Good morning and good evening, everyone. Welcome to Cango Inc. 2nd Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen only mode. This call is also being broadcast live on the company's IR website.
Joining us today are Mr. Jiaoyuan Lin, Chief Executive Officer and Mr. Michael Zhang, Chief Financial Officer of the company. Following management's prepared remarks, we will conduct the Q and A session. Before we begin, I refer you to the Safe Harbor statement in the company's earnings release, which also applies to the conference call today as management will make forward looking statements.
With that said, I will now turn the call over to Mr. Jiayin Lin, CEO of Kango. Mr. Lin, the floor is yours, sir.
Good morning and good evening, everyone. Welcome to Cango's 2021 Q2 earnings call. In the first half of twenty twenty one, China's auto market still recovering from the impact of the COVID-nineteen pandemic faced renewal pressure due to the persistent global chip shortage. In the wake of this shortage, OEMs have had to slow down production and dealers have slashed promotions, leading to a significant decline in car production and sales. The volatility in the automotive market stemming from uneven chip supplies is unlikely to ease in the short term and is widely expected to linger in the second half of twenty twenty one.
Meanwhile, price increases in other key components and raw materials have further intensified cost pressure on OEMs and fueled uncertainty in their production plans. The chip shortage crisis will undoubtedly slow the recovery of the auto industry. Despite this, Kango's overall business remained stable in the 2nd quarter, total revenues came in at RMB947 1,000,000. Thanks to investment gains from Liotta, we realized a net income of RMB558 1,000,000. Now I'd like to talk about our car trading transactions business.
As the business at the core of our car transaction service platform, revenues from car trading transactions reached RMB523 1,000,000 in the 2nd quarter, accounting for about 55.2% of the total revenues, signaling its gradual evolution into an important growth driver for our growth. Aftermarket services, Cango empowers dealers and improves efficiency of industry as a whole. For consumers, purchasing cars will be much simpler and faster with more diversified and reliable supporting services as well as enhanced user experience. At the end of May 2021, we launched Cango Haoche, a B2B service platform for dealers. Cango Haoche integrates information with transactions, logistics, financing and insurance to directly address the unmet needs of car dealers in the lower tier markets.
Thanks to more than 10 years of commitment, Cango has built up strong expertise in car financing and insurance services and a nationwide dealership network that covers over 40,000 dealers. Cango Haozhou is a natural extension into the automotive transaction field. We aim to offer diversified and comprehensive products to further strengthen the bonds between Cango and our dealers as well as to empower our dealers. In addition, we continue to develop the capabilities of our card transaction services platform. In terms of customer acquisition and services, in line with our long term plan, in the Q2, we expanded our team of independent sales reps, an important method to generate sales leads to more than 13,000 Our sub dealers grew to 581 as of June 30, 2021, further increasing our private traffic.
Notably, we updated the web app of Cango Zhisheng Huo on WeChat in the Q2, offering a one stop service that covers car purchases, car usage and car maintenance. With Cango Hao Chi and Cango Zhisenhua, we empower car dealers and serve car buyers. On supply chain operations, by the end of Q2, we have co developed a total of 110 warehouses together with infrastructure service providers, covering 86 cities nationwide further enhancing our warehouse capacity. In Q2, revenues from aftermarket services facilitation were RMB51.9 million, making a sizable contribution to the company's total revenues. Focusing on car insurance business and starting from the demand side, we recommended high quality insurance purchase channels to car owners covering a wide range of insurance products, including car insurance, non car insurance and health insurance.
We continue to develop our direct sales team and establish partnerships with more than 500 auto trade and maintenance operators. In the meantime, we continue to integrate our systems with those of insurance companies and launched the WeChat Mini program for product library. Going forward, we will further integrate more aftermarket services. Additionally, our KA team continue partnership negotiations with several NEV new energy vehicle makers. Pilots are expected to roll out in the 3rd quarter.
Finally, automotive financing facilitation, our main business line, also grew steadily in the Q2. We facilitated new financing transactions for cars amounting to RMB7.79 billion, up 57.5 percent year on year. Our Automotive Financing Facilitation revenues were RMB 3.0 million, up 111 percent from RMB144 1,000,000 in the same period of last year. As of June 30, 2021, total outstanding balance of financing transactions facilitated by the company amounted to RMB48 point 641,000,000,000. Now turning to asset quality.
As of June 30, 2021, due to changes in our stock product mix, the M1 plus and M3 plus overview ratio rose slightly to 1.35% and 0.69%, respectively. Going forward, we plan to continue strengthening our risk management system and improve our risk identification and control capabilities. We remain confident in our overall asset quality. In terms of dealership network, we had 47,700 and 40 registered dealers as of June 30, 2021. Our channel mix and customer base have been further improved.
Notably, despite the impact of the global chip shortage, our share in the high end market segment has risen. As of June 30, 2021, we have covered more than 9,300 RS dealers, including about 500 luxury brand dealers such as major Germany major German larger brands including B and F, BMW Mercedes and Audi and also Lexus. As NEVs are becoming more popular, the penetration rate of NE fees in China is expected to further increase. Meanwhile, in an effort to address the global climate change crisis, China has officially announced its carbon emission peaking and neutrality goals for 2,030 and 2,000 and 2,030 We have always believed in the future of NEVs and our business model is highly consistent with that of NEV manufacturers. We are committed to supporting NEV makers to realize the last mile of their direct sale model by leveraging our extensive dealership network in the lower tier markets.
At present, Cango is Li Auto's nationwide service partner and also covers all of Tesla's stores in Shanghai. We also work with Xiaoteng, GAC, New Energy and other NEC manufacturers on transactions, financing insurance and delivery services and so on. Looking ahead, we expect a global chip supply shortage in the auto industry and impact from domestic financial regulatory changes to continue in the second half of twenty twenty one, which may create challenges for our business. But we will continue to execute our strategies and uphold our commitment to facilitating easy and enjoyable car purchase experiences. We remain dedicated to our goal of building an auto service platform of choice for consumers.
Next, I will turn over to our CFO, Michael Zhang, to review our financial performance in more details.
Thanks, Xiaoyuan, and hello, everyone, and welcome to our Q2 2021 earnings call. Before I started to review our financials, please note that unless otherwise stated, all numbers are in RMB terms and all percentage comparisons are on a year over year basis. Our Q2 financial performance was in line with our expectations. Total revenues came in at 946,700,000 more than 2 pulling from a year ago. Revenue from card trading transactions were 522,500,000 continuing to serve as an important revenue contributor.
Revenue from automotive financing facilitation and upmarket services facilitation were $303,300,000 $51,900,000 respectively. While uncertainties stemming from global chip supply chain disruption are ongoing, we remain committed to improving our operating efficiency, while continually investing in business to deliver more value to our dealers, partners and users. Now let's move on to our costs and expenses during the quarter. Total operating costs and expenses in the Q2 of 2021 were $933,500,000 compared to $207,400,000 in the same period of 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 car 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 Q2 of 2021 compared to the same period of 2020.
Cost of revenue in the Q2 of 2021 increased to RMB697.8 million from RMB102.8 million in the same period 2020. As a percentage of total revenue, cost of revenue in the Q2 of 2021 was 73.7% compared to 37.5% in the same period 2020 and the change was primarily due to an increase in the amount of car trading transactions. For automotive financing facilitation and upmarket services facilitation, cost of revenue as a percentage of relevant revenues was around 41.6% in the Q2 of 2021. Sales and marketing expenses in the Q2 of 2021 were $60,900,000 compared to 40 $2,400,000 in the same period 2020 as a percentage of total revenue. Sales and marketing expenses in the Q2 of 2021 was 6.4% compared to 15.5% in the same period 2020.
General and administrative expenses in Q2 2021 were $64,700,000 compared to $66,000,000 in the same period of 2020. As a percentage of total revenue, general and administrative expenses in the Q2 of 2021 was 6.8% compared to 24.1% in the same period of 2020. Research and development expenses in the Q2 of 2021 were $15,600,000 compared to $12,900,000 in the same period 2020. As a percentage of total revenues, research and development expenses in the Q2 of 2021 was 1.7% compared to 4.7% in the same period 2020. Net loss on risk assurance liability in the Q2 2021 was $35,900,000 compared to a net gain of $42,900,000 in the same period 2020.
Net loss on risk assurance liability in the Q2 of 2021 was mainly due to an uptick in delinquent loan balance and default rate since the beginning of 2021. We recorded income from operations of $13,200,000 in the Q2 of 2021 compared to 66 $700,000 in the same period of 2020. Due to the fair value change of the company investments in Li Auto, net income in the Q2 of 2021 was 557,700,000 adjusted net income in the Q2 of 2021 was $578,300,000 On a per share basis, diluted net income per ADS in the Q2 of 2021 was 3.75 and diluted non GAAP adjusted net income per ADS in the same period was 3.89. Moving on to our balance sheet. As of June 30, 2021, we had cash and cash equivalents of $1,500,000,000 compared to $1,600,000,000 as of March 31, 2021.
As of June 30, 2021, the company had short term investments of 3 $100,000,000 compared to $2,600,000,000 as of March 31, 2021. Looking ahead to the Q3 of 2021, we expect our total revenue to be between $700,000,000 $750,000,000 Please note that this forecast reflects our current and preliminary view on the market and operational conditions, which are subject to change. This concludes our prepared remarks. Operator, we are now ready to take questions. Thank you.
Thank you, sir. We will now begin the question and answer session. And the first question we have will come from Shelly Wang of Morgan Stanley. Please go ahead.
Hi. I'm Sherry from Morgan Stanley. I have three questions. The first question is about your guidance for revenue in Q3, RMB 700,000,000 to RMB 750,000,000. How much of that is from card trading and transaction business?
And could you comment on the impact of chip shortage on these numbers? The second question is about the gross margin for card trading transactions. Did gross margin increase thanks to the or due to the car supply I mean the trip supply car supply shortage? And the third question is about the some metrics of provision that is in Q1 and Q3, I noticed these metrics of risk assurance liabilities and also provisions. So could you comment on the trends of these two metrics in the future?
I will ask Michael Zhang, our CFO to address your questions. Thank you, Shirley, for your questions. Let me take your first question first. Well, about our revenue guidance for Q3, in terms of contribution from car trading transactions to our Q3 revenue, we expect it to be at about 55%. So basically in line with the development in Q2.
In terms of absolute number for revenue guidance, we expect the car trading transactions contribute about
the RMB
400,000,000 to the total revenue. And the second part of your first question, that is the factors impacting on our guidance for car trading transactions. Well, I would like to answer this question from 2 perspectives. Firstly, on supply side. Actually, the chip supply shortage does have a big impact on our cost trading transactions.
And in Q3, we expect the shortage of car supply to have quite a big impact. And also we expect the car supply shortage to gradually cascade down from the forest stores in Tier 1, Tier 2 cities to non forest stores in the lower tier cities. So in fact, we expect bigger impact on the lower tier markets. In the first half, thanks to historic stock of cards, we still enjoyed quite a strong business growth in the first half. However, in Q3, we expect the car supply shortage to continue and the impact will be more significant than in the first half of this year.
And secondly, on the demand side, well actually in Q2 in the lower tier cities, the demand for new cars have been quite weak. So this has quite a big impact on our small dealers partners as well as on our car financing transactions. And to answer your second question on the gross margin of car trading transaction business. Well, actually the main factor impacting on the gross margin is the car models. That is for popular car models, usually the gross margin for us is lower because OEMs when they price these popular car models, they usually don't give a lot of room for negotiation.
And for unpopular car models, however, the gross margins could be higher. And so in terms of the factors impacting gross margin of our car transaction business, really is not about the trip shortage. It's in fact more about the car models. And the second point I'd like to make is that on Cango's side, well, car trading transaction business is a new strategic business line for us and it is still developing. So in order to encourage the development of this new business and in order to better control risks and improve operational efficiency, we focus on the popular car models so that in the short term, we could drive up the sales and also the growth of these business lines.
In addition, we are offering the smaller dealers attractive general attractive gross margins in order to help them drive up sales on that side as well. So in terms of gross margin as a whole, for us, when we consider pricing, we maintain a stable and robust pricing strategy with two purposes as I described. That is to, 1st of all, ensure that the current stock of cars will quickly be sold off. And secondly, to ensure that the small dealers have attractive enough gross margin to stimulate their business growth. So overall speaking, the gross margin of car trading transaction business line is steady.
And your third question about risk assurance liabilities as well as provisions. Well, what I would like to emphasize is that actually in Q4 last year, in order to facilitate innovation of our business models, we changed and upgraded our procedures and processes for some of our products as well as the user experience. So but such measures and such strategies did have a negative impact on the overdue ratios of our assets. So but however, since then, actually since Q1 this year, we have also made a strategic adjustment. So we expect that the negative impact on the current on the stock assets to continue into Q3 this year.
However, by the end of Q3, we expect the overdue ratios to improve. Thank you for your questions.
The next question will come from David Pan of Goldman Sachs.
Thank you. First of all, congratulations on the management to the management on your strong performance and also a strong progress in Q2 despite the challenges in the overall market. So I have 2 questions or 3 questions mainly. The first question is about the business performance of the auto loan facilitation business and also the aftermarket business. Well, in the second half, I mean, in Q2, we had noticed that the revenue from the auto loan facilitation business almost doubled and for and the revenue from the aftermarket services remained flat.
So could you give us more colors on the reasons for such performance? And also could you share with us your outlook for future trends and also the factors that will impact on the revenue performance in the future? And second question is about NEVs. In your presentation, you talked about your partnerships with Z Auto, Tesla and also Shelltang and other NE fee makers. So could you share with us more information on the type of services that you offer to these NEFE makers?
And also how do these partnerships on these services contribute to your financial performance, for example, to revenue growth? And could you share with us the specific impact on your car trading business line and auto loan facilitation business line as well as aftermarket service business line respectively? And also the third question is about your outlook for Q3, the second half as a whole. Okay. So I will take your first two questions.
The first question about the insurance that is the aftermarket services business line. Well, because of the pre liberalization reforms in the China market, the business models of insurance companies saw big changes over the past over I mean the business models of insurance companies have since seen big changes. So for us, how to meet the new challenges and how to better partner with insurance companies and adapt to the new business models, these have been issues for us to address. So that's why the our insurance business hasn't been growing as we expect it to be? And the second question, our partnership with NEV makers including D Auto.
Well, for D Auto specifically, for our car financing transaction business, our system for this of this business is in fact directly incorporated into the sales app of Li Auto. So for example, when a customer of Li Auto makes an order offline, the information is that right they're fed into our system and then we can provide the necessary services for to the Li Auto customer service. And the same principle applies to the car insurance business. For example, we help liaison and connect with the insurance local insurance companies And then we feed the information into the auto insurance business system and then the customer service the service employees of Li Auto Land will see the information on their sales app. So we offer 1 stop car insurance services as well.
However, our partnership model with Xiaopeng is different from that with Li Auto. With Xiaopeng, well, first of all, on our side, we collect customer orders and relevant information in our system. And then we bulk purchase the cars from Xiaoping. So in the process, we also provide financing products as well as insurance products to the customers. I think that's all from my side.
We have no further questions at this time. I will hand the conference call back over to management for any closing remarks.
Okay. Thanks. Myola?
Thank you, everybody. That closes today's earnings call.
And we thank you, ma'am, and to the rest of the management team for your time also today. Again, the conference call has now concluded. At this time, you may disconnect your lines. Thank you, everyone. Take care and have a great day.