Earnings Call Transcript - GGR Q2 2022

Operator, Operator

Welcome to the Gogoro Inc. Q2 Earnings Call. This session will be recorded. I would like to introduce Bruce Aitken, CFO of Gogoro, who will kick us off.

Bruce Aitken, CFO

Thanks, operator, and thanks to everyone for taking the time to join us today. I'm Bruce Aitken, CFO of Gogoro, and I'm pleased to welcome you to our second quarter 2022 earnings call. Hopefully, by now, you've seen our earnings review. If you haven't, it is available on the Investor Relations tab of our website, www.investor.gogoro.com and we will also be displaying materials on the webcast screen as we go along. We're looking forward to sharing our Q2 results, adding some guidance on what we're seeing as the outlook for the second half of 2022. Before our CEO, Horace Luke shares, I'd like to introduce Michael Bowen of ICR who will share the process for today's call and provide some important disclosures. Michael?

Michael Bowen, ICR Representative

Thanks, Bruce. I'm sure you're all looking forward to hearing from Horace and Bruce on behalf of Gogoro. But before that, allow me to remind you of a few things. You are all currently on mute. But if you have a specific question, please use the chat function in the system to submit questions and we'll answer as many as time allows. After Horace has given a brief overview of Gogoro and some of the business highlights from Q2, first we'll go a bit deeper into the Q2 financial results. During the call, we will make statements regarding our business that may be considered forward-looking within applicable securities laws, including statements regarding our third quarter and fiscal 2022 results. Management's expectations for our future financial and operational performance, the capabilities of our technology, projections of market opportunity and market share, our potential growth, statements related to the expected impact of the COVID-19 pandemic, supply chain issues and other headwinds facing the company, the company's business plans including its expansion plans, the company's expectations relating to growth in China, statements relating to the potential of our strategic collaborations, partnerships and joint ventures, statements regarding regulatory developments and our plans, prospects and expectations. These statements are not promises or guarantees and are subject to risks and uncertainties, which could cause them to differ materially from actual results. Information concerning those risks is available in our earnings press release distributed prior to the market open today and in our SEC filings. We undertake no obligation to update forward-looking statements, except as required by law. Further, during the course of today's call, we will refer to certain adjusted financial measures. These non-IFRS financial measures should be considered in addition to, not as a substitute for or in isolation from IFRS measures. Additional information about these non-IFRS measures, including reconciliation of non-IFRS to comparable IFRS is included in our press release and investor presentation provided today. Now, over to Horace.

Horace Luke, CEO

Thanks, Bruce and Michael. This is our second earnings call as a publicly-traded company and we're pleased to have this opportunity to meet with you all today. The ongoing COVID situation in Taiwan has resulted in first half sales volume for the two-wheel vehicle industry at the lowest experienced since 2013. It is quite possible that full year 2022 will be a 10-year low in terms of overall Taiwan two-wheel market volume. Given that backdrop, we're satisfied with our performance and are continuing to execute in Taiwan, and also focus on our international expansion plans despite the continuing adverse external market conditions, both COVID and macroeconomic in nature. On a year-on-year basis for Q2, overall revenue increased, battery swapping revenue increased, and both gross margin and adjusted EBITDA increased as well. Although on a lower volume basis, which fell short of our expectations, resulting in revenue being at the low end of the provided range. We are unsure about the prospects for the second half of Taiwan market due primarily to ongoing COVID concerns. Although we saw a volume pickup in the second half of 2021, we cannot expect an outsized or quick demand recovery this year. Additionally, severe lockdowns in China as well as general macroeconomic conditions mean our national revenue will fall short of expectations. Because of these market conditions, we're reducing our full-year revenue forecast. Our international focus for 2022 will continue to be educating consumers via network pilots and network expansion and working with leading OEMs to launch and broaden vehicle offerings. We're also pursuing additional markets, including new countries, as well as deeper B2B integration and synergies, and we'll be able to provide updates on specific efforts as they become more operational throughout the third and fourth quarters. Given the reduced quarantine requirements on reentry into Taiwan, we started traveling again in Q2. During the trips to a variety of Southeast Asian countries, as well as India, we met with government officials, partners, and potential partners, consumers, and two-wheel industry experts and spent a lot of time checking in on specific market gains, conditions, and requirements. We came away from these visits even more convinced of our core beliefs and the strength of our business thesis. First, that the transition to electric mobility is inevitable. Regardless of who we talked to, it was clear that the appetite for electric is growing, the sense of urgency heightened, and the eagerness for quality products obvious. And when are you coming was a question we heard repeatedly. Second, the battery swapping solves many of the challenges to electrifying mobility. This is eminently clear for B2B customers who want to never lose business due to time spent charging, but also for B2C customers, giving recent non-Gogoro-related fires and safety incidents across the region during the hot summer months. Our system addresses range anxiety, saves time, ensures customer safety, and is at price parity, especially when governments do not incentivize the ongoing use of fossil fuels via gas or gas vehicle subsidies. Third, a vertically integrated technology is ahead of the competition and widely sought after. We're continually urged to speed up our expansion and we're working hard toward that. The role of government policy in these technology discussions is important. We urge governments across the world to focus on safety for consumers, as well as a faster transition from fossil fuel toward cleaner, more sustainable electric mobility. We're fully committed to diversifying our source of revenue to deliver the best possible electric battery swapping solution regardless of which of the many brands and almost 50 Gogoro Network compatible models a customer may choose. We continue to invest in R&D. As we previously highlighted, approximately 20% of our total workforce is in either hardware or software product technology development. We have self-developed all our hardware and software capabilities and today we manufacture vehicles, as well as powertrains and battery packs in our highly automated facilities. Self-developed technology is at the core of who and what Gogoro is. We deploy our latest R&D innovations across multiple vehicle categories, as well as across our customer experience. A great example of this is in our just released Gogoro Delight vehicle. It was designed from the ground up by women for women, and it's the first such product of its kind. Additionally, we've seen customer pickup in the technology and performance focus Gogoro SuperSport vehicle we launched in late Q1, which has high-speed computing power and software-driven traction control. In May, we announced our partnership with Metro Motor and Paz Group in Israel to launch in Tel Aviv this summer. We're still on track and looking forward to entering the Israel market soon. There were some bright spots in our 2022 Q2 results, which Bruce will provide more color on shortly. Briefly, our Gogoro Network revenue continues to grow with accumulating subscribers, with over 484,000 monthly subscribers expected to exceed 500,000 by the end of the year. Secondly, we saw strong growth of nearly 30% in the global network business, a record quarterly revenue of $30.4 million, and we continue to maintain a close to 100% attach rate of customers. Thirdly, despite the overall softness of the market in the first half of 2022 as described before, electric vehicle sales as a percentage of our total vehicles increased by 16.1% versus 2021, while gas vehicle sales increased by 4.3%. Both Gogoro and our vehicle partners' sales grew by 3.5% and 10.5%, respectively versus 2021. This is a shift in market share we have planned for as we broaden our reach as a platform. Both Gogoro and our vehicle partners' market share grew in the first half of 2022 versus the first half of 2021. Gogoro and our vehicle partners represent 92.2% of the overall electric vehicle sales in the first half of 2022. This figure typically ranges from 90% to 95% of the total market and we're happy to see growth in the overall electric sector in Taiwan. Our gross margin was up both quarter-on-quarter and year-on-year. With anticipated seasonal volume pickup in the second half of 2022, we expect to maintain a similar margin profile. Adjusted EBITDA was also up from quarter two 2021. Let me quickly recap our macro strategies for 2022 and how we're doing. We had three areas of focus. First, we will continue to expand our vehicle and hardware sales in Taiwan by increasing our penetration, broadening our coverage, and growing sales of B2B, B2B, and B2G customers. Secondly, to further develop our solutions business, we'll build on the success of our Gogoro component kits to enable our partners to diversify product offerings and launch multiple SKUs in Taiwan, China, and India. And finally, to grow our Gogoro Network business in Taiwan and internationally, we'll increase Go Station density and continue to improve network efficiency and launch services in additional cities. We're passionate about what we do. We make it irresistible for consumers to be responsible for increased efficiency and environmentally-friendly solutions. I'm proud of the work the team has put in to continue making progress toward these goals, which will allow us to further penetrate the Taiwan market with our vehicle partners, and begin to build momentum for growth overseas. Bruce will now walk us through our business and financial highlights for Q2 2022.

Bruce Aitken, CFO

Thanks, Horace. Q2 2022 was a quarter of solid results given the extreme market conditions. We saw an increase of 5.3% in revenue versus Q2 2021, and an increase of 29.1% in Gogoro Network revenue versus Q2 2021. We also continue to accumulate subscribers on our Taiwan Gogoro Network, which now has over 484,000 monthly subscribers. We're mostly pleased with the results in our Gogoro Network business, as they demonstrate continued growth and an accumulating subscriber base and recurring revenue generated by our battery swapping business model. According to statistics published by Taiwan's Department of Motor Vehicles, there were 15,386 Gogoro vehicles registered in Q2, down slightly from Q2 2021, but 20% higher than Gogoro vehicles registered in Q1 of this year. The total Taiwan two-wheeler scooter market volume for the first half of 2022 is the lowest since 2013. Despite this low, there are some positive indicators for both the transition to electric two-wheelers, as well as for Gogoro and for vehicles powered by the Gogoro Network partners. Total sales volume of Gogoro vehicles in the first half of 2022 was up 3.5% from the first half of 2021. Additionally, partner vehicles which are tracked under each brand's sales represent additional volume in Q2. We extended our Taiwan channel and now Gogoro vehicles are for sale in a total of 417 traditional scooter sales locations, making Gogoro vehicles broadly available and increasing customer touchpoints. Our market share in the six biggest cities in Taiwan was 9.8% during the first half of 2022, up marginally from 9.6% in the first half of 2021, and we achieved a 22.9% market share in Taiwan during the second quarter. Sales of vehicles and associated registration figures for our services in China have not met our expectations. Because of the substantial external headwinds from COVID lockdowns, supply chain issues, retail traffic, and spending reductions, overall consumer confidence, as well as other factors, we've slowed the deployment of the network infrastructure in China. As of June 30, we have deployed 109 stations in Hangzhou, 40 stations in Wuxi, and 53 stations in Quinming. We continue to track progress not just in terms of vehicle sales and hardware revenue, but also in terms of the expansion of city-served locations and visibility of the network within each city and the variety and customer appeal of models released by partners. We will likely delay the further expansion of the network to additional cities in the second half of the year. But we'll still work with Yadea on vehicle launches. Perhaps of interest is a B2B dedicated SKU, which launched during Q2, providing customers with sufficient choice of power, price, and styling is important to the scaling of the network. We recently worked closely with Yadea and I.1 to open a flagship store in Quinming, that is educating customers about the benefits of battery swapping and the wide variety of vehicles that are available to meet customer needs. We're still very committed to the China market, but experiencing some potential near-term delays due to factors largely beyond our control or predict, and their unknown duration. These uncertainties will likely extend into 2023. We are progressing towards the late 2022 network launch in India, where consumer adoption of EVs is being encouraged by both local and national governments. We continue to believe the Gogoro battery swapping solution serves an unmet need in the second largest two-wheeler market in the world. ESG is a big part of why Gogoro exists. Gogoro is a technology innovation company, promoting renewable urban energy and transportation. To align with this vision, we are also focused on utilizing renewable energy in our operations, and promoting renewable energy use by local governments, businesses, and city residents where it is desperately needed. Our goal is to achieve 100% renewable energy for all of Gogoro's operations and we are making good progress on this commitment. By the end of the year, we expect more than 40% of our manufacturing electricity consumption will be powered by renewable energy. Additionally, in the second quarter, we opened two new retail stores that utilize 100% renewable energy and offer clean energy battery swapping to Gogoro Network subscribers. This clean energy comes from solar and wind and we are engaging Taiwan's Clean Energy sector to broaden access to this new resource. In addition to our own clean energy commitments, we are also taking a proactive approach to commercializing renewable energy across the industry in Taiwan by enabling businesses and Gogoro Network riders to embrace and utilize renewable energy in their daily lives and daily commutes. We'll be providing all Gogoro Network riders with the option to choose renewable energy in the future. Finally, in the area of policy, governments continue to investigate a variety of ways to facilitate a transition to electric mobility and we are pleased to be helping to navigate these sensitive policy issues. We expect to continue meaningful dialogue with a variety of governments to see how Gogoro technology can aid in the faster adoption of safe battery swapping solutions for urban centers around the region. Our business objective is to do well while doing good. In Q2, we were able to deliver on both objectives. Now, more specifically turning to our financial results. Q2 was challenging in many ways, but our results indicate both continued progress in difficult circumstances, and that the inevitable shift to electric mobility continues to gain momentum. Specifically, let me provide some color into our revenue, gross margin, EBITDA, and net loss results, as well as providing some updated guidance for the balance of 2022. Before I go into those details, let me say a few words about exchange rates. We booked the vast majority of our revenue in Taiwan dollars, but now reported in U.S. dollars. This year, the change in exchange rate has been substantial, with the U.S. dollar strengthening against the Taiwan dollar by 6.7% since the beginning of the year. Given our revenue concentration in Taiwan dollars, this is not really an operational issue, but rather a foreign exchange translation issue. This exchange rate had a negative $6.5 million impact on our revenue as reported since the beginning of the year. For the second quarter, operating revenue was $90.7 million, up 5.3% from $86.1 million in the same quarter last year. Gogoro Network revenue for the second quarter was $30.4 million, up 29.1% from $23.6 million in the same quarter last year. Total subscribers increased to more than 484,000 monthly battery swapping users at the end of the second quarter. This increase in battery swapping revenue was primarily due to the accumulating subscriber base and the high retention rate of all subscribers. Sales of hardware and other revenues for the second quarter was $60.3 million, down 3.6% from $62.6 million in the same quarter last year. This was due to general consumer conservatism in Taiwan, which was driven by COVID and the associated drop in retail foot traffic and vehicle sales year-over-year. However, sales of Gogoro vehicles for the first half of 2022 grew by 3.5% compared to the first half of 2021. For the second quarter, gross margin was 14%, up from 12.7% in the same quarter last year and non-IFRS gross margin was 15.5%, up from 12.7%. These gross margin and non-IFRS gross margin increases were driven by an increase in the average selling price of our vehicles, favorable changes in our product mix, and the continuously improving efficiency of the Gogoro Network operations. For the second quarter, net loss was $121.1 million, up $100.5 million from $20.6 million in the same quarter last year, primarily due to a one-time $178.8 million listing expense related to the SPAC merger transaction we closed at the beginning of Q2. Additional contributors included $18.5 million in merger expenses and $11 million in share-based compensation expense, which were partially offset by an increase in the fair market value of outstanding warrants and earnout shares of $104.1 million. Non-IFRS net loss was $16.8 million, up $0.1 million from $16.7 million in the same quarter last year. For the second quarter, adjusted EBITDA was $9.3 million, up 14.4% from $8.1 million in the same quarter last year. The increase was primarily due to non-IFRS gross profit increasing to $14.1 million, up 28.1% from $11 million in the same quarter last year, as a result of the continuous growth of the Gogoro Network business in the second quarter. Cash balance at the end of the second quarter was $378.8 million. Given the current market and macroeconomic conditions, combined with the impact of COVID in Taiwan, and continued COVID and adverse market conditions in China and other markets, we are adjusting our 2022 full-year revenue guidance down to $380 million to $410 million. We will focus on maintaining our gross margins in the second half of the year. Third quarter revenue is expected to contribute around 25% of the full-year revenue target and we estimate that almost all 2022 full-year revenue will be from the Taiwan market. It has been an eventful quarter for Gogoro and we look forward to continuing to work hard to introduce battery swapping capability to new markets and new customers. Michael, I will hand it back to you for Q&A.

Michael Bowen, ICR Representative

Okay, thanks Horace and Bruce, for that update, details on financial results, and forward guidance as attendees are formulating their questions. I will go ahead and ask a couple of questions, which I think are likely on everyone's mind from what you just heard. So, apologies in advance for the multi-part question. But here's the first one. Could you please elaborate on the primary factors that lead you to lower your revenue guidance? And what gives you the confidence that this new lower rate will be in light of the fact that prior guidance also factored in COVID impact in Taiwan as well as internationally? And then related to that, as you stated in your prepared remarks, you're going to be focusing on gross margin the second half of the year. Could you elaborate on any margin whether it's gross margin or operating margin leverage you could benefit from as your revenues come under anticipated pressure? And what gives you confidence again, maintaining those margin levels? And then finally, since you now expect Taiwan to generate almost all of your revenue for 2022, that's an increase from 90% to 95% you stated last quarter. So, can you elaborate on your view of the path to return to your prior mix expectations?

Bruce Aitken, CFO

Thanks for the question, Michael, I'll take a first crack at this and then Horace can add some color. In the first half of the year, as we reported, sales in two-wheelers in Taiwan were really impacted across the entire industry. It's the lowest first half total since 2013, and it's possible that full year might follow a similar trend. When we gave guidance a few months ago, we anticipated a slightly faster recovery from COVID in Taiwan and while that recovery is underway, the underlying consumer sentiment is still quite conservative and cautious. We broadly met our revenue margin and EBITDA forecast in the second quarter, although we were at the low end of that range. And we're targeting relatively flat market share to last year for the second half of the year; we might see a slight seasonal pickup in sales for Gogoro Network partners, as well as the overall market that would be largely driven by seasonality. And we think that absent other large or unexpected market factors, we should be on track to meet that guidance. The reality is the vehicle side of our business is subject to market factors. But if you look at the Gogoro Network side of the business, as we were reporting, it finished with a 29% increase in revenues this quarter over a year ago, and that really demonstrates a couple of different things. Number one, the power of accumulating subscribers. Number two, the fact that that market is slightly more immune from short-term up or down impacts. And number three, that we just continued to get more efficient in how we run the business. So, that's kind of a quick update in terms of the range and our comfort level in hitting the range. In terms of gross margin, we adjusted ASP up during the second quarter, we launched some new products that help take ASP up just a little bit. We are exposed, obviously, like many other players to increases in costs that have occurred in the second quarter, whether those are raw material costs—some are driven purely by supply chain, some are driven by scarcity of ICs, for example. And so that has had an impact, and we have been able to maintain our gross margin and we do anticipate being able to maintain that gross margin through the second half of the year. At the bottom-line level, we're going to really focus on costs. So, we've got to make sure that we're operating efficiently, both on the vehicle side of the business and on the Gogoro Network side of the business. Again, we're expecting to maintain our margins for the second half of this year, which should put us on track to margins that are similar to past performance. Finally, Taiwan generating the lion's share of our revenue; we did previously expect that we would get about 10% of revenue from international markets. What we're finding is largely because of the COVID situation and the even broader market conditions in China and in other international locations, that we're going to see a short-term delay in terms of those markets picking up. We are going to continue to, as we've mentioned, rollout networks across Hangzhou, Quinming, and Wuxi, and continue to explore other opportunities in China and other partnerships, potentially B2B, a number of different product offerings that we'll be looking at. Fundamentally, we're committed not just for the next six months but to the long haul. We believe that across the long haul, that transition to electric mobility is really clear. It's inevitable. We think that battery swapping solves many of the customer pain points, whether they're B2C or B2B customers. We're continuing to invest in R&D and continue to roll out the right products that we think give us a long-term capability to develop new revenue streams, develop new markets, and help to equalize that revenue so that over time, Taiwan becomes a little bit less of a revenue contributor, and frankly, will be a little bit more insulated from specific downturns that may occur in Taiwan in any given year.

Michael Bowen, ICR Representative

Okay, great. Thanks for that, Bruce. And I'll ask one more, and then we'll turn it over to the operator for analyst questions. But before we do that, for the better part of the past decade, Gogoro has demonstrated a lot of success and market share dominance with its unit base model in Taiwan. However, Taiwan's a relatively small market when compared to the other international markets you're entering into. So, given that, can you shed some light on how the Gogoro model has fared in China thus far? What challenges have you seen in the Chinese market that you didn't face in Taiwan? And what is your expected outlook for the China market for the second half of 2022 and as we look into 2023? And then I'll come back with a couple of follow-ups.

Horace Luke, CEO

Great. I'll take a crack at that. And then Bruce will add some color later. The idea has always been to develop technology and prove it out in a relatively small market like Taiwan, and then to take that learning and that business operation know-how and apply to a much larger market like China and India. Now, I've been very proud of the progress we've made in Taiwan so far, both in market share penetration and stickiness of our subscriber base. But going into other markets has always been a higher goal of demonstrating the ability to perform both financially and making an impact on a better planet. I'm happy to say that, as for the deployment of our first three cities, it has gone much smoother and much quicker than I first anticipated. At the end of Q2, with almost 200 stations across Hangzhou, we see an economy, but the zero COVID policy has certainly put some speed bumps on the road. But I think that's really temporary. As we look at Q3 and Q4 opening back up, we're super excited to engage the market. As we said earlier, our technology, as we deploy, we start doing a lot of real-time market research and talking to both riders and other partners that are in the market. What we found was that riders will need quick and constant access to energy in either long-distance riding or B2B delivery. They have certainly seen the benefits of what Gogoro has to offer not only through our quick battery swapping system but also through the high energy density that is far more significant than any other competitive product on the market today. I think we'll continue to work hard with our vehicle partners to commercialize both the vehicles that have already been announced and then to develop even more vehicles that will hopefully serve the broader needs of the China market. So that said, I want to ask Bruce to add some color to that also.

Bruce Aitken, CFO

I have a couple of things I would add, Michael. China's different than Taiwan. China already has a pretty mature electric two-wheeler market where approximately 70% of two vehicles are already electric, but it's skewed toward the low end. It's also really tilted toward charging solutions. We expect and we continue to expect that over time, there will be a switch to scooters that match the new national standard and that are charged with lithium-ion batteries, and that there will be battery swapping capability. Those are slightly more premium products, and that would require a switch from charging to swapping. The government has banned home charging in many locations, but the government is focused on other priorities at the moment rather than enforcing those regulations. So the market is migrating at a slower pace than we anticipated. We believe it'll take a little bit longer to educate the market, maybe even the distribution channel, on the benefit of our swapping solutions. Because of that, we're as Horace said, focused on rolling out stations, getting the foundation in place, and then working with both Yadea and I.1 to ensure that we have the right vehicles, the right business model B2B or B2C, and that we're ready to launch as those changes in the market are seen.

Michael Bowen, ICR Representative

Okay, great. And then lastly, could you give us a similar update for the India and Indonesian markets? And related to that, when do you expect to see material unit sales from these markets, and an associated meaningful contribution to your total revenue? Thanks.

Horace Luke, CEO

Sure. We started traveling again in Q2, because the delays in travel overseas have been largely due to the long quarantine period that is required for re-entry into Taiwan. So the team started traveling again. I personally visited Indonesia, I visited also India, as well as a number of other countries. I’m happy to tell you that when I visited Indonesia, I was really proud to see the Gogoro vehicle on the road. I was able to talk to a lot of the GoJek riders and our partner Electrum to get feedback on the Gogoro user experience. Lots of great feedback; the most important thing I walked away with was not only is the young Indonesian population very sustainability-focused, but also, at the same time, I would say both riders and even more passengers, the customers that were being picked up were surprised when a powerful electric vehicle came up to pick them up instead of a hot, polluting, noisy gas vehicle that typically shows up. So a lot of great feedback from the market overall; the riders love it, the customers love it, the government loves it. I was able to talk to a lot of high-level government officials about what we can do together there. So we're working really hard to find ways to scale that pilot to a meaningful size in Jakarta and beyond. I hope there's more to come in the next several quarters, but I'm super excited about what I've been able to see, and the feedback has been awesome from riders to passengers as well as the operators of the network of Electrum. Now, as for India, I'm happy to report that we just passed literally within the last several days, we passed India's battery pack safety requirements AIS-156. Both our goal station and our batteries are now ready for India for deployment. I'm hoping that next time we talk, we can provide more updates, but I'm very optimistic about what we can do in India. Given the conditions in India today when it comes to petroleum price and the cost of mobility, as well as some of the tailwinds coming into place, such as, for example, in the Delhi NCR area by the end of 2024 for logistics and B2B vehicles will be banned from using gasoline. So making the conversion to electric even faster, I'm super excited about it. I'm hoping to see some meaningful impact on our job business in the next several quarters. So stay tuned, and I think there's more to come.

Michael Bowen, ICR Representative

Okay, great. Thanks for that.

Operator, Operator

Thank you. We have a first question from the line of Fong Chang from Benchmark Company. Please go ahead.

Unidentified Analyst, Analyst

Hey, Horace. Hey, Bruce. Thanks for taking my questions. First of all, I wanted to dig a little bit deeper into your guidance. It seems like despite the softness in the Taiwan market, you guys do continue to gain market share. I just wonder what's the underlying driver for your outperformance over the industry? And related to that, what's the incline assumptions for the market growth for full year 2022 and your target market share for that whole market?

Bruce Aitken, CFO

So thanks for the question, Fong. The whole market's down, as you heard. The electric vehicles as a percentage of the total group—that's an important one to note because I think that indicates the inevitable shift to electric. Within that context, Gogoro vehicles grew in the first half versus the first half of last year, and then the vehicles powered by the Gogoro Network requirements also grew 3.5% on the Gogoro side and 10.5% on the partner vehicle side, with electric vehicles as a percentage of total experiencing a significant share of growth. Those are great figures and that gives us a great deal of confidence for the long term. In terms of the second half of the year, Gogoro's market share— we don't expect a massive upswing in volume. You may recall that last year in the second half, there was a big uptick. In theory, that's possible; we certainly aren't banking on that if we set our guidance for the back half of the year, we're expecting roughly flat market share to where we are at the current moment, which is roughly in the 9% to 10% range for Gogoro-branded vehicles in the second half of this year. We would like to see faster growth and we will be working hard to see that faster growth picked up in an overall flat market environment, but the shift to electric is pretty clear.

Horace Luke, CEO

Fong, this is Horace. I'll add a little more color on that. I think there are other factors such as product innovation that drove a lot of excitement in the market, such as the Gogoro SuperSport, which really is the first product on two wheels that not only has unprecedented computing power but also has a self-developed traction control system that allows consumers to ride not only in a sporty way but also in a safe way that contributed quite a bit to our overall performance. I would say that in the sector, performance-based vehicles were a very meaningful contributor. I would add that at the same time, I think that the product mix itself—that we have everything from mainstream products to entry products to high-end products or performance-based to premium products that look and feel great. So, it's not something for everyone. I think that what we know has translated into the overall market was, of course, as Bruce mentioned, a slight uptick in the first half compared to the first half of last year, and if you look at our market share in Taipei, we were at about 20% market share, slightly over 20% market share. So, that just demonstrates the willingness to convert to electric on an island that is highly populated, very dense, with a lot of curiosity and interest in not only electrifying but what electrifying can mean when it comes to safety, health, and just owning something that represents a modern mobility instead of a decades-old traditional technology. So overall, I think that is one of the reasons we've been able to gain market share, and we will continue to grow that. The other thing that I'm very excited about is the fact that our partners have also grown in market share. Over the last quarter, we've seen our partners in the Gogoro Network grow quite significantly year over year, and that has always been by design, where we saw ourselves demonstrating the size and opportunity in the market but also enabling vehicle makers to convert their traditional portfolios to electric portfolios without worrying about the refueling infrastructure. And that has certainly picked up quite a bit in the overall penetration site, which I’m super proud of. I think that further demonstrates the attractiveness of our platform. But most of all, I think also is just the fact that we grew our subscriber base by 30%, further demonstrating the strength of our thesis. Even with a flat or slightly uptick on the market share, we were able to grow pretty significantly on the subscriber base. I would love to remind everybody that this is a thesis in which we're taking our business overseas. That subscriber base is also very close to 100% sticky. We've been able to keep our subscribers without losing people off the list. This accumulated kind of sticky subscriber base is what we started the company on, and we're great to see that even in a challenging market today in Taiwan, where COVID has had a significant impact on purchasing habits, being able to attract foot traffic into retail stores—despite all that, we still saw strong performance on the Gogoro Network side, which is the battery swapping side. I think those pieces all added up to a pretty good Q2 for us. However, I thing COVID’s situation is far from over. The concerns are still present in Taiwan, as it was an island that was closed to most visitors coming in. The recent outbreaks have lasted much longer than the 2021 outbreaks, and so I wanted to take a more conservative position to ensure that we are ready for stormy days if they come.

Unidentified Analyst, Analyst

Understood. That's very helpful. Thanks, Horace. Switching gears to your China market. Understand that COVID, especially the lockdown, has been strong headwinds. Just wonder whether you are adjusting your strategic focus in China, whether it's the second half or heading into 2023, in terms of increasing your density within your existing market base, the cities you have entered, or will you continue to expand your geographic presence? Just wonder if there are any venues out there. And also understand there are a lot of moving parts right now; how should we think about 2023 for the China market potentially?

Horace Luke, CEO

Great. Thanks for that. I’ll take the first one and maybe Bruce can add a little color. I think the most important thing is operational efficiency and creating momentum. As Bruce mentioned, and I mentioned earlier, there are over 200 stations already in Hangzhou, over 100 in Hangzhou, and then between Wuxi and also Quinming, there's also another 100 stations. So the density is there already in those cities to accept the first wave of riders that are going to be utilizing the network. The goal for us is to make sure that we build that momentum in those three cities, demonstrating success, and then move to other cities. Trying to go fast and furious, especially in a situation today where COVID impact is on and off, we don't want to waste resources and be unable to operate efficiently. So we're going to focus on really penetrating those three cities, demonstrating what we have to offer, and at the same time working with Yadea and Dachangjiang to enable them to send their vehicles if they have already shipped. Yadea has already shipped six vehicles that they’re bringing to the market so we can distribute them into the hands of the riders and demonstrate how great the user experience is. So we feel very positive about it. I think that China, as you said, is a market that has seen a high penetration of electric two-wheelers, but at the same time with the new regulations and especially some of the riders using longer distances or riding more hours of the day such as in B2B and other markets, we think there's a great opportunity for us to contribute. Long story short is, of course, we will always be adjusting, and we're looking for new opportunities. But we want to ensure that the markets we have already deployed are ready for when COVID opens up so that we can go big and demonstrate our operational efficiency first.

Bruce Aitken, CFO

And I think now that's going on—we're 100% committed to China. I think the answer to your question is both strategies: grow within cities, but also add cities. Our thesis is intact. We believe China is a big market; there is a slight delay. I think that’s where a lot of different factors come into play, COVID, macroeconomic factors, and much more. We're 100% committed to the market, and we will continue to grow.

Unidentified Analyst, Analyst

Got it. Thanks, Bruce. My last question is actually on the B2B opportunity. You mentioned that it seems like you guys are making some initial inroads there. Just wonder how we should be looking at the potential market opportunity in those specific segments, and when do we expect a more meaningful or visible revenue stream down the road?

Horace Luke, CEO

Fong, are you asking B2B? I’m sorry, we cut out there for a second. Are you asking B2B or B2C? I just want to clarify your question.

Unidentified Analyst, Analyst

B2B.

Horace Luke, CEO

B2B. Okay, great. I think where we win in the B2B market is number one, our energy density of our batteries, which is 1.6 kilowatt-hour to 1.7 kilowatt-hour when the market itself is about 800 watts to maybe slightly over a kilowatt-hour. So that's a 70% increase in energy and promises delivery riders much longer range and much less anxiety when the hot delivery cycle comes right, such as lunch, dinner, breakfast, or afternoon snacks. Clearly, the energy density plays an important role for us to demonstrate our benefits there, number one. And I think number two has to do with the reliability of our system. We have now deployed over 1 million batteries in Taiwan and are able to demonstrate that in a number of other markets. For example, Gogoro today is doing a lot of delivery in the B2B business for our partner in South Korea, as well as powering a ride-sharing fleet in Germany. Those are great demonstrations that our system is ready, not only for a consumer that is using it casually but also as a ruggedized business tool for people to actually build their living on. So, there’s great opportunity, and we’re still exploring that within the cities we’re deployed in and also scoping out future cities that we can go into that have a high penetration of that opportunity also as well.

Bruce Aitken, CFO

It’s clearly a really cost-conscious market, Fong, both on the vehicle side and on the energy side. But the advantages are no downtime, and from a Gogoro standpoint, there’s a faster depreciation, if you will, on our battery given the faster consumption of energy. As long as we get paid for those amp-hours that are consumed, then we're really excited about the B2B opportunity.

Unidentified Analyst, Analyst

Got it. It's very helpful. That's my question. Thank you so much.

Operator, Operator

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.