Lotus Technology Inc.

and thank you for standing by. Welcome to the Flow Technology in First Half 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. Please be advised that today's conference is being recorded. I would now like to hand the call over to your host today, Ms. Demi Chang from the company.

Thank you, Desmond. Good morning, good afternoon, and good evening, everyone. Thank you for joining Lotus Tech's second quarter and first half 2024 earnings call. I'm Dani Zhang, the head of IR at Lotus Tech. I'm honored to introduce company management with us today, CEO Jinfo Feng and CFO Alexis V. On today's call, we'll start with the prepared remarks from CFO Alexis first, and the CEO, Mr. Feng, will join for Q&A. Before we continue, please be reminded that today's discussion will contain forward-looking statements pursuant to the safe harbor provisions of the U.S. Private Securities Legislation Reform Act of 1995. Forward-looking statements involving inherent risks and uncertainties. As such, the company's actual results may be materially different from the views expressed today. Further information regarding risks and uncertainties included in relevant filings of Lotus Tech with the U.S. Securities and Exchange Commission. The company undertakes no obligation to update any forward-looking statement except as required and applicable law. Please also be noted that our earnings press release and this conference call will include disclosure of unaudited gap with financial information as well as unaudited non-gap financial measures. Please refer to our press release which contains a reconciliation of unaudited non-gap measures to comparable gap measures which you can find at ir.group.com. With that, I'd like to turn the call over to our CFO, Alexis, please.

Thank you, Demi. Good morning, good afternoon, good evening to everyone for your attendance today. My name is Alexis Lee, and I'm the CFO of Lotus Tech Inc. Now let me go to the slides, please. Thank you. I want to begin by saying the company delivers approximately 4,900 units of vehicles with a total revenue of $398 million and a half, of which both are record first half year numbers in the 76 years of the Lotus history. Just under 2,700 units were delivered in the second quarter, up 128% year-over-year and 22% quarter-on-quarter. If you look at the center, you will see that the second quarter sales revenue was about $225 million, up 103% year-on-year and 30% Q-on-Q. Most notable is the new revenue stream from ADA's technology-related income, which is very high margin. Besides Lotus models, other reputable brands of passenger and commercial vehicles will be rolling with our in-house developed ADAS across the board. To your right hand side, you will see that gross profit margin was 13% in the first half, a step up versus the 5% achieved in first half 23. But this number is lower than the 15% by the end of last year. To quantify the decline, it was mainly due to the inflationary impact to the cost of Emira sports car. Notable growth comes from gross margin of service revenue, which was about 58% in the first half of this year, versus 16% same period last year. This is mainly contributed by ADAS-related revenue. Next slide, please. To your left, you'll see that Our EVs, which is mainly electric, SUV model, and partly EMEA, the GT sedan model, contributes approximately 50% of total volume, while the EMIRA sports car's sales contributes the remaining. Demand for EMIRA sports car in the US market is strong, given well-established sales network and brand recognition. The chart in the middle and the right shows the very balanced vehicle delivery and the retail network distribution across the world. Europe, including UK, is home base. It remains the biggest contributor to volume and revenue given our British heritage. China is new market to Lotus and contribution expanded from 1% in 2018 to 25% of total vehicle delivery and retail stores after six years of continuous investment and efforts. Contributions from the rest of the world is trending up from recent deliveries of electric SUV model in many new markets. And new production orders for the third quarter delivery is likely to further increase its weightage contribution. Next slide, please. In terms of global distribution, China is the only market operator under direct customer model, while the others operate through retailers and wholesalers. many with long-standing relationships with the company. The US market remains as the key market for heritage sports cars. Given the trade uncertainties, the company will target the ultra-luxury segment with limited editions and performance variants EV models for brand positioning and profitability. Europe, including the UK, is home-based. and through our arrangements, more than 300,000 charging stations are now accessible for Lotus drivers to charge their vehicles. Given that Lotus is an early mover in electrification, ESG-sensitive conglomerates for fleet purchase of luxury, courtesy cars are potential growth opportunities for the company. China is a new market to Lotus. and the only market operator under direct-to-customer model. Contributions in terms of volume and revenue exceeded 25% after six years of intense investments. CapEx cycle already peaked out and through strategic partnership with NIO, Lotus drivers can assess 23,000 chargers across China, of which some of them are fully robotics. Lotus is well recognized in rest of the world regions. for its F1 heritage and racing history, especially in the GCC region and other parts of Asia. The market is fragmented and operates under the distribution model, which is asset-like with very fast-growing Generation X customers for growth. The market is also least impacted by any trade uncertainties. Coming to our financial highlights, total revenue for the first half was $308 million, a 206% year-over-year increase. Sales of goods was $383 million, a 207% year-over-year increase. Sales revenue was $15 million, a 104% year-over-year increase. Gross margin for the first half was 13% versus 5% in the first half last year. Gross margin of sales of goods was 11% versus 4% first half last year. Gross margin of service revenue was 58% versus 16% in the same period last year. Operating loss was $438 million for first half this year, 27% yearly increase. Net loss was $460 million, excluding share-based compensation and expenses adjusted net loss non-GAAP was $424 million, a 20% year-over-year increase. Adjusted EBITDA loss non-GAAP was $382 million, 15% year-over-year increase. To the right-hand side is the quarterly numbers. Total deliveries was 2,679 units, 128% year-over-year increase. Total revenue was $225 million, 103% year-over-year increase. Gross margin was 9% versus 5% same period last year. Net loss was $202 million, a 4% year-over-year increase. Now excluding share-based compensation expenses and adjusted net loss, non-GAAP was just $201 million. Adjusted EBITDA loss non-GAAP was $177 million, a 1% year-over-year decline. Next slide, please. In the first six months of this year, Lotus is the fastest-growing British luxury heritage brand, with deliveries just behind Bentley and ahead of Rolls-Royce, Aston Martin, and Lexus McLaren. This is mainly driven by four models in delivery, and include our electric SUV model, our eMira sports car model, our eMaya GT sedan model, and eVaya, our Hello sports hypercar. Despite faster than segment and industry growth, we kept our ASP above $100,000 per unit to protect our pricing integrity and brand equity value. We not only launched the bespoke Chapman Bespoke Services, which offers personalization and customization services to our customers, but also began the production of the one of Evia Fitipaldi model and the delivery of the EMEA Blossom Limited Edition model. Both electric SUV model and the EMEA GT Citar model won the Red Dot Awards for Product Design and other achievements to add to the model's desirability with our customers. Business sustainability wise, the company was nominated as the finalist in the Reuters Sustainability Award 2024 in two categories. Number one for business transformation and number two for operations transformation. Last but not least, our wholly owned subsidiary Lotus Robotics started to capitalize on years of investments by providing end-to-end intelligent driving solutions and R&D services to multiple leading OEMs. Next slide, please. Besides embracing on electrification, Lotus is also the pioneer among traditional luxury OEMs to spearhead into digitalization and smartification. While you understand the fun in driving any past and present Lotus models. We also want to accept the right level of technologies to enhance roading safety for our drivers and their passengers, the riders. As flagged previously, our customers can opt for level 4 ADAS hardware on their new orders of electric SUV model and the EMEA GT sedan model. With that, they can subscribe to Highway NOA or the Urban NOA to enjoy the ride after a tedious day. More importantly, program updates are done through OTA, and they are hassle-free. As announced recently, our wholly-owned subsidiary, the Lotus Robotics, started to deliver end-to-end intelligent driving solutions and R&D services to leading OEMs. for both the passenger vehicles and commercial vehicles segment, such as the heavy-duty trucks for interstate logistics and vans for intra-city dispatch services. Sales revenue from this high-margin business was slightly more than US$10 million in the first half this year, and is likely to fall between US$30 million to US$50 million for this year. Future growth of our business will be driven by income from more paid subscriptions of our ADAS across the world. We value our for the drivers brand mission and put them into action. We not only launched the Chapman Bespoke in the first quarter, which offers personalization and customization services, but also began the production of the pinkish EMEA Blossom Limited Edition model. This collection features rare gradient painting and 42 natural sapphires on the instrumental panel, which gotten a lot of attention from our customers. We also began the production of the one of EVAIA Fittipaldi model to celebrate race legend Emerson Fittipaldi's 50 years of achievement and hope to reconnect the F1 passion with tens of millions of fans across the world. Next slide, please. Coming to our guidance, we revised our FY24 full year guidance delivery target to 12,000 units to reflect the latest assessments of the market conditions and trade uncertainties posed by the new tariffs in the US and the EU region. Our latest target pointed to more than 70% year-over-year growth, making Lotus potentially the fastest growing heritage luxury car brand in the market. We aim for 3,000 to 4,000 units of quarterly deliveries in the second half of this year, a step up versus the 2,200 and the 2,700 units achieved for first quarter and second quarter respectively. This said, the company will keep price discipline to protect our brand equity value and desirability. More importantly, the resale value of our past and present models and to ensure quality customer experiences. We are also in the process of recalibrating our product strategy to explore ways for faster and easier go-to-market globally, which we will share more details later. To your left are recent updates on our model delivery. Most notable is the up-and-coming delivery to the GCC region, which used to be one of the most popular destinations given our F1 heritage and racing DNA. Our customers from key markets, such as Korea and Japan, should also receive their electric SUV model in the quarter this year, while others can make reservations for the IMEA GT sedan model. Next slide, please. Management team initiated on the WIN26 plan, which targets positive operating cash flow and EBITDA. in 2026. The plan includes more than 30,000 units of annual deliveries in 2026 with more than 20% gross profit margin. In order to achieve this target of better profitability and stronger balance sheets, the company will not only adopt price discipline, but also increase blended ASPs through mix of more limited edition models and bespoke services. Given the maturity of our ADAS, our AI, our SaaS business, our Lotus Robotics subsidiary will undertake more high margin IP licensing and R&D services. Given the number of OEMs we partner and their model launch plan, the number of costs equipped for ADAS are expected to more than double every year. As the cost pools expense, the higher take-up rate of paid subscription for ADAS means potentially more income for the company. Coming back to the operation side, streamlining for better efficiencies will support our cost measures, especially through waste reduction to generate profitability. Achieving our win 26 is the base case for the company and the management. to deliver our commitments such as dividend payouts to our shareholders and investors. Next slide, please. Coming back to our product pipeline, it's important to flag that four models are currently available. Two more models will be launched in 2025 and 2026 respectively. These models will begin delivery in 2026 and 2027 respectively, from PRC to UK, EU to rest of the world, then followed by the US. The plan is to work with our global retail network for our customers to test drive after the launch and to make reservations for future deliveries. To your right is the progressive volume expansion of which the yellow highlight marks 100% availability. Both models of sports car EVIA and the eMIRA are available in 100% of the markets today. Only 80% of the markets will be able to receive their electric SUV deliveries this year, while 50% of the markets will receive their eMIRA GT sedan deliveries this year. This said, 100% of the markets will receive the electric SUV model by 2025, and 100% received the EMEA-RGD-SEDAN model by 2026, instrumental to our achievements of the WIN26 plan. The two new models will start to contribute in FY26 revenue, but they will be major contributors to the company's profitability and growth towards our ADF anniversary in 2028. Next slide, please. Vision 80 starts from 2018 till 2028. And by then, management's view is for 4% market share in the luxury segment, which is priced above $80,000 per unit. This is done through product lineup expansion from previously a niche sports car segment player to the full range of SUV GT sedan models Revenue profile will expand from just traditional car sales new and used options aftermarket to new high revenue high margin revenue streams such as technology IP licensing ADA subscriptions Chapman bespoke customizations charging services, and potentially in-car purchases through our operating system OS. The company aims for 30% gross margin and targets more than 10% EBITDA margin. Management team is committed to the growth and plan to deliver cash and profits to our shareholders. Thank you for staying with me, and we appreciate your attendance today. We look to deliver our cars to Lotus drivers and dividends to our shareholders. I'll pass it over to Demi to close the Q&A session. Thank you.