ECARX Holdings, Inc. Q3 FY2024 earnings call

• Market update: Global automotive industry faces challenges but EVs and intelligent car tech remain positive. Chinese market saw 2.4% increase in total sales Jan-Sept, with exports up 27% y-o-y and EV sales up 33% y-o-y. Over 7.3 million vehicles had ECARX technology, with 442,000 added this quarter.
• New design wins: Secured two new design wins from existing customers, both for China market, using Antora series computing platform and Flyme Auto OS.
• Partnerships: Entered formal partnership with MulticoreWare to optimize intelligent driving software algorithms, expanding collaboration scope.
• R&D investments: Investing in lower cost R&D centers, using AI tools to improve efficiency, and deep diving into cost structure. ADU solutions have real-world rendering capabilities, ECARX AutoGPT deployed, and automotive hypervisor developed.
• Patents: As of Sept 30, 613 registered patents and 656 pending patent applications globally.
• Product launches: Geely Galaxy E5, Lynk & Co Z10, smart #5, Lynk & Co 02 launched, showcasing technological strengths.
• Cost optimization: Working to optimize cost structure via vertical control of manufacturing/supply chain, product portfolio optimization, and efficiency improvement.

Total revenue for the third quarter was RMB1.4 billion, an increase of 31% year-over-year. Revenue from computing hardware was RMB1.2 billion, up 61% year-over-year, contributing approximately 23% and 11% to total revenue from Antora series and Makalu platform digital cockpits and autonomous driving controlling units respectively. Software license revenue was RMB84 million, down 39% year-over-year but up 49% quarter-over-quarter due to Flyme Auto sales volume and intellectual property revenue growth. Service revenue decreased 26% year-over-year to RMB161 million, mostly due to timing differences in non-recurring engineering contracts. Gross profit was RMB248 million, a decrease of 25% year-over-year, resulting in a gross margin of 17%.

• Aim to keep overall gross margin above 20% by balancing sales mix of services, software, and hardware. Focus on volume uplift and supply chain cost optimization.
• Overseas expansion: European OEM business has RFQ processes with new customers, expecting NRE service revenue end of 2025, SOPs in 2027 horizon.
• Geely business: Foresee non-Geely business mix improving, aiming for nearly 40% of business from non-Geely by end of 2026-2027.
• Breakeven goal: On track to achieve breakeven in the short-term through margin improvement and cost control.

• Intense market competition leading to pricing pressure and margin decline.
• Geopolitical risks requiring global footprint expansion to mitigate.
• Timing differences in service revenue contracts affecting service revenue figures.

Q: Regarding sale of goods margin decline, factors contributing and outlook for Q4 and next year?

A: Fierce market competition, product mix impact; foresee rebalancing sales mix of services and software in Q4 to restore margin, and further cost optimization to uplift hardware margin.

Q: Does ECARX supply hardware for Geely Star Wish?

A: Yes, Star Wish uses Venado platform (E02 platform) from ECARX.

Q: Outlook for Makalu platform usage in other vehicle models?

A: Makalu platform will be promoted to future vehicles for smart, Lynk & Co, and others in the market as a result of strong user feedback and strategic cooperation with AMD.

Q: Outlook for gross margin in 2025 and impact of in-house manufacturing?

A: Aim to keep overall gross margin over 20%, in-house manufacturing helps control manufacturing cost and is a plus for margin improvement.

Q: Overseas expansion progress and revenue expectation?

A: Established office in Stuttgart for German OEMs, engaged in RFQ processes, expecting NRE service revenue end of 2025, SOPs in 2027 horizon.

Q: Percentage of revenue from Geely and outlook for 2025?

A: 2024 ~90% from Geely and Geely ecosystem, foresee non-Geely mix improving in 2025 including new business from FAW.

Q: ADAS chip progress and breakeven?

A: AD1000 chip taped out at TSMC, ECARX will invest in AD1000 computing platform, with 7-nanometer and 512 TOPS AI capacity, confident in its market entry soon.

Q: Costs and expenses for new platforms and gross margin by chip?

A: R&D investment balanced with revenue growth, SiEngine chip competitive for China market, Qualcomm/AMD for high-end segments, gross margins vary by segment but aiming for balanced percentages.