ECARX(ECX) - 2024 Q2 - Quarterly Report

Preliminary Note Important Information About Exchange Rates The report converts Renminbi (RMB) to U.S. dollars (US$) at a rate of RMB7.2672 to US$1.00 as of June 28, 2024, for convenience, noting that exchange rates fluctuate significantly and no representation is made about future convertibility - The report uses an exchange rate of RMB7.2672 to US$1.00 as of June 28, 2024, for convenience translation[2] - The certified noon buying rate as of September 20, 2024, was RMB7.0505 to US$1.00, indicating exchange rate fluctuations[2] Forward-Looking Statements This section highlights that the report contains forward-looking statements based on management's beliefs and expectations, which are subject to various risks and uncertainties that could cause actual results to differ materially - Forward-looking statements are based on management's beliefs and expectations, covering results of operations, financial condition, liquidity, growth, and strategies[3] - Key risks and uncertainties include developments related to the COVID-19 pandemic, regulatory environment changes, overall economic conditions, R&D progress, relationships with automotive OEMs, and ability to compete[4] - Other significant factors include the ability to adjust offerings, manage growth, anticipated investments, capital availability, technology trends, product quality, loss of key personnel, and natural disasters[5] Management's Discussion and Analysis of Financial Condition and Results of Operation Results of Operations For the six months ended June 30, 2024, ECARX Holdings Inc. reported a net loss of RMB610.3 million, an increase from RMB405.9 million in the prior year period, with total revenues growing by 26.4% to RMB2,195.3 million, while gross profit declined by 3.5% due to pricing strategy and revenue mix changes | Metric (RMB thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | | :--------------------- | :----------------------------- | :----------------------------- | | Total Revenues | 1,736,601 | 2,195,317 | | Total Cost of Revenues | (1,223,102) | (1,699,542) | | Gross Profit | 513,499 | 495,775 | | Total Operating Expenses | (890,002) | (981,421) | | Loss from Operation | (376,503) | (485,646) | | Net Loss | (405,867) | (610,321) | - Net loss increased by RMB204.4 million (50.4%) from RMB405.9 million in H1 2023 to RMB610.3 million in H1 2024[11] - Total revenues increased by RMB458.7 million (26.4%) to RMB2,195.3 million in H1 2024[12] Revenue Analysis Total revenues increased by 26.4% year-over-year, primarily driven by a 34.5% increase in sales of goods revenues, particularly automotive computing platforms, and a 41.3% rise in service revenues due to new vehicle program deliveries and market expansion, despite a 38.9% decrease in software license revenues Revenue by Category | Revenue Category (RMB thousands) | H1 2023 | H1 2024 | Change (RMB thousands) | % Change | | :------------------------------- | :----------- | :----------- | :--------------------- | :------- | | Sales of Goods Revenues | 1,264,263 | 1,700,670 | 436,407 | 34.5 | | Automotive computing platform | 1,053,901 | 1,481,702 | 427,801 | 40.6 | | SoC core modules | 200,255 | 217,376 | 17,121 | 8.5 | | Merchandise and other products | 10,107 | 1,592 | (8,515) | (84.2) | | Software License Revenues | 215,641 | 131,832 | (83,809) | (38.9) | | Service Revenues | 256,697 | 362,815 | 106,118 | 41.3 | | Total Revenues | 1,736,601 | 2,195,317 | 458,716 | 26.4 | - Sales of goods revenues increased by RMB436.4 million, driven by demand growth from Geely ecosystem brands and increased volume of Antora series digital cockpit and ADCU[13] - Service revenues increased by RMB106.1 million, mainly due to service completion and delivery of new Antora series vehicle programs, Lotus Alpha, and Volvo EX30 market expansion[15] Cost of Revenues Total cost of revenues increased by 39.0% to RMB1,699.5 million, outpacing revenue growth, primarily due to a 43.3% rise in cost of goods sold reflecting increased sales volume, and increases in cost of software licenses and services Cost of Revenues by Category | Cost Category (RMB thousands) | H1 2023 | H1 2024 | Change (RMB thousands) | % Change | | :---------------------------- | :----------- | :----------- | :--------------------- | :------- | | Cost of goods sold | 1,000,190 | 1,433,028 | 432,838 | 43.3 | | Cost of software licenses | 37,210 | 44,126 | 6,916 | 18.6 | | Cost of services | 185,702 | 222,388 | 36,686 | 19.8 | | Total Cost of Revenues | 1,223,102 | 1,699,542 | 476,440 | 39.0 | Gross Profit and Gross Margin Gross profit decreased by 3.5% to RMB495.8 million, and gross margin significantly declined from 29.6% to 22.6%, attributed to a penetration pricing strategy for automotive computing platform revenue and a shift in the revenue mix Gross Profit and Margin | Metric | H1 2023 | H1 2024 | Change (RMB thousands) | % Change | | :----------- | :------ | :------ | :--------------------- | :------- | | Gross profit | 513,499 | 495,775 | (17,724) | (3.5) | | Gross margin | 29.6% | 22.6% | | | - Gross profit decreased due to a penetration pricing strategy for automotive computing platform revenue growth and changes in revenue mix[17] Operating Expenses Total operating expenses increased by 10.3% to RMB981.4 million, driven by a 19.1% rise in research and development expenses due to continued investment in core product roadmap and future technologies, while selling, general and administrative expenses slightly decreased by 1.6% due to improved operating efficiencies Operating Expenses by Category | Operating Expense (RMB thousands) | H1 2023 | H1 2024 | Change (RMB thousands) | % Change | | :-------------------------------- | :-------- | :-------- | :--------------------- | :------- | | Research and development expenses | 481,600 | 573,367 | 91,767 | 19.1 | | Selling, General and administrative expenses | 414,769 | 408,290 | (6,479) | (1.6) | | Total Operating Expenses | 890,002 | 981,421 | 91,419 | 10.3 | - R&D expenses increased by RMB91.8 million due to continued investment in core product roadmap and future technologies[19] - SG&A expenses decreased by RMB6.5 million, primarily due to improved operating efficiencies, partially offset by higher share-based compensation[20] Other Income/Expenses Loss from operation increased to RMB485.6 million, with interest income decreasing and interest expenses rising, while loss from equity method investments significantly increased due to a new joint venture's R&D expenses, and other non-operating income shifted to expenses primarily from fair value losses on an equity security and warrant liabilities Other Income/Expenses Summary | Metric (RMB thousands) | H1 2023 | H1 2024 | Change (RMB thousands) | | :--------------------- | :--------- | :--------- | :--------------------- | | Loss from operation | (376,503) | (485,646) | (109,143) | | Interest income | 17,885 | 11,206 | (6,679) | | Interest expense | (38,228) | (45,495) | (7,267) | | Loss from equity method investments | (25,414) | (67,605) | (42,191) | | Other non-operating (expenses) income | 16,719 | (22,979) | (39,698) | - Loss from equity method investments increased by RMB42.2 million, mainly due to significant R&D expenses incurred by a new joint venture with smart and increased loss from an equity method investee[25] - Other non-operating income shifted to expenses, primarily due to losses in fair value of an equity security (RMB27.4 million loss in H1 2024 vs. RMB27.7 million gain in H1 2023) and warrant liabilities[26][27] - Government grants increased from RMB2.7 million in H1 2023 to RMB9.2 million in H1 2024[28] Non-GAAP Financial Measures The company uses Adjusted EBITDA as a non-GAAP financial measure to evaluate operating results and for financial decision-making, believing it helps identify underlying business trends by excluding certain non-operating expenses, with Adjusted EBITDA for H1 2024 being a loss of RMB433.3 million, a significant increase from the prior year - Adjusted EBITDA is defined as net loss excluding interest income, interest expense, income tax expenses, depreciation, amortization, and share-based compensation expenses[30] Adjusted EBITDA Reconciliation | Metric (RMB thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | | :--------------------- | :----------------------------- | :----------------------------- | | Net Loss | (405,867) | (610,321) | | Interest income | (17,885) | (11,206) | | Interest expense | 38,228 | 45,495 | | Income tax expense/(benefit) | 326 | (198) | | Depreciation | 27,084 | 27,274 | | Amortization | 12,007 | 44,743 | | EBITDA | (346,107) | (504,213) | | Share-based compensation expenses | 52,226 | 70,925 | | Adjusted EBITDA | (293,881) | (433,288) | Liquidity and Capital Resources The company's liquidity position deteriorated, with an accumulated deficit of RMB7,241.2 million and current liabilities exceeding current assets by RMB1,605.0 million as of June 30, 2024, leading to substantial doubt about its ability to continue as a going concern, despite a decrease in net cash used in operating activities and an increase in net cash provided by financing activities Cash Flow Summary | Cash Flow Data (RMB thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | | :----------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | (960,437) | (416,811) | | Net cash (used in) provided by investing activities | 740,559 | (142,346) | | Net cash provided by financing activities | 231,972 | 749,000 | - As of June 30, 2024, the company had an accumulated deficit of RMB7,241.2 million and current liabilities exceeded current assets by RMB1,605.0 million[42] - Net cash used in operating activities decreased by RMB543.6 million, primarily due to improved working capital management and cash conversion cycle[46] - Net cash provided by financing activities increased by RMB517.0 million, primarily due to additional borrowings from related parties and banks[50] Financing Activities The company secured significant new credit lines and loans in H1 2024, including a RMB149 million accounts receivable factoring agreement, a RMB120 million credit line, and RMB360 million in loans, crucial for funding operations and business expansion, as the company has historically relied on financing activities - In January 2023, a RMB300 million loan agreement with Zhejiang Geely Holding Group was extended to June 30, 2025, with RMB100 million repaid in June 2024[37] - In March 2024, an accounts receivable factoring agreement for RMB149 million was entered into with a Geely Group finance company[38] - Additional credit lines and loans totaling RMB120 million were granted by Shanghai Pudong Development Bank in April 2024[39] - Industrial Bank granted a RMB180 million loan in May 2024 and an additional RMB180 million credit line in June 2024[40] Material Cash Requirements and Contractual Obligations Material cash requirements include interest and principal payments for borrowings, operating lease commitments, purchase commitments for R&D services and intangible assets, and capital and investment commitments, totaling RMB2,102.0 million as of June 30, 2024, with RMB1,868.9 million due within one year - Material cash requirements include interest and principal payments for borrowings, operating lease commitments, purchase commitments, and capital commitments[52] Contractual Obligations | Contractual Obligation (RMB thousands) | Total | Less than one year | | :------------------------------------- | :---------- | :----------------- | | Operating lease commitment | 194,356 | 21,284 | | Purchase commitment | 139,729 | 129,729 | | Capital commitment | 44,405 | 44,405 | | Investment commitment | 23,500 | 23,500 | | Purchase obligations for intangible assets | 100,000 | 50,000 | | Short-term borrowings | 1,600,000 | 1,600,000 | | Total | 2,101,990 | 1,868,918 | Off-balance Sheets Arrangements The company has not entered into any financial guarantees, other commitments to guarantee third-party payment obligations, derivative contracts indexed to its shares, or retained/contingent interests in assets transferred to unconsolidated entities, nor does it have variable interests in any unconsolidated entities providing financing or other support - The company has not entered into financial guarantees or other commitments to guarantee third-party payment obligations[57] - No derivative contracts indexed to shares or retained/contingent interests in assets transferred to unconsolidated entities are present[57] Quantitative and Qualitative Disclosure about Market Risks The company's primary market risks are interest rate risk and foreign exchange risk, with interest rate risk not considered material due to the short-term nature of borrowings and investments, while foreign exchange risk arises from fluctuations between RMB and foreign currencies, particularly the U.S. dollar, impacting the value of securities and conversion amounts Interest Rate Risk The company's exposure to interest rate risk is primarily related to fixed-rate liabilities and interest income from short-term bank deposits, but due to the short tenure of borrowings and investments, it has not been exposed to material risks from market interest rate changes and does not use derivative financial instruments to manage this risk - Interest rate risk primarily relates to fixed-rate liabilities and interest income from short-term, interest-bearing bank deposits[58] - Due to the short-term tenure of borrowings and investments, the company has not been exposed to material interest rate risk[58] Foreign Exchange Risk The company faces foreign exchange risk due to its international revenues and expenses being denominated in foreign currencies, primarily the U.S. dollar, against the Renminbi, which is not freely convertible and subject to PRC government policies, impacting USD conversion for operations or dividends - Foreign exchange risk arises from fluctuations between Renminbi and foreign currencies, impacting international revenues and expenses[60] - Renminbi is not freely convertible, and PRC government policies can significantly and unpredictably impact exchange rates[61][62] - As of June 30, 2024, the company held RMB743.4 million in RMB-denominated cash and US$20.1 million in USD-denominated cash[64] Critical Accounting Estimates The preparation of financial statements requires management to make significant estimates and assumptions that can materially affect reported amounts, including service period of connectivity services, expected credit losses, inventory realizability, warranty obligations, useful lives and recoverability of assets, valuation allowances for deferred tax assets, and fair values of various financial instruments - Critical accounting estimates involve significant uncertainty and can materially affect financial condition or results of operations[65] - Key estimates include expected credit losses, inventory realizability, warranty obligations, asset useful lives and recoverability, and fair values of financial instruments[86] Index to Unaudited Condensed Consolidated Financial Statements Unaudited Condensed Consolidated Financial Statements Unaudited Condensed Consolidated Balance Sheets As of June 30, 2024, total assets decreased to RMB4,033.6 million from RMB4,307.2 million, primarily due to a decrease in accounts receivable from related parties, while total liabilities increased to RMB5,443.4 million from RMB5,138.9 million, driven by higher short-term borrowings and amounts due to related parties, resulting in a worsening total shareholders' deficit of RMB1,409.7 million Condensed Consolidated Balance Sheets | Balance Sheet Item (RMB thousands) | As of Dec 31, 2023 | As of June 30, 2024 | | :--------------------------------- | :----------------- | :------------------ | | Total Current Assets | 3,328,321 | 2,946,929 | | Total Non-Current Assets | 978,903 | 1,086,701 | | Total Assets | 4,307,224 | 4,033,630 | | Total Current Liabilities | 4,252,228 | 4,551,904 | | Total Non-Current Liabilities | 886,624 | 891,447 | | Total Liabilities | 5,138,852 | 5,443,351 | | Total Shareholders' Deficit | (831,628) | (1,409,721) | - Accounts receivable – related parties, net decreased significantly from RMB1,572.7 million to RMB934.0 million[68] - Short-term borrowings increased from RMB1,200.0 million to RMB1,600.0 million[70] Unaudited Condensed Consolidated Statements of Comprehensive Loss For the six months ended June 30, 2024, the company reported a net loss of RMB610.3 million, an increase from RMB405.9 million in the prior year, with total revenues growing by 26.4% but gross profit decreasing by 3.5%, leading to a higher comprehensive loss of RMB623.8 million, partly due to negative foreign currency translation adjustments Condensed Consolidated Statements of Comprehensive Loss | Metric (RMB thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | | :--------------------- | :----------------------------- | :----------------------------- | | Total Revenues | 1,736,601 | 2,195,317 | | Gross Profit | 513,499 | 495,775 | | Loss from Operation | (376,503) | (485,646) | | Net Loss | (405,867) | (610,321) | | Comprehensive Loss | (356,892) | (623,806) | - Net loss attributable to ordinary shareholders increased from RMB375.1 million to RMB570.5 million[74] - Foreign currency translation adjustments shifted from a gain of RMB49.0 million in H1 2023 to a loss of RMB13.5 million in H1 2024[74] Unaudited Condensed Consolidated Statements of Changes in Shareholders' Deficit The total shareholders' deficit increased from RMB831.6 million at January 1, 2024, to RMB1,409.7 million at June 30, 2024, primarily driven by the net loss of RMB610.3 million, partially offset by share-based compensation of RMB70.9 million, and influenced by a decrease from a common control subsidiary combination and negative foreign currency translation adjustments Changes in Shareholders' Deficit | Metric (RMB thousands) | As of Jan 1, 2024 | As of June 30, 2024 | | :--------------------- | :---------------- | :------------------ | | Accumulated deficit | (6,670,686) | (7,241,232) | | Total shareholders' deficit | (831,628) | (1,409,721) | - Net loss of RMB570.5 million contributed to the increase in accumulated deficit[77] - Share-based compensation expenses of RMB70.9 million increased additional paid-in capital[77] Unaudited Condensed Consolidated Statements of Cash Flows Net cash used in operating activities significantly decreased from RMB960.4 million in H1 2023 to RMB416.8 million in H1 2024, indicating improved working capital management, while net cash provided by investing activities in H1 2023 turned into net cash used in H1 2024 due to acquisitions and short-term investments, and net cash provided by financing activities substantially increased to RMB749.0 million from additional borrowings Condensed Consolidated Statements of Cash Flows | Cash Flow Activity (RMB thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | | :--------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | (960,437) | (416,811) | | Net cash (used in) provided by investing activities | 740,559 | (142,346) | | Net cash provided by financing activities | 231,972 | 749,000 | | Net increase in cash and restricted cash | 26,353 | 188,912 | - Investing activities shifted from providing RMB740.6 million cash in H1 2023 (due to Zenseact disposal proceeds) to using RMB142.3 million cash in H1 2024 (due to acquisitions and short-term investments)[49][80] - Capital expenditures increased from RMB48.0 million in H1 2023 to RMB56.2 million in H1 2024[51] Notes to Unaudited Condensed Consolidated Financial Statements Summary of Significant Accounting Policies This section outlines the basis of presentation for the unaudited condensed consolidated financial statements, prepared in accordance with U.S. GAAP, detailing accounting for common control transactions and asset acquisitions, and discussing key risks such as credit, customer, and supplier concentrations, fair value measurements, convenience translation rates, and prior period reclassifications Basis of Presentation The financial statements are prepared under U.S. GAAP, with certain disclosures condensed, and the company's net loss, net cash outflows from operations, and current liabilities exceeding current assets raise substantial doubt about its ability to continue as a going concern, prompting management to evaluate plans including expense reduction, additional financing, and accelerated collections - The company generated a net loss of RMB610.3 million and net cash outflows from operations of RMB416.8 million for the six months ended June 30, 2024[83] - As of June 30, 2024, current liabilities exceeded current assets by RMB1,605.0 million, leading to substantial doubt about the company's ability to continue as a going concern[83][84] - Management's plans to continue as a going concern include reducing expenses, obtaining additional financing, and accelerating collections[84] Combination Between Entities Under Common Control (HF Tech Europe AB) On June 30, 2024, ECARX acquired a controlling interest in HF Tech Europe AB (HF EU), an entity under common control, for SEK16,111 (RMB10,854), accounted for using the pooling-of-interests method, combining financial information as if it occurred at HF EU's establishment date (January 30, 2023), with HF EU reporting a net loss of RMB17.4 million for H1 2024 - ECARX acquired a controlling interest in HF Tech Europe AB (HF EU) on June 30, 2024, for RMB10,854[87] - The acquisition was accounted for using the pooling-of-interests method, combining financials as if the transaction occurred on January 30, 2023[87] HF EU Financial Performance | HF EU Metric (RMB thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | | :--------------------------- | :----------------------------- | :----------------------------- | | Revenue | 19,164 | 26,170 | | Net profit / (loss) | 5,461 | (17,395) | Asset Acquisition of Suzhou Photon-Matrix Optoelectronics Technology Co., Ltd On January 31, 2024, the company acquired an additional 13.10% equity interest in Suzhou Photon-Matrix for RMB46,306, increasing its stake to 62.27% and gaining control, which was treated as an asset acquisition, not a business combination, as it did not include a substantive process to create output - On January 31, 2024, the company acquired an additional 13.10% equity interest in Suzhou Photon-Matrix for RMB46,306, increasing its stake to 62.27% and gaining control[90] - The transaction was accounted for as an asset acquisition because it did not include a substantive process to significantly contribute to the ability to create output[90] Risks and Concentration (Credit Risk, Customers, Suppliers) The company faces concentration risks in credit, customers, and suppliers, with Geely Group and its subsidiaries accounting for 77.5% of accounts receivable from related parties and 79.4% of total revenues in H1 2024, and notable supplier concentration also present - The company has a concentrated customer base, particularly with Geely Group and its subsidiaries[94] Customer Concentration | Customer Concentration | As of Dec 31, 2023 | As of June 30, 2024 | | :--------------------- | :----------------- | :------------------ | | Geely Group (A/R related parties) | 86.4% | 77.5% | | Geely Group (Total Revenues) | 72.9% | 79.4% | Supplier Concentration | Supplier Concentration | As of Dec 31, 2023 | As of June 30, 2024 | | :--------------------- | :----------------- | :------------------ | | Supplier A (A/P) | 15.7% | 18.3% | | Supplier B (A/P) | 12.5% | 16.5% | | Supplier C (A/P) | 22.8% | 12.3% | | Supplier A (Purchases) | 23.1% | 25.7% | | Supplier C (Purchases) | <10.0% | 21.2% | Fair Value Measurements The company measures certain financial assets and liabilities at fair value on a recurring basis, categorizing them into Level 1 (equity securities, public warrant liabilities) and Level 3 (private warrant liabilities) based on observable and unobservable inputs, respectively, while other financial instruments' carrying values approximate their fair values due to short-term maturity or comparable interest rates - Financial assets and liabilities measured at fair value include equity securities (Level 1) and warrant liabilities (Level 1 and Level 3)[99][100] - Carrying values of other financial instruments approximate fair values due to short-term maturity or comparable interest rates[101] Convenience Translation U.S. dollar amounts in the financial statements are provided for convenience, translated from RMB at a rate of US$1.00 = RMB7.2672 as of June 28, 2024, for presentation only and without implying actual convertibility - U.S. dollar amounts are translated from RMB at US$1.00 = RMB7.2672 as of June 28, 2024, for convenience[102] Prior Period Reclassification Certain prior period amounts were reclassified to align with the current period's presentation, such as combining 'Selling and marketing expenses' and 'General and administrative expenses' into 'Selling, general and administrative expenses,' and consolidating various non-operating income/expense items into 'Other non-operating income (expenses)' - Prior period amounts were reclassified for consistent presentation, including combining selling and marketing expenses with general and administrative expenses[103][104] - Various non-operating income/expense items were consolidated into 'Other non-operating income (expenses)' for the six months ended June 30, 2023[104] Cash and Restricted Cash As of June 30, 2024, total cash and restricted cash increased to RMB787.8 million from RMB598.9 million, with most balances held in mainland China and denominated in RMB, while restricted cash significantly decreased from RMB27.1 million to RMB0.2 million due to the resolution of supplier disputes Cash and Restricted Cash Balances | Cash Type (RMB thousands) | As of Dec 31, 2023 | As of June 30, 2024 | | :------------------------ | :----------------- | :------------------ | | Cash at banks | 571,760 | 787,639 | | Restricted cash | 27,126 | 159 | | Total cash and restricted cash | 598,886 | 787,798 | - Most cash balances are held in mainland China (RMB749.4 million) and denominated in RMB (RMB732.8 million) as of June 30, 2024[107] - Restricted cash decreased significantly from RMB27.1 million to RMB0.2 million, with the prior period including RMB23.6 million restricted due to supplier disputes[107] Accounts Receivable, Net Total accounts receivable, net, decreased from RMB1,858.5 million to RMB1,174.0 million, primarily driven by a substantial decrease in accounts receivable from related parties, while the allowance for doubtful accounts increased from RMB13.9 million to RMB26.8 million, and an accounts receivable factoring agreement for RMB149 million was entered into but remains on the balance sheet due to retained recourse obligations Accounts Receivable Balances | Accounts Receivable (RMB thousands) | As of Dec 31, 2023 | As of June 30, 2024 | | :---------------------------------- | :----------------- | :------------------ | | Accounts receivable, third parties, net | 285,819 | 240,043 | | Accounts receivable, related parties, net | 1,572,703 | 933,973 | | Total Accounts Receivable, net | 1,858,522 | 1,174,016 | - Allowance for doubtful accounts increased from RMB13.9 million to RMB26.8 million[109] - An accounts receivable factoring agreement for RMB149 million was entered into in March 2024, with the receivables remaining on the balance sheet due to recourse obligations[110][111] Notes Receivable Notes receivable, primarily bank acceptance notes from customers for sales of automotive computing platforms and other products, increased from RMB54.6 million at December 31, 2023, to RMB171.9 million at June 30, 2024, with a small portion pledged as collateral for notes payable Notes Receivable Balance | Metric (RMB thousands) | As of Dec 31, 2023 | As of June 30, 2024 | | :--------------------- | :----------------- | :------------------ | | Notes receivable | 54,634 | 171,926 | - Notes receivable are primarily bank acceptance notes from customers for product sales[112] - RMB16 thousand of notes receivable were pledged as collateral for notes payable as of June 30, 2024[112] Inventories Inventories increased from RMB160.8 million to RMB177.2 million, with increases in raw materials and work-in-process, while finished goods slightly decreased, and inventory write-down for H1 2024 was RMB1.8 million, a significant reduction from RMB9.5 million in the prior year Inventory by Category | Inventory Category (RMB thousands) | As of Dec 31, 2023 | As of June 30, 2024 | | :--------------------------------- | :----------------- | :------------------ | | Raw materials | 90,882 | 106,667 | | Work-in-process | 11,003 | 15,089 | | Finished goods | 58,896 | 55,395 | | Total Inventories | 160,781 | 177,151 | - Inventory write-down decreased from RMB9.5 million in H1 2023 to RMB1.8 million in H1 2024[113] Prepayments and Other Current Assets Prepayments and other current assets decreased from RMB443.5 million to RMB406.7 million, mainly due to a reduction in prepayments to suppliers and contract cost assets, partially offset by an increase in other current assets, with no provision made for these assets in either period Prepayments and Other Current Assets by Category | Asset Category (RMB thousands) | As of Dec 31, 2023 | As of June 30, 2024 | | :----------------------------- | :----------------- | :------------------ | | Prepayments to suppliers | 302,421 | 271,769 | | Contract cost assets | 104,309 | 61,179 | | Others | 36,770 | 73,756 | | Total | 443,500 | 406,704 | - No provision was made for prepayments and other current assets as of December 31, 2023, and June 30, 2024[114] Long-term Investments Long-term investments decreased from RMB301.0 million to RMB220.5 million, primarily due to a decrease in equity method investments and a significant loss in the fair value of equity securities (Luminar Technologies, Inc.), with an impairment loss of RMB6.4 million recognized for H1 2024 Long-term Investments by Type | Investment Type (RMB thousands) | As of Dec 31, 2023 | As of June 30, 2024 | | :------------------------------ | :----------------- | :------------------ | | Equity method investments | 252,407 | 198,468 | | Equity securities measured at fair value | 48,580 | 21,985 | | Total Long-term Investments | 300,987 | 220,453 | - An impairment loss of RMB6.4 million was recognized for long-term investments in H1 2024[115] - The fair value of Luminar Technologies, Inc. shares decreased, resulting in a RMB27.4 million loss recorded in H1 2024[118] Property and Equipment, Net Property and equipment, net, increased from RMB120.8 million to RMB137.3 million, driven by additions to machinery, electronic equipment, and leasehold improvements, with total depreciation expense for H1 2024 being RMB27.3 million and no impairment loss recorded Property and Equipment, Net | Property & Equipment (RMB thousands) | As of Dec 31, 2023 | As of June 30, 2024 | | :----------------------------------- | :----------------- | :------------------ | | Machinery and electronic equipment | 197,777 | 219,956 | | Leasehold improvements | 44,747 | 57,317 | | Property and equipment, net | 120,785 | 137,259 | Depreciation Allocation | Depreciation Allocation (RMB thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | | :-------------------------------------- | :----------------------------- | :----------------------------- | | Cost of revenues | 375 | 539 | | Selling, general and administrative expenses | 15,034 | 14,509 | | Research and development expenses | 11,675 | 12,226 | | Total depreciation | 27,084 | 27,274 | Intangible Assets, Net Intangible assets, net, significantly increased from RMB179.3 million to RMB294.0 million, primarily due to the acquisition of RMB138.6 million in patents as part of the Suzhou Photon-Matrix asset acquisition, with total amortization expense more than tripling to RMB44.7 million in H1 2024, and an impairment loss of RMB0.6 million recognized for obsolete software Intangible Assets, Net | Intangible Asset (RMB thousands) | As of Dec 31, 2023 | As of June 30, 2024 | | :------------------------------- | :----------------- | :------------------ | | Software | 121,950 | 143,461 | | Patents | 2,655 | 141,224 | | Intangible assets, net | 179,341 | 294,034 | - The company acquired RMB138.6 million in patents through the asset acquisition of Suzhou Photon-Matrix[122] Amortization Allocation | Amortization Allocation (RMB thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | | :-------------------------------------- | :----------------------------- | :----------------------------- | | Cost of revenues | — | 23,954 | | Research and development expenses | 7,105 | 16,184 | | Total amortization | 12,007 | 44,743 | Short-term Borrowings Short-term borrowings, consisting entirely of unsecured bank loans, increased from RMB1,200.0 million to RMB1,600.0 million, bearing interest rates from 3.9% to 4.0% per annum, with an unused credit line of RMB100.0 million as of June 30, 2024 Short-term Borrowings | Metric (RMB thousands) | As of Dec 31, 2023 | As of June 30, 2024 | | :--------------------- | :----------------- | :------------------ | | Unsecured bank loans | 1,200,000 | 1,600,000 | - Short-term borrowings bear interest rates of 3.9% and 4.0% per annum as of June 30, 2024[124] - The company had an unused credit line of RMB100.0 million as of June 30, 2024[124] Leases Total lease costs increased from RMB24.5 million in H1 2023 to RMB26.8 million in H1 2024, primarily due to operating lease costs, with operating lease right-of-use assets increasing slightly to RMB126.8 million, a weighted average remaining lease term of 5.98 years, and cash paid for operating leases increasing to RMB17.6 million Lease Costs | Lease Cost (RMB thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | | :------------------------- | :----------------------------- | :----------------------------- | | Operating lease costs | 22,854 | 25,289 | | Short-term lease costs | 1,660 | 1,529 | | Total | 24,514 | 26,818 | Lease Metrics | Lease Metrics | As of Dec 31, 2023 | As of June 30, 2024 | | :------------------------- | :----------------- | :------------------ | | Operating lease right-of-use assets | 125,205 | 126,811 | | Weighted average remaining lease term (years) | 6.14 | 5.98 | | Weighted average discount rate | 8.65% | 8.39% | - Cash paid for operating leases increased from RMB6.5 million in H1 2023 to RMB17.6 million in H1 2024[129] Accrued Expenses and Other Current Liabilities and Provision Accrued expenses and other current liabilities decreased from RMB614.5 million to RMB425.0 million, mainly due to reductions in salaries and benefits payables, and taxes payable, while product warranties increased from RMB132.8 million to RMB140.1 million, with current and non-current portions Accrued Expenses and Other Current Liabilities | Liability Category (RMB thousands) | As of Dec 31, 2023 | As of June 30, 2024 | | :--------------------------------- | :----------------- | :------------------ | | Salaries and benefits payables | 257,207 | 110,899 | | Taxes payable | 101,487 | 80,591 | | Product warranties | 41,924 | 42,553 | | Accrued expenses and other current liabilities | 614,540 | 424,964 | Product Warranties | Product Warranties (RMB thousands) | As of Dec 31, 2023 | As of June 30, 2024 | | :--------------------------------- | :----------------- | :------------------ | | Balance at beginning of period | 92,148 | 132,795 | | Additions | 85,161 | 25,679 | | Settlements | (44,514) | (18,371) | | Balance at end of period | 132,795 | 140,103 | Convertible Notes Payable Convertible notes payable increased from RMB455.7 million to RMB467.6 million, due November 8, 2025, and are measured at fair value using a binomial model, categorized as Level 3 due to unobservable inputs, with a fair value of RMB415.7 million as of June 30, 2024 Convertible Notes Payable | Metric (RMB thousands) | As of Dec 31, 2023 | As of June 30, 2024 | | :--------------------- | :----------------- | :------------------ | | Principal amount | 461,494 | 472,368 | | Net Carrying amount | 455,701 | 467,617 | | Fair Value | 396,884 | 415,702 | - The fair value of convertible notes payable is estimated using a binomial model with key assumptions including risk-free rate, volatility, and bond yield[133] Warrant Liabilities Total warrant liabilities increased from RMB5.1 million to RMB5.5 million, with public warrants measured using Level 1 inputs and private warrants using Level 3 inputs and a Binomial Option Pricing Model, resulting in a RMB0.2 million loss due to changes in the fair value of private warrants in H1 2024 Warrant Liabilities | Warrant Type (RMB thousands) | As of Jan 1, 2024 | Loss due to change in fair value | As of June 30, 2024 | | :--------------------------- | :---------------- | :------------------------------- | :------------------ | | ECARX Public Warrants | 3,195 | — | 3,270 | | ECARX Private Warrants | 1,946 | 236 | 2,231 | | Total | 5,141 | 236 | 5,501 | - Public warrants are measured using Level 1 inputs, while private warrants use Level 3 inputs and a Binomial Option Pricing Model[134] - Key assumptions for private warrant valuation include a risk-free rate of 4.47%, volatility of 43.49%, and an expected term of 3.5 years as of June 30, 2024[135] Share Based Compensation Total share-based compensation expenses recognized for RSUs and options increased from RMB52.2 million in H1 2023 to RMB70.9 million in H1 2024, with 117,250 RSUs and 4,960,570 share options granted in H1 2024, and RMB66.2 million of unrecognized compensation expense expected to be recognized over a weighted-average period of 1.2 years Share-Based Compensation Expense Allocation | Compensation Expense (RMB thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Selling, general and administrative expenses | 32,565 | 55,066 | | Research and development expenses | 19,661 | 15,859 | | Total | 52,226 | 70,925 | - In H1 2024, 117,250 RSUs were granted and fully vested, and 4,960,570 share options were granted to employees[141][142] - As of June 30, 2024, RMB66.2 million of unrecognized compensation expense is expected to be recognized over a weighted-average period of 1.2 years[144] Revenue Information Total revenues increased by 26.4% to RMB2,195.3 million in H1 2024, with sales of goods revenues, particularly automotive computing platforms, being the largest contributor, growing by 34.5%, while service revenues also increased significantly, and the majority of revenues (97.6% in H1 2024) were generated in the PRC and recognized at a point in time Revenue by Category | Revenue Category (RMB thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | | :------------------------------- | :----------------------------- | :----------------------------- | | Sales of goods revenues | 1,264,263 | 1,700,670 | | Software license revenues | 215,641 | 131,832 | | Service revenues | 256,697 | 362,815 | | Total revenues | 1,736,601 | 2,195,317 | Timing of Revenue Recognition | Timing of Revenue Recognition (RMB thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | | :-------------------------------------------- | :----------------------------- | :----------------------------- | | Point in time | 1,637,093 | 2,117,155 | | Over time | 99,508 | 78,162 | | Total revenues | 1,736,601 | 2,195,317 | - 97.6% of the company's revenues were generated in the PRC for the six months ended June 30, 2024[147] Other Non-operating Income (Expenses), Net Other non-operating income (expenses), net, shifted from a net income of RMB16.7 million in H1 2023 to a net expense of RMB23.0 million in H1 2024, primarily driven by a significant loss in the fair value of an equity security and warrant liabilities, partially offset by an increase in government grants and a reduction in foreign currency exchange losses Other Non-operating Income (Expenses), Net | Item (RMB thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | | :------------------- | :----------------------------- | :----------------------------- | | Change in fair value of an equity security | 27,722 | (27,421) | | Change in fair value of warrant liabilities | 4,781 | (236) | | Government grants | 2,695 | 9,172 | | Foreign currency exchange losses, net | (34,668) | (4,494) | | Total other non-operating income (expenses), net | 16,719 | (22,979) | Income Taxes The statutory income tax rate for the company is 25%, with the effective income tax rate differing from the statutory rate primarily due to the recognition of a full valuation allowance for deferred income tax assets of loss-making entities - The statutory income tax rate is 25% for both periods[151] - The effective income tax rate differs from the statutory rate due to the full valuation allowance for deferred income tax assets of loss-making entities[151] Loss Per Share Basic and diluted net loss per ordinary share increased from RMB1.11 in H1 2023 to RMB1.69 in H1 2024, reflecting the higher net loss attributable to ordinary shareholders, while the weighted average number of ordinary shares used in the calculation remained relatively stable Loss Per Share | Metric | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | | :------------------------- | :----------------------------- | :----------------------------- | | Net loss attributable to ECARX Holdings Inc. | (375,126) | (570,546) | | Weighted average number of ordinary shares | 337,395,390 | 337,935,301 | | Net loss per share – Basic and diluted | (1.11) | (1.69) | - Potential dilutive instruments (warrants, share options, convertible notes) were anti-dilutive and thus excluded from diluted loss per share calculation[153] Commitments and Contingencies As of June 30, 2024, the company had various contractual commitments, including purchase commitments for R&D services totaling RMB139.7 million (RMB129.7 million due within one year), capital commitments for expenditures of RMB44.4 million (all due within one year), and investment commitments related to the acquisition of remaining equity in Hubei Dongjun amounting to RMB23.5 million (also due within one year) Commitments | Commitment Type (RMB thousands) | Total | Less than one year | | :------------------------------ | :------ | :----------------- | | Purchase commitments | 139,729 | 129,729 | | Capital commitments | 44,405 | 44,405 | | Investment commitments | 23,500 | 23,500 | - Investment commitments relate to the acquisition of the remaining 51% equity interest in Hubei Dongjun[157] Related Party Balances and Transactions The company has significant balances and transactions with related parties, primarily Geely Group and its subsidiaries, with related party revenues increasing to RMB1,924.9 million in H1 2024, and substantial accounts receivable from related parties (RMB934.0 million) and amounts due to related parties (RMB375.7 million) reflecting significant financing and operational interdependencies - Major related parties include Zhejiang Geely Holding Group and its subsidiaries, and entities under significant influence of the company[158] Related Party Transactions | Related Party Transaction (RMB thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | | :---------------------------------------- | :----------------------------- | :----------------------------- | | Total Revenues | 1,439,678 | 1,924,865 | | Purchase of products and services | 216,079 | 376,504 | | Interest income on loans due from related parties | 6,771 | 5,899 | | Interest expense on borrowings due to related parties | 6,116 | 7,706 | | Borrowings from related parties | 300,000 | 449,000 | Related Party Balances | Related Party Balance (RMB thousands) | As of Dec 31, 2023 | As of June 30, 2024 | | :------------------------------------ | :----------------- | :------------------ | | Accounts receivable – related parties, net | 1,572,703 | 933,973 | | Amounts due from related parties | 74,122 | 91,398 | | Accounts payable – related parties | 312,830 | 403,424 | | Amounts due to related parties | 35,664 | 375,696 | Subsequent Events After June 30, 2024, the company acquired the remaining 51% equity interest in Hubei Dongjun for RMB23.5 million, making it a wholly-owned subsidiary, and sold its 40% minority stake in HaleyTek AB to Volvo Cars for SEK210.0 million (RMB140.2 million) - On July 15, 2024, the company acquired the remaining 51% equity interest in Hubei Dongjun for RMB23.5 million, making it a wholly-owned subsidiary[171] - On August 1, 2024, the company sold its 40% minority stake in HaleyTek AB to Volvo Cars for SEK210.0 million (RMB140.2 million)[172]