year. Transitioning to geopolitical environments, we have built a great business in China with over 1,500 employees with incredible capabilities. We have already shown that we can take our core technology and expand it globally from that capability. We are focusing on investing in European markets while building local relationships. We've successfully done this in Europe already and will continue growing our capabilities as we build deeper relationships with customers.

Sure. It's very clear. That's all my questions. Congratulations.

Thank you.

Thank you, Megan.

Toni Chen from SPDI.

This is Toni from SPDI. I think I've got two questions here. The first question is also going back to the gross margin for the hardware business and also the pricing side. As mentioned in the prepared remarks, we still have pricing pressure and erosion from automakers. Could the management give us some color and outlook for the second half of this year and into next year on the price trend and gross margin, especially for the hardware segment?

Thank you, Toni. This is Phil. Yes, we're observing that pricing competition is keenly felt in the industry. As I mentioned, most OEMs leverage pricing as a tool to maximize their shipments and market share, leading to margin pressure across the supply chain, including ECARX and many Tier 1 solution providers. We foresee that such trends will continue in the second half of the year and into next year. Challenges in the Chinese domestic OEM market will remain unchanged. However, as a solution provider, we have our strategic plan. First, we will continue to optimize our cost structure in both hardware and software, enhancing our service performance. As long as we can generate more demand from new vehicle customers and programs, we can grow our service revenue to offset hardware pricing challenges. We are also shifting our strategy toward smart manufacturing for cost management and quality assurance. Our goal is to diversify our customer base and enhance our margins through our global aspirations. Based on proactive actions, we expect our margin performance momentum to continue. We aim to maintain a gross margin percentage in the 20%-range for the mid to long term.

Okay. Perfect. That's very clear. Then my second question is about our in-house chipsets like Antora and Makalu. How will these projects expand into overseas customers? We also mentioned that we had five new design wins in the quarter. How many of those are from our designed solutions, including Antora and Makalu? How should we look at 2025?

Yes. I'll take that question. Our Antora and Makalu solutions, specifically Antora, was launched in '23 with the first major vehicle being Lynk & Co 08. We're continuing to grow that product line and build capabilities across additional OEMs. We have design wins today in our core market in China that will be launched across different brands we serve in China as well as globally. I believe that product line has significant potential for our core market and to service some global opportunities. Additionally, I'm proud to highlight that we are pursuing several global RFQs that we will leverage our product and software capabilities. The Makalu product represents a unique offering; while it is less for volume, it offers tremendous opportunities and enhances our software stack. We will continue to transition our software capabilities, and we will see its applications moving into advanced markets.

Our next question comes from Xiaoyi Lei from Jefferies.

Yes. Congratulations on getting the overseas order. So my first question, maybe just a follow-up on our overseas expansion. Do we have any expectations for the proportion of overseas revenue in the next two to three years? I think our management already touched on how to deal with potential geopolitical risks. Do we have plans to add more local capabilities in the U.S. and Southeast Asia?

Yes, let me take that question to start, and Phil can follow up with metrics if needed. ECARX began its global journey about four years ago, and we are expanding our global capabilities. We're having discussions about strategies to grow our engineering capabilities to service the European market, while longer-term, we'll look at how we expand supply chain capabilities to support our global growth. We have all these activities in our pipeline and continue to strategize those to support growth activities. Vehicle development cycles span between two and four years, so as we win programs and move through development, you'll see revenues over that timeline. Our China market business is dynamic with aggressive time lines, and we're bringing that capability to the global market, adjusting to different operating models for customers globally. Currently, it may take time for revenues to appear, but we have vehicles launched globally that will continue to grow, and we're engaging closely with partners and customers in Europe to expand our business. So we see our target for international revenue reaching at least 40% of our total by the 2026 to 2027 timeframe, and we are prepared to invest aggressively in global R&D and smart manufacturing to achieve this plan.

Understood. Very clear. My next question is regarding the chip procurement strategy. We noticed that the government encourages domestic OEMs to increase their procurement ratios from local chip suppliers. I'm just wondering if we will adjust our product line in terms of chip sourcing strategy in response to this policy.

Yes. Sure, I’ll address that question. I think if you look at our strategy, we are well-positioned to meet the need for local OEMs. We have established strong relationships with global technology suppliers, developing platforms off Qualcomm technology and AMD technology for the Makalu platform. We established our joint venture, SiEngine with AMD back in 2018, with the first product from that joint venture forming the base of the Antora platform. This product was developed in China and offers strong SoC performance. We believe that both Antora and Makalu set the foundation for servicing local and global markets well. We're effectively addressing the challenges we face with powerful local solutions and are positioned for great progress with this product set.

Understood. My last question is regarding our cooperation with FAW. Can you please shed more light on the progress?

Yes, of course. I mentioned earlier...

Go ahead, Phil.

Given the NDA with the customer, we might not be able to disclose too much of the details. But I can share some information with you regarding the FAW cooperation. The strategic imperative of the cooperation between ECARX and FAW is to build advanced digital cockpit capabilities, especially the software operating system, to enhance competitiveness and improve in-car user experience. From the other angle, FAW aims to improve the adoption rate of Chinese domestic key components to guarantee a controllable supply chain. ECARX aims to diversify our customer base and increase revenue from new customers, scaling out our common and standard business and solution platform. Through the engagement, ECARX will have a huge opportunity to serve multiple vehicle programs in the FAW Group. We target penetration rates in the Hongqi brand to exceed 50% by 2028 and 2029. There are two programs currently in development, and we plan to launch vehicle programs by the end of the year. As long as we can make further progress, we will announce the results to the market.

No, Phil. I think you covered it well. We have several vehicles in our pipeline, and we'll continue to announce tightening relationships across their broader set of brands.

That concludes our Q&A session. I will now turn the conference back over to Peter for the closing remarks.

Okay. Thank you, everyone. Thank you for the time today and joining our call. We're excited about the results, 31% year-on-year revenue growth and expanding our total product and vehicles to almost 7 million at the end of June. We've made great progress as a company, both in metrics and in deepening our strategic relationships with partners while growing our capabilities with new product sets. We also discussed the launch of our newest manufacturing site in Fuyang. We're very pleased with the organization's progress and anticipate a solid year ahead as we move forward through 2024. Thank you again for your time today.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.