Good day, and welcome to the Cheche Group Third Quarter 2024 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Crocker Coulson, Investor Relations for the Cheche Group.
Please go ahead.
Thank you, Betsy. Hello, everyone. Thanks for joining us to review Cheche's 2024 third quarter results. This morning, Cheche posted both the earnings release and a related investor presentation to our website, which you can find @ ir.chechegroup.com. With us on the call today are Lei Zhang, Cheche's founder and CEO, and Sandra Ji, Cheche's Chief Financial Officer. After the prepared remarks are concluded, we're going to open up the call for any of your questions. But before we begin, some statements in this conference are forward-looking within the meaning of federal securities laws.
Although management believes these statements are reasonable, we can provide no assurance that they will prove to be accurate because they are prospective in nature. Actual results could differ materially from those we discuss today.
Therefore, we'd like to encourage you to review the most recent filings with the SEC for risk factors that could materially impact our results. As I mentioned, the earnings release is available on ir.chechegroup.com. We encourage you to review, in addition, the reconciliations of certain non-GAAP measures contained within that. With those formalities now out of the way, it's my pleasure to turn the call over to Lei Zhang, CEO. Lei, please go ahead.
Thank you, Crocker. Hello, everyone. We are so glad you have joined us. The third quarter was a notable quarter for us. Cheche's results reached a profitable inflection point, recording net income on both a GAAP and adjusted basis. The company's shift to profitability serves as a concrete proof that our compelling value proposition and the focus on efficient operations are paying off. Cheche continues to offer the largest auto insurance technology platform in China.
We lead the industry by providing customized intelligent software and embedded insurance that gives consumers great choice and convenience. Between 2021 and the third quarter of this year, Cheche has provided quotes for almost 50 million vehicles, plus over $9 billion in written premiums, and collaborated with 100 insurance carriers. Chinese NEV manufacturers continue to lead the world in production and sales.
Between January and October of this year, Chinese NEV makers sold 1.7 million vehicles, an increase of 34% over the prior year. N EV sales overtook conventional ICE autos in July 2024, and they now make up the majority of new vehicle sales each month. This change in the market has profound implications for the auto insurance ecosystem. Auto insurance is increasingly sold and renewed through OEM apps and vehicle screens rather than traditional brokers. Cheche currently partners with 14 different NEV manufacturers, including most of the largest industry players.
We anticipate that over the next three years, premiums generated through OEM channels will exceed RMB 200 billion. According to analysts at BOCOM International, premiums for NEV insurance are expected to approach RMB 500 billion by 2030.
The top three auto insurers realize they need to participate in this market, but they are struggling to make money due to higher accident rates and higher claims ratios of NEV. However, the Chinese government has recently widened the band for different pricing, providing insurers with great latitude to reward positive driver behavior. Cheche's platform offers capability for more personalized auto insurance pricing. We also enable NEV manufacturers to automate claims management and repair routing to validate claims, manage the cost of repairs, and reduce the risk of fraud.
At the end of the third quarter, the number of embedded policies sold on Cheche's platform was up 140% year- over- year to 200,000 policies. NEV gross premiums grew 120% from prior year to $126 million over the same period.
We launched the customized system for Baidu Jiyue, which offers a variety of products and solutions both online and offline. As the NEV industry matures and underwriting become more precise, the sustainably higher margins of our growing number of NEV policies will become apparent as revenue mix shifts. Our agreement with Great Wall Motor Company Insurance Company provided our transaction system to support its direct sales network in more than 20 cities nationwide. We plan to develop additional solutions for traditional automakers within the next 24 months.
Partnerships with insurance carriers are another essential component of our strategy, while we have maintained long-term relationships with mainstream insurance companies in China. This quarter also marked our first collaboration with foreign-owned insurance carriers, as we signed an agreement with Tokio Marine, a Chinese subsidiary, enhancing our service capabilities and opportunities to scale.
We are also launching new SaaS and data analytics tools to enable medium-sized insurers to compete more effectively in underwriting auto insurance for both NEV and ICE vehicles. Expanding the number of active participants in the market is essential to bring the benefits of competition to consumers. Looking ahead, our technology roadmap prioritizes NEV manufacturers and embedding ourselves across the life cycle. As Level 2 to Level 3, self-driving and above become more common on China's roads.
OEMs and insurers will increasingly need to determine if the cause of the accident is the result of human error or failure of the autonomous driving system. Cheche will play the role of the trusted third party by embedding this critical data on an independent authority platform so that OEMs, insurers, and consumers can have higher confidence in the assignment of liability.
Our unique perspective and comprehensive capabilities contribute to a thriving digital insurance industry that adds value for our partners. In the long term, we are working to extend our partnerships with auto manufacturers beyond China and into additional regions such as Southeast Asia and the Middle East. Given our broad experience and success in China, the most substantial NEV market in the world and inherent data within our platform would provide us with advantage over local insurance companies when underwriting embedded policies in this region.
Having deep confidence in the company, I intend to continue purchasing shares in the open market during available trading windows. Moreover, the company is planning to adopt a share buyback plan once the board approves it. We are delighted with our completion and look forward to capitalizing on the future opportunities. I will now turn the call over to our CFO, Sandra. Thank you.
Thanks, Lei. I want to begin by touching on our third quarter operational and financial highlights before taking questions. The total written premiums placed for this quarter increased 4% to RMB 5.9 billion, or $800 million. The total number of policies issued grew 5% in this quarter to 4.2 million. As Lei mentioned before, 292,000 policies and RMB 884.2 million of corresponding premiums were embedded in NEV deliveries, growing 149.6% and 121.6% respectively year- over- year. Currently, the insurance policies on NEVs enjoy lower commission rates than ICEs due to the reduced profitability of insurance carriers.
However, we can secure significantly higher margins on these policies. That means we may have positive implications for our bottom line as the mix shift continues.
In terms of our net revenues, we generated RMB 850.5 million, or $121.2 million in the third quarter, an increase of 3.3% year over year. The cost of revenues in the third quarter was RMB 808.1 million, or $115.2 million, up 3% from the prior quarter. We also reported a 53.6% drop in selling and marketing expenses to RMB 18.1 million, or $2.6 million, primarily due to decreased staff costs and share-based compensation expenses.
The general and administrative expenses were also lower this quarter at RMB 20.4 million, or $2.9 million, from RMB 34.8 million in the prior quarter, mainly due to decreased share-based compensation and professional service fees. The research and development expenses decreased 24.5% to RMB 10.2 million, or $1.4 million, mainly driven by lower share-based compensation expenses and partial offset by higher staff costs.
The total cost and operating expenses decreased by 1.8% to RMB 856.8 million, or $122.1 million, from RMB 872 million in the prior quarter, mainly due to the decrease in share-based compensation expenses and partial offset by increase in cost of revenues. Excluding share-based compensation expenses, amortization of intangible assets related to acquisition, and listing-related professional service fees, the total adjusted cost and operating expenses increased 3% from the prior year quarter.
Net income turned positive for this first time in the quarter, resulting in RMB 4.1 million, or $0.6 million, compared to the RMB 55.4 million loss in third quarter of 2023. Adjusted net income for this quarter was also positive, improving to RMB 2.6 million, or $0.4 million, from RMB 0.6 million adjusted net loss in the prior year quarter.
Turning to our balance sheet, we reported RMB 194.6 million, or $27.7 million in cash, cash equivalents, and short-term investments. As for guidance, we are affirming our 2024 four-year guidance. The full-year net revenues are expected to range from RMB 3.5 billion-RMB 3.7 billion, representing an increase of 6.1%-12.1% compared to the four-year of 2023. Total written premium placed are expected to range from RMB 24.5 billion-RMB 26.5 billion, representing an increase of 8.4%-17.3% compared to the four-year of 2023. With that, we'll be happy to address your questions.
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. The first question today comes from Allen Klee with Maxim. Please go ahead.
Hello. Congratulations on very strong results and everything you're doing. Your profitability came over a year and a half earlier than what I was modeling, so quite impressive. My first question has to do with your partnerships. You said you have 14 NEV companies now, and you're expanding with insurance companies. How do you think about kind of, as you sign these, how they ramp up and can help translate into revenues?
Okay. Yes. I will answer in Chinese. Thank you. My colleague can translate it to English. 14家公司，其实就是我们的主机厂，对吧，合作的。那未来的话，我们会继续和一些主要的车企进行服务。比如说，我们现在已经跟BYD的一些品牌，像腾势和方程豹，两款车已经开始尝试去合作。未来可能会扩展到比亚迪的其他的品牌。就是类似的这种车企都是我们未来的重点合作伙伴。先这样吧。
As Allen you just mentioned, right now we are cooperating with 14 OEMs. We are providing insurance transaction services for them. We are actually working to extend our scope of partnership with existing brands. For example, we are currently providing services for two vehicle models for BYD, and in the future, we plan to extend to provide more services for their more brands.
That's very positive. Thank you. You mentioned that for NEVs, the rates are lower since it's a less profitable business for the insurers, but your company can get better profitability out of them. Could you just explain why that is?
Okay. 其实现在对于NEV电动车来说，保险公司的整体的赔付率和COR综合成本率都是比较高的。但是对于我们来说，我们不承担相应的赔付风险。我们作为车企和保险公司之间的第三方的这样的一个平台公司，其实可以帮助两端获得双赢。一方面帮助保险公司获得更多的新能源车主，另外一方面可以帮助车企通过数据、通过模型获得更好的价格，就是保费的更优惠的价格。所以我们在这里面实际上会持续地有业务快速地增长，而且有很好的盈利能力。
Okay. So basically for the NEV insurance, the COR is high, and also the claims ratio is also high. But for us, we do not take the risk of claiming. We are a platform company. We help the insurance companies and the OEMs to create a win-win situation. So through our platform, we can provide the OEMs to provide a better pricing for their car owners through our models, and we can provide a better and more cheaper insurance prices. So that's why we believe that we're going to have a huge increase in this market, and we're going to have a strong profitability.
Thank you.
Thank you. You talked about self-driving and how you're employing that technology to give greater confidence of what might have caused a potential claim, an accident. Can you explain what you're actually providing and how you're thinking about rolling this out?
Okay. 其实有两个方面。第一方面就是因为我们可以和NEV的这种制造商，就是车企，共享相应的数据，特别是现在的新能源车都是一个智能终端，都是个智能网联的汽车。所以这些数据有助于提高理赔的效率，降低相应的风险。所以这一块是第一个方面，我们可以共享相应的数据。第二方面的原因就是，当智能驾驶现在普及的时候，就是我们所谓的L2到L3，那么在中国，20万以上人民币的NEV的车，70%都已经配备了L2以上的智能驾驶服务。所以当智能驾驶发生了交通事故的时候，我们可以快速地帮助保险公司和车企判定责任是人为造成的还是智能驾驶的机器造成的。这两个能力都是在业界遥遥领先的。
So basically, there are two aspects. The first one is we are sharing the data with the OEMs because, as we all know, the NEVs, they are embedded with intelligent devices. So our data could help to improve efficiency as well as decrease risks. And that's the first one. The second is intelligent driving is becoming more and more popular. And as you can see, the Level 2 to Level 3 is becoming more popular in China. So basically, there are around 70% of NEVs equipped with intelligent driving services.
So when an accident occurs, when the intelligent driving is working, we can help to decide whether this accident is because of the driver or is it because of the equipment going wrong. So that's our capability. And basically, we are leading in this industry. Thank you.
That's great. Thank you. You talked about potentially expanding within Southeast Asia, Middle East. Do you think that would the way that could potentially happen is creating an online marketplace in other countries, or would it be something else?
Okay. 其实我们出海的这个业务扩展，特别是在东南亚还有中东地区，包括有一些欧洲国家，我们都是跟随现有的客户。比如说我们现在服务的14家的主机厂车企，他们的车出口到全球的时候，我们会帮助他在当地建立和本土 local的这种保险公司的联系，搭建相应的系统和软件，并且提供全流程的运营服务。
So basically, as for our expansion strategy, we have just mentioned the Southeast Asia, the Middle East, and even some countries in Europe. We're actually doing this following our existing clients, such as the 14 NEV makers we just mentioned. When they are going abroad, when they are going overseas, we follow them to go overseas. We can help these NEV makers to build connections with the local companies, just like what we did in China, and we can provide the systems and software and a full suite of operation services as well. Thank you.
Thank you. Could you talk about how non-auto insurance and your SaaS offerings, how they performed, and how you're thinking about those two areas strategically to potentially grow them?
对于非汽车保险，也是我们现在的一个产品线。那么有几种形态存在。一种就是，比如说跟车相关的人员的意外险，驾驶人员的意外险，会和我们的车险捆绑销售。第二种就是面向于他的家庭财产保险，还有一些个人的健康保险等等，这些都是我们的一个延伸的产品和服务模式。
So, for the non-auto insurance, we have several lines. And the first one is the insurance products that are related with autos. For example, the liability insurance. Basically, they are sold bundled with the auto insurance. And the second one is the property insurance and health insurance. These are all the extensions of our product and service model. Thank you.
Okay. Those are my questions. Congratulations again. Thank you very much.
Thank you.
Thank you.
The next question comes from Steve Silver with Argus Research. Please go ahead.
Operator, thank you for taking my questions. So looking at the quarter, the growth in revenues outpaced the growth in gross expenses. So it looks like the gross margin continues to be around the 5% range. I was curious as to your thoughts about the expansion of gross margins over time as the platform continues to bring new value-added services onto the platform. And then similarly, on the operating expense line, do you expect the operating expenses to continue to decline as a percentage of revenues moving forward? Thank you.
Thank you. This is Sandra. I will answer this question. Yeah, you're quite right. Actually, we are quite confident with the gross margin. Yeah. We believe the gross margin of our business will be keeping increasing along with the mix of our revenues changes. As we mentioned, because we enjoy a way higher margin in NEV insurance market than in ICEs. So that means the more business from NEV insurance, the higher the margin we will have. So that's the logic. And apparently, yeah, that will become reality soon because our total business gross rate is only single digits.
But as for the NEV insurance market, the gross rate is over 100%. So that means the NEV insurance revenue will come for more and more percentage from the total picture. That's the logic.
Besides that, as they mentioned before, we are also planning to launch new SaaS and data analytics tools related to NEV insurance to the market. That will bring more high-margin revenue to our total picture. Yeah. So that's another factor. We will contribute to our gross margin growing in the future. But in the short term, the gross margin may fluctuate on a quarterly basis due to the different market conditions in short term. But definitely, for the long term, the growing trend will be not changed. So the gross margin rate will be increasing going forward. Thank you.
Okay. Thank you so much for the color, and my congratulations on the quarter as well.
Thank you.
As a reminder, if you would like to ask a question, please press star, then one to enter the question queue. The next question comes from Ruoyu with CICC. Please go ahead.
Thank you. And congrats on the Q3 results. And I have three questions. The first is, how much do you believe in the near future would NEV insurance account for the total motor insurance market? And second is, within the NEV insurance market, how much do you believe it comes from NEV manufacturers related or affiliated insurance? 对，我在恭喜管理层这个三季度的业绩很亮眼。然后我这边主要是两个问题。第一个是，就是咱们觉得未来这个车险里面大概会有多少是来自于新能源车的？因为毕竟两类产品的其实保费价格是比较大差别的。
然后另外一个就是新能源车险内部它大概有多少会来自于主机厂相关或者说自有的这些保险公司的？谢谢。
谢谢。从目前的预测来看，我们觉得新能源车险去年突破了1,000亿。今年我们会认为接近1,500亿人民币。那么中国车险市场现在是8,800亿左右。所以我们认为三年后新能源车险会占到40%到50%，也就是4,000亿到5,000亿的规模。这是第一个问题。谢谢。
So basically, we can see from the current forecast that NEV insurance in last year has reached CNY 100 billion, and this year it's expected to reach CNY 150 billion. So basically, we expect that in the following three years, NEV insurance will take around 40%-50%, basically half of the total insurance market, auto insurance market.
第二个问题就是作为主机厂或者车企，目前中国的车企都非常重视保险的流量入口，因为它关系到理赔维修的收入，也就是车后服务的收入。所以现在所有的主机厂都开始采用我们的SaaS系统和运营服务。那么我们也预计三年左右的时间，车企控制的保险将会在新能源车险的占据三分之一以上。
Because of the NEV insurance, the market of NEV insurance is growing hugely. The OEMs, they are taking high value of the insurance because it's an important portal for the after-sales services. After-sales services can bring an important part of revenues to these companies. That's why they decided to work with us. We provide a system and SaaS software for them. Basically, we expect that in the following three years, the NEV insurance controlled by the OEMs will go and take at least one-third of the market.
谢谢。
This concludes our question and answer session. I would like to turn the conference back over to the company for any closing remarks.
We appreciate you taking time to join us on the call today. If you have any follow-up questions, please reach out to investor relations. Thank you. Have a wonderful day. Bye-bye.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.