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spk01: Good morning and good evening, everyone. Welcome to Congos, Inc.' 's Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. The call is also being broadcasted live on the company's IR website. Joining us today are Mr. Ji Yan Lin, Chief Executive Officer, and Mr. Michael Xiong, Chief Financial Officer of the company. Following management's prepared remarks, we will conduct the Q&A session. Before we begin, I refer you to the Safe Harbor Statement and the company's earnings release, which also applies to the conference call today, as management will make forward-looking statements. With that said, I am now turning the call over to Mr. Jian Lin, CEO of Kengo. Please go ahead, sir.
spk04: Hello, everyone. Welcome to the third quarter of 2021.
spk02: Hello everyone and welcome to Tango's third quarter 2021 earnings call.
spk04: Car chip and key parts are still short-lived, and global car sales are still severely restricted in the third quarter. In addition, the global car market has been severely affected by the decline or stop of the global car market due to the spread of the COVID-19 epidemic in Southeast Asia. As the world's largest car consumer market, China's car market is among the first, The ongoing shortage of automotive chips and other key auto components continues to severely restrict global car production and sales in the third quarter.
spk02: In addition, a resurgence of the COVID-19 pandemic in Southeast Asia caused widespread production cuts and temporary shutdowns among global automakers, delivering a serious blow to auto supply in the second half of 2021. As the world's largest automotive consumer market, the Chinese car market bore the brunt of these disruptions. As of the end of the third quarter, domestic car production itself have declined year over year for several consecutive months. Given the dual effects of the epidemic and the economic downturn, consumer demand is very weak, especially in lower-tier markets, and the auto market shows a pattern of weakness in both supply and demand.
spk04: The company achieved a total revenue of RMB 8.01 billion, exceeding the company's expected line-up. Among them, the car transaction service business revenue, RMB 4.29 billion, accounted for a total revenue of nearly 53.6%. The car loan support business revenue and the car logistics service business revenue, respectively, are RMB 2.67 billion and RMB 4,343 million. In terms of profits,
spk02: The tough market conditions were broadly consistent with our expectations and impacted our third quarter business accordingly. Nevertheless, we achieved total revenues of RMB 801 million in the third quarter, beating our guidance. Revenues from our card trading transaction business were RMB $429 million, accounting for nearly 53.6% of total revenues. Revenues from our automotive financing facilitation and aftermarket services facilitation businesses were RMB $267 million and RMB $43.43 million respectively. In terms of the bottom line, net loss was RMB417 million due to the fair value change of our investment in Li Auto.
spk04: As of the end of the third quarter, the total amount of RMB 479.55 billion has been accumulated. At the same time, the quality of assets continues to be suppressed. As of the end of the third quarter, the company has completed all the M1 and M3 car loans in the program area. The expected rate is 1.58% and 0.76% respectively, which is slightly higher than the previous quarter.
spk02: Among our three core businesses, the challenging market conditions most directly impacted our automotive financing facilitation business. Given insufficient car supply, consumers' wait-and-see attitude, and the falling car sales, the company facilitated financing transactions totaling RMB $6,211 million in the third quarter, down 20% quarter-over-quarter. The total outstanding balance of CanGo-facilitated financing transactions transactions worth RMB $47,955 million as of September 30, 2021. At the same time, asset quality remained under pressure. As of September 30, 2021, our M1-plus and M3-plus overdue ratios had increased slightly quarter-over-quarter to 1.58% and 0.76% respectively.
spk04: In the face of external environmental challenges, since the end of the second quarter, the company has actively sought to change, adjust the team and business structure, focus on strategic business development, and respond to industry changes. In the field of long-term business, in the third quarter, we rebuild the model, optimize the process, focus on energy efficiency improvement, and at the same time, through technological means, promote channel and sales dual-sense renewable energy. In the face of the small-scale program launched by car manufacturers, to help the car dealers more efficiently to deliver old financial products to C-end customers, to improve the customer's customer service efficiency, and to improve the efficiency of the sales team by providing multiple solutions and self-service services to customers, to make the entire transaction process faster and smoother. A series of adjustment measures have been implemented. In the third quarter, although the overall housing size has decreased, the amount of single-duty financing has been increased.
spk02: We have responded proactively to these external challenges since the end of the second quarter by optimizing our team and business structure and concentrating our strategic business development. While the automotive financing facilitation business was still under pressure in the third quarter, we optimized our sales team's organizational structure and focused on stimulating each salesperson's output. At the same time, we introduced the tools to empower both our dealership network and sales team. Tango Go Plus, our WeChat mini program for car dealers, offers our dealers a quick reference tool to serve car buyers, thus improving their service efficiency and ability to retain customers. Tango Go Plus also provides car buyers with a variety of financing solutions and self-service options, which in turn greatly improves our sales team's efficiency, facilitating the entire car purchasing process. This series of adjustments has begun to produce positive results. In the third quarter, although the overall scale of automotive financing facilitation business declined compared with the previous quarter, the average amount of financing per transaction increased.
spk04: We have maintained a stable development style in the high-end brands and second-hand car rental business. The channel structure is further optimized, the customer base quality is further improved, and the profitability is further improved. As of the end of the third quarter, the total number of car dealers in the Canggu network is 47,718, of which 10,317 are CS dealers, and 776 are luxury brand dealers.
spk02: Notably, although the decline in new car sales affected our overall automotive financing facilitation business, we maintained a stable growth in the high-end and used car segments. As we further optimized our dealership network structure, customer quality also improved. resulting in increased profitability. By the end of the third quarter, we had covered 47,718 car dealers throughout China, of which 10,317 were 4S dealers, including 776 luxury brand dealers such as BBA plus Lexus. We also continue to network with large-scale dealer groups during the quarter and recorded two new strategic partnerships.
spk04: Now, the automotive industry is experiencing a major change. With the development of technology, new energy vehicles are rising, and the supply and demand times are changing. Consumption upgrades make users more demanding of automotive services. Various changes have led us to increase the range of action, and to upgrade the direction of automotive trading service platforms. Through car trading, we can gather car dealers, and through integrated automotive supply chain services, we can restore energy.
spk02: The auto industry has faced unprecedented challenges in recent years due to the weak economy and the ongoing pandemic. However, with challenges come opportunities. When CanGo was founded over a decade ago, we started with the automotive financing facilitation business and aimed to eventually expand into the entire auto industry chain. Today, the auto industry is under dramatic challenges and changes, including the rise of NEVs prompted by the great technological developments, the shifting role of the dealership network in the era of oversupply and increasing consumption upgrades, all of which have led to growing customer demand for elevated auto-related services. This evolution has inspired us to accelerate our efforts in the transformation into a comprehensive automotive transaction service platform to consolidate our dealers through car trading transactions and empower our dealership network with the integrated auto supply chain services.
spk04: In this quarter, we can see that our car trading business has made greater progress. At the end of May this year, the B2B small program of the car dealership, Canggu Good Car, is only providing a step-by-step deal, logistics, finance, insurance, and other car information related services. As of the end of the third quarter, the number of co-operative car dealers in Canggu has reached more than 5,700, covering 31 provinces and 283 cities. There are 74 self-driving cars on the small program, covering 12 brands and 27 car series. Since the small program was launched, the number of views has exceeded 1.5 million, and the number of active car dealers has reached 20%. The annual sales have significantly increased, We are very pleased to see that our car trading transaction business made significant progress in the third quarter,
spk02: At the end of May, we launched Tango Haozhi, a B2B WeChat mini program which provides dealers with one-stop transaction, logistics, finance, insurance, and other auto information-related services. So at the end of the third quarter, Tango Haozhi had more than 5,700 dealer partners covering 283 cities in 31 provinces. and included 74 self-operated car models from our 12 brands and 27 car series. Since its launch, Kangoo Haochua has amassed over 1.5 million clicks, and the proportion of active car dealers has reached 20%, demonstrating an obvious increase in dealer stickiness. We also further consolidated our supporting warehousing and logistics capabilities during this quarter, As of the end of the third quarter, we had operated with the infrastructure service providers to establish a total of 108 warehouses covering 89 cities across the country, thereby shortening the logistics radius in the lower-tier markets and improving vehicle transaction efficiency. 特别值得一提的是,在第三季度,灿湖好车新增撮合和部长服务,
spk04: and is widely recognized by car manufacturers. In the combination service, Canggu Good Car Platform integrates the diverse needs of small and medium-sized car manufacturers to improve their information exchange and sharing efficiency, achieve efficient car volume transfer, reduce customer loss, and deploy businesses to provide low-safety, high-quality multi-brand exhibition vehicles for high-quality car manufacturers, help their low-cost flexible exhibition, and therefore better for customers and tourists.
spk02: Of particular note, Tango Houchi launched two new services in the third quarter, which are pairing and vehicle display, both of which gathered positive feedback from the dealers. Our pairing service integrates the diverse inventory demand of small and medium car dealers, thereby improving information exchange and sharing, allowing more efficient vehicle allocation and reducing customer charge. The vehicle display service provides high-quality certified dealers with a wide variety of display vehicles at a low cost to help them economically attract and retain customers. 在货客及有人端作为私域流量建立及运营工具的经济的模式在本季度取得重要进展,在巩固原有机盘的基础上,
spk04: This quarter has added the coverage of Henan and Shandong, two major population provinces. Currently, the economic network has covered 12 provinces nationwide. As of the end of the quarter, Canggu has registered more than 19,000 economic people and has equipped 830 branch stores for them. Within the current market flow, we have carried out a batch of new energy vehicles and second-hand oil and gas vehicles, as well as the sale and delivery of car and financial form.
spk02: In terms of traffic acquisition, we made significant progress in the third quarter with our independent sales reps initiative, which functions as a tool for directing and operating private traffic. We expanded our network to cover 12 provinces nationwide, adding two additional popular provinces, which are Henan and Shandong Province. As of the end of the quarter, we had more than 19,000 private traffic poor, 90,000 sales reps, and 830 sub-dealers. We also conducted a successful pilot program within our existing private traffic poor involving car-only and car-plus financing transactions. The program included sales and delivery of both NAVs and used traditional fuel vehicles, forming a closed operation loop and realizing private traffic monetization. After trials and advancements during the past few quarters, our card trading transactions business has gradually stabilized and formed synergies with our financial and insurance business sectors. We have solid data affirms our strategy's effectiveness. Our goal is to build an open platform to help OEMs increase their marketing and self-service channels penetration in the lower tier markets, empower medium and small dealers with the supply chain services such as vehicle sources, warehousing, last mile logistics, finance, and insurance, and ultimately provide end users with high-quality branded car consumption services.
spk04: Finally, let's take a look at the third quarter of the rear-end market, which is mainly insurance. Our insurance sales team has newly developed 7 models and 1249 maintenance gateways. At the same time, new energy manufacturers Li Xiang and Gaohe have officially started cooperation and will be directly involved in the warehouse insurance service at the entrance of the two car owners' APP. The current system coordination work is in progress and is expected to be completed in December. This quarter, the insurance business will also strengthen its partnership with other business branches. In the case of car trading business, the combination sales form of car insurance will be adopted in some car trading vehicles. In the housing sector, the insurance service small program is involved in the shareholding market tool and tries to promote customized insurance products for the cooperating CS group. With the excellent performance on the service channel, the shareholding company Fushun won the supply chain service implementation award in the September 2021 Qipei supply chain innovation award.
spk02: Last but not least, let's talk about our aftermarket services facilitation business. In the third quarter, our direct insurance sales team explored collaborations with 1,249 new auto trade and maintenance stores. We have also officially commenced cooperation with the NEV manufacturers Lee Auto and Hi-Fi, and are working to embed the Tango insurance service portal in this brand's car owner apps, which is expected to be completed in December. Furthermore, we deepened the integration of our insurance business with our other sectors during the quarter. The combined car plus insurance sales transactions began to materialize, strengthening insurance's connection to our car trading transactions business. We have also embedded our insurance service portal in our CanGo Go Plus dealer tour to link insurance services with our automotive financing facilitation business and created customized insurance products for 4S Group dealers. Thanks to its outstanding performance in dealership networking service, Fusheng, our subsidiary insurance company, won the Service Star in Supply Chain Award at the 2021 Autoparts Supply Chain Golden Star Awards in September.
spk04: We expect that the crisis in the automotive market caused by the chip supply problem will not be resolved in the short term, or will continue until next year. At the same time, under the background of continuous anxiety in the entire industry, new energy car sales are rising, gradually becoming the protagonist of the automotive market. As a firm supporter of the new energy car industry for a long time, in addition to strategic investment in ideal cars, Canggu and the cooperation of the new energy main airport penetrates the entire service platform business of car trading, financial, insurance, and other car-related services. Currently, Canggu has launched in-depth cooperation with new energy brands including ideal, Xiaopeng, and Jixing.
spk02: We expect the market disruptions caused by the chip shortage to carry into next year. Against all odds and despite persistent pervasive anxiety in the auto industry, NEVs are gaining traction and gradually becoming a key market player. Tango is a firm supporter of the NEV industry. In addition to our strategic investments in lead auto, We have seamlessly integrated NEV manufacturers into our entire automotive trading service platform, including automotive transactions, financing, insurance, and other automotive products. To date, we have established in-depth cooperation with Li Auto, Expanse, and Polestar.
spk04: In the face of the serious economic and industry situation, We will continue to improve our self-sufficient supply chain's agility and risk-resistant capabilities. At the same time, we will steadfastly pursue our strategic goals and continuously improve our vehicle trading service platform ecosystem. We will continue to enrich the products that start from the needs of users, including vehicle trading, vehicle finance, and vehicle aftermarket services, so that selling vehicles will not be difficult and buying vehicles will be simple and pleasant.
spk02: We will continue to improve agility and reduce risk throughout our supply chain ecosystem as we navigate the tough economic and industrial environment. Meanwhile, we will also continuously refine our card transaction services platform ecosystem and enrich our customer-first product matrix, including card trading transactions, automotive financing facilitation, and aftermarket services facilitation. as we resolutely strive toward our strategic goal, which is making the selling and buying of cars simple and enjoyable.
spk04: Next, I will turn the call over to our Chief Financial Officer, Michael Zhang, for a review of the company's financial performance.
spk06: Thanks, Jia Yuan. Hello, everyone, and welcome to our third quarter 2021 earnings call. Before I started to review our financials, please note that unless otherwise stated, all numbers are in IMB terms and all percentage comparisons are on a year-over-year basis. Despite the ongoing uncertainty due to the global chip shortage, our third quarter results demonstrate the flexibility and resilience of our business model. We recorded total revenue of $800.6 million, outperforming our previous guidance. Looking at the performance of our three core businesses in the third quarter, revenue from our car trading transactions were $429.2 million, continuing to serve an important growth driver. Revenues from automotive financing facilitation and upmarket service facilitation were $2,000. were $266.5 million and $42.7 million respectively. Now let's move on to our costs and expenses during the quarter. Total operating costs and expenses in the third quarter 2021 were $839.6 million compared to $300.4 million in the same period 2020. This was mainly due to the related costs incurred by car trading transaction business primarily as a result of the increase in revenue from card trading transactions. Sales and marketing expenses, general and administrative expenses, and research and development expenses each decreased as a percentage of total revenue in the third quarter of 2021. Cost of revenue in the third quarter of 2021 increased to $610.5 million from $180.9 million in the same period, 2020. As a percentage of total revenue, cost of revenue in the third quarter of 2021 was 76.3% compared to 41.6% in the same period 2020. And the change was primarily due to an increase in the amount of card trading transactions. For automotive transaction financing facilitation services, for automotive finance, for automotive
spk01: Pardon me, ladies and gentlemen. It appears we have lost connection to our speaker line. Please stand by as we reconnect. We thank you for your patience. We have reconnected our speaker line. Mr. Zhang, you may proceed with your conference.
spk06: Thank you, operator. Cost of revenue in the third quarter of 2021 increased to $610.5 million from $180.9 million in the same period, 2020. As a percentage of total revenue, cost of revenue in the third quarter of 2021 was 76.3% compared to 41.6% in the same period 2020. And the change was primarily due to an increase in the amount of card trading transactions. For automotive financing facilitation and off-market services facilitation, cost of revenue as a percentage of relevant revenue was around 40.1% in the same period 2021. Sales and marketing expenses in the third quarter of 2021 were $46.8 million compared to $41.9 million in the same period of 2020. As a percentage of total revenue, sales and marketing expenses in the third quarter of 2021 was 5.8% compared to 9.6% in the same period of 2020. General and administrative expenses in the third quarter of 2021 were $64 million compared to 52.2 million in the same period, 2020. As a percentage of total revenue, general and administrative expenses in the third quarter of 2021 was 8% compared to 12% in the same period, 2020. Research and development expenses in the third quarter of 2021 were 17.4 million compared to 14.2 million in the same period, 2020. As a percentage of total revenues, research and development expenses in third quarter of 2021 were 2.2 percent compared to 3.3 percent in the same period 2020. net loss on risk assurance liability in the third quarter of 2021 was 55.5 million compared to a net gain of 12.9 million in the same period 2020. we recorded loss from operation of 39 million in the third quarter of 2021 compared to an income of $134.5 million in the same period 2020. Due to the fair value change of the company's investment in Lee Auto, net loss in the third quarter of 2021 was $416.5 million. Non-GAAP adjusted net loss in the third quarter of 2021 was $392.5 million. On a per share basis, diluted net loss per ADS in the third quarter of 2021 was $2.88 and diluting non-GAAP adjusting net loss per ADS in the same period was 2.72. Moving on to our balance sheet, as of September 30, 2021, we had cash and cash equivalent of $906.4 million compared to $1.5 billion as of June 30, 2021. As of September 30, 2021, the company had short-term investment of $3.6 billion compared to $3.2 billion as of June 30, 2020. Looking ahead to the fourth quarter of 2021, we expect our total revenue to be between $950 million and $1 billion. Please note that this forecast reflects our current and preliminary views on the market and operational conditions, which are subject to change. This concludes our prepared remarks. Operator, we are now ready to the questions. Thank you.
spk01: We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question will come from Shelly Wang with Morgan Stanley. Please go ahead.
spk03: Hello, everyone. I'm Shelly from Morgan Stanley. I have three questions I'd like to ask. The first one is about the three-season performance. In the third quarter, the revenue is almost doubled, but if you look at the profit, it feels that the same ratio has dropped. Is this mainly because of which business has been dragged down? The second is to ask about the outlook of the fourth quarter, which is the middle end of the revenue situation we see here. Have you seen the car sales in the recovery process? How is the recovery speed? Then the third one, I would like to ask, is the bank's support for car loans. Because in fact, I feel like I'm talking about it. Because in fact, now the bank may be a little less on the real estate side. Will they have a little more support for car loans? Have you seen this one? Yes, these are my three questions. Thank you.
spk04: The first question, wait a minute, let's ask CFO Zhang Yongyi to answer. I will answer the following two questions. One is the recovery of car sales at the retail end. From the perspective of the industry, the new situation has not been resolved. Then, most manufacturers and channels have been cut short. Car lines are in trouble with no car delivery, affecting the sales of new cars. But official data shows that the current chip shortage problem is slightly resolved. As the market attacks the market demand of production capacity reduction, it is partially released. Entering the fourth quarter, retailers have begun to charge. As the supply and satisfaction of the market increases, the car sales in the fourth quarter may increase. At the company level, after a few months of trial and improvement, our car trading business has gradually stabilized in this quarter. It is strong in combination with our car insurance and business version. A series of data has proven the correctness of our business logic, so the third quarter can maintain the expected growth rate. The third question is about the bank. Under the large-scale background of real estate control, the bank has a bias towards the desire and acquisition of large-scale assets. Among them, the asset property is good, and the car market with a large market capacity is favored. In the face of severe investment indicators and asset penetration, Our first response to the search question, which is about the recovery,
spk02: For the retail sales, if you look at the industry, the chip shortage continues to impact the entire auto industry. We find that leading to inventory depletion for OEMs and dealers and a drop in deliveries for car makers, both of which affect new car sales. According to the official data, the chip shortage has eased slightly in the last quarter, but the supply capacity hasn't materially improved. Going into the fourth quarter, a traditional season to drive the year-end sales. Due to the ongoing supply shortage, we don't expect the dealers to enhance promotional measures, but from the company's perspective, thanks to our successful initiative over the past few quarters, Our car trading transaction business developed steadily during the third quarter. And to the second question about banks, is it easier to get car loans from the banks? Actually, we have observed that there is a shift in the preference of banks in which asset targets that they hold. And now, turning from the property assets, banks are looking more and more into the automotive And actually, card loans have long been one of the important asset targets of the banks. So overall, the card loan volume of banks have been increasing steadily over the past few years, and we are quite optimistic and positive of getting support and loans from the bank.
spk06: Sherry, let me answer your first question. Regarding the relationship between income and profit, we can see that the most important driving force for the growth of our income in the third quarter is our car trade. However, from another perspective, our car trade itself has a very low profit rate. That is to say, although the income of car trade increased significantly compared to the same period last year, It should still be a relatively small contribution to the labor rate. So this is the first point. The second point is that from the conditions of our current business, the biggest contribution to labor is the housing business of our car finance. This business, from the same situation in the third quarter, compared to the same period last year, there is about 15% growth. But at the same time, we can also see that ah ah ah ah ah ah ah ah ah ah the significant impact of this. At the same time, we can also see that in our rear-end market, it is mainly insurance-driven business. So this itself is also a very important source of our income and especially profit. So in this business, due to the impact of the entire third insurance fee change, we can see that the income from the rear-end market in the third quarter Compared to the same period last year, there was a relatively obvious decline. In this regard, in fact, one of the profits of our three seasons will also bring a significant such a negative such an impact. So, in terms of the comprehensive listing situation, in fact, the driving factor of our income, that is to say, our car trade, such a trend, because of its low profit, so for the whole uh uh I would like to respond to the first question of Shelley, which is why in the third quarter the revenue has almost doubled year-on-year, but the year-on-year gross margin is negative.
spk02: What is the business that is dragging down the gross margin? And I can provide a couple of explanations. First is, if you look at our main business, which is the card trading transactions business, it is a low margin business. So even though the revenue of this business goes up very quickly in the third quarter, but its contribution to our margin is on the low side. And the second explanation, The traditional drivers for our growth margin is our automotive financing facilitation business. If you look at this business, it has a 15% growth year-on-year. However, there is a shift in the business landscape, which is we found our customer base as well as our channels and those dealers moving from a lower tier to a higher tier markets. including Tier 1 cities. So a lot of dealers are in those Tier 1 cities, meaning that we have to pay them more commission, which is leading to an increase in our cost of providing the automotive financing facilitation service and has a significant impact on our growth margin. And the third explanation is from our aftermarket services. which is led mainly by insurance. Insurance and after-sales market services are a source of revenue and gross margin as well. But due to the third round of reform of the insurance premium, the gross margin and the revenue from this part of the business also came down and it impacted our gross margin in the third quarter. So based on those explanations, even though you find the revenue, the total amount of revenue increased in the third quarter, the business structure changed and our cost goes up, that all eats up our gross margin.
spk01: Again, if you have a question, please press star then one. Our next question will come from David Pan with Goldman Sachs. Please go ahead.
spk05: Hey. and the proportion of the changes in the business. The second question is about the news car business. In our three major business segments, can you share some of the latest developments and data, as well as some initiatives in the future?
spk04: Thank you. Hello, everyone. Yong Yi, please answer.
spk06: David, let me answer your first question. Regarding the layout of the entire market, from the base of the lower-tier cities, such as the core major stores in the first and second-tier cities, especially some luxury retail stores, there are some business expansion. This is mainly considered from several angles. One is the development process of the entire stock market itself, because we started from the lower-tier market. But with our cooperation with the financial institutions, including the further optimization of the entire financial product itself, we have also further acquired the possibility of such a business layout from the core cities, especially some luxury brands, such as CS. At the same time, we also see that in the entire Chinese car trade, including the layout and pattern of car finance, the CS of the core cities, especially luxury brands, The market share is still a leading factor, so it is impossible for us to give up such a market. Based on this, we will combine our own products and our team's progress. We will gradually expand to this business area. This is the first point. Secondly, it will also be a very important strategic transformation direction for us in the future. That is, we want to be a car trading and service platform. So in the entire business expansion process of car trading, we are also concerned that if we want to build a perfect network of car trading and service, then in this case, in fact, we and CES, including some big luxury brands and some large stores, will be one of the very important points, because whether it is from the supply chain or from the perspective of the whole service, we feel that this is actually a very important loop. So based on the two points just mentioned, it is actually a basic business logic of our entire business expansion. I think this is
spk02: I would love to respond to the first question, which is to give you more perspectives on the business extension from lower tier cities to the higher tier, like tier one, tier two cities. If you look at the history of Kangal, we started our business in the lower tier cities. Along with more collaborations with those financial institutions and our optimization of our financial-related products, we are now extending our business and strategic layout to high-tier cities. And we are starting to work with luxury for asset dealers and other large-scale dealer groups. So if you look at the whole market of automotive financing and the car transaction markets, this market is basically dominated by the large-scale dealers groups and luxury foreign dealers. So on one hand, internally, we are perfecting our sales teams as well as our product matrix. On the other side, we start to collaborate with those luxury, high-end, and large-scale dealer groups. This is one perspective. The second is it is in line with our strategic intention for business transformation because ultimately what we want to do is an automotive transaction and service integrated platform. To build that network, we have to work with those four dealers from luxury brands and large-scale dealers groups. If you look at the supply chain as well as the service, I think the collaboration is such a business extension is paramount and inevitable. So this is our basic business logic for such an extension.
spk06: I would like to add one more thing. Indeed, in the process of such a business expansion, as we all know, in such a market, in this split market, the competition itself is very intense. So, as a new member of such a service platform, in the corresponding marketing, including other corresponding I just want to add one more thing. You know that this is a very competitive segment. So as a relatively new service platform to enter into that segment,
spk02: we do have to pay the marketing as well as the operation cost. So if you look at the short-term financial performance, this may drag down our growth margin in the way that the cost of revenue will go up.
spk06: So this is also a very important assessment point for us to invest in ideal cars in the early stage. At the same time, our business is not only cooperating with ideal cars in a one-to-one way. At the same time, we are also cooperating with such as Aizhi, Jixin, and Beqi New Energy, including Jili. These are the major new energy car manufacturers in China. They have products and services that involve trading, finance, insurance, and other types of products. So, in fact, in such a business layout, we still made a key layout from a strategic point of view. And to respond to your second question, we are very optimistic and positive
spk02: On the prospect of an EV market, as you know, we work deeply with Lee Auto, and we still hold 8 million shares of ADS of Lee Auto, and our plan is to hold them for a long time. Besides Lee Auto, we're also a nationwide service partner, and we cooperate with a lot of EV brands, including Xiaopeng, BYD, Hoso, Aiways, Polestar and Beijing EV, as well as other NVV vehicle models produced by Dongfeng DS, et cetera. So, at present, our financing and insurance capabilities allow us to provide products and services to those NVV manufacturers on a relatively large scale. And based on our strengths, we can also help those NVV manufacturers to better enter into the lower tier markets And based on our offline scenarios and the service network, we can empower them to acquire customers and to provide better services in those low-tier markets.
spk01: As we have no further questions at this time, this concludes our question and answer session, which also concludes today's call. Thank you for attending today's presentation. You may now disconnect.
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