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spk02: 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.
spk04: 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.
spk02: 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.
spk03: Thank you, Alexis. Operator, we're ready for Q&A.
spk02: Thank you, management. At this time, as a reminder, to ask questions, please press 411 and wait for our name to be announced. Please stand by while questions are being collected. Your first question comes from the line of Edison Yu of Deutsche Bank. Please go ahead.
spk01: Hi. Thank you for taking our questions. I have quite a few. I wanted to start on the guidance, the volume guidance. How much would you say of the reduction is related to tariffs and how much is related to other factors?
spk00: Hello, Mr. Fung, CEO of Lotus, would answer this question. Based on the original plan, the U.S. sales is 100% related to the tariffs hikes of the U.S. market, and for the EU market, about 30% of our sales is related to the tariff hikes.
spk06: The U.S. tariff increase is very big, so this year's sales in the U.S. will not be able to form. So we need to re-identify the U.S. market for product launch. In September, we will release a product in the United States. Electra will be released in the United States. At the same time, we will make a new positioning. We will also enter the U.S. market. We will not make any contributions to the sales in 2024. We will make some contributions in 2025.
spk00: And because of the tariff policies from the U.S. market, it dramatically affects our sales forecast. And we are now planning to have a repositioning of our product in the U.S. market. Next month, in September, we are planning on launch of our Elettra in the U.S. market. And for such a launch, the product will have a slight contribution to 2024 sales and more of the contribution will come in 2025.
spk06: In September, we will launch our product in the United States. By the end of December, the product will enter the United States. But the sales it brings is also the profit generated by next year.
spk00: After the launch event in September in the U.S., Elettra will enter the U.S. market at the end of this year or roughly at the end of December, and the product will contribute our 2025 performance mainly. For Europe, we are also contemplating to relaunch or reposition our product in Q4.
spk06: Specifically in Europe, we are thinking about to plan to launch different variants in this particular market. Besides that, there were also other elements affecting luxury premium vehicle segment. For example, in China, in the luxury vehicle segment, it has been affected by 50% downwards. But for Lotus, we maintained our growth momentum.
spk00: However, it does not necessarily mean that it satisfies our expectation.
spk06: Thank you.
spk01: Sorry, keep going. So follow up to that. I noticed in the press release, the company mentioned that the average selling price still is above $100,000. But can you just remind us the sort of accounting behind that? Because obviously if you just take the automotive revenue and divide it by the units, it's not over $100,000. So can you just remind us the mechanics behind the ASP again?
spk00: Okay.
spk02: Thank you. So this is on the accounting side because on the US side all the MRRs is actually accounted for with the gross margin rather than the full ASP of the cost. So as we said that we want to make sure the market is clear that the company is protecting the price integrity and not involve itself with discounting measures. to the market that would be detrimental to the brand equity value and the broader resellability of the market, yes. But from an accounting side, yes, we treat it in a way whereby the US sales is only on the margin side rather than is the full car sales revenue.
spk00: Hi, Jeff.
spk01: On the service revenue, I know it had gone down a bit sequentially, quarter over quarter. How do we think about the service revenue for the rest of this year? And I think you had mentioned that longer term, it should be, what, 30, 50 million from AS?
spk00: We face a very serious challenge in the market, especially in luxury electric vehicles.
spk06: So we need to find our second and third growth curve.
spk00: Because currently in the luxury premium EV segment, particularly we are facing or encountering headwinds. So we have to find the second or the third channel to help us to boost our revenues.
spk06: One of our growth curves is the high-end. So this year we launched this high-end strategy. and also launched a few high-end models. For example, the high-end model of FanHua and the high-end model of 3DParty not only attracted Chinese users, but also Chinese, Asian, and American users. We will also push these high-end models to China, Asia, and the US. We will cover these three markets first.
spk00: For example, we have launched our Chapman Bespoke services and the different models to the China market first, like EMEA Blossom Enchantment and also our EVEIA physicality version. They have been drawing interest from customers from China, APAC and the US, and currently we are planning to cover those three markets first.
spk06: When we release our Electra products in the US, we will also launch this high-end product.
spk00: During the Electra launch event in the US, we are currently planning. We will also, in parallel, launch our bespoke service there.
spk06: Although such models or variants of bespoke service want to give us a huge boost in sales volume, it will give us strong momentum when it comes to gross margin. The second growth curve is our autonomous driving. As you all know, Lutes is also very experienced in the field of global engineering services. With the influence of a brand like Lutes Engineering around the world, in addition to doing traditional terrain and lightweight engineering services,
spk00: Another revenue stream I want to elaborate on is our ADAS or Intelligent Driving Services. As we all know that Lotus Engineering had long experiences of offering services globally, and they have a great caliber in chassis tuning and lightweight calibration. And currently, we are developing another revenue stream through intelligence-driving solutions.
spk06: This year, our revenue in the automotive industry will reach about 400 million RMB. This is a very good, very high-performance service.
spk00: By the end of this year, we project the revenue from this stream is roughly around 400 million RMB. And it is a business that can give us a greater gross margin.
spk06: Lutus' smart driving solution is in China. We all know that China's smart driving solution is developing very fast. But Lutus is the most special and unique. We are facing a world-wide solution for smart driving.
spk00: In China, we all know that in this particular area there are fierce competition. For Lotus, we are unique as we can offer this solution globally.
spk06: Lotus's solution can cover China, Europe, the US, the Middle East and Asia-Pacific. This has received a lot of love from OEMs.
spk00: Our solution can not only cover China market, but also Europe, Middle East, and APAC, and we have already gained a lot of interest from other OEMs.
spk06: In addition to doing business within Geely, as you all know, the Z10 just launched uses the Autonomous Driving Solution for Lotus, and the Autonomous Driving Solution for Lotus is also used for the long-distance Geely commercial vehicles. In addition to the solution within Geely, we also provide technical services for Geely. At the same time, we also provide services for non-Geely, especially European OEMs.
spk00: Besides offering intelligence driving services internally within Geely Holding Group, such as Verizon Commercial Vehicle and also Lincoln Co. Z10 Vehicle, we are also offering services to non-Geely brands in EU particularly. Currently, we have already acquired a nomination of three models from one of the renowned OEMs in Europe. And there are four models by applying this intelligent driving solutions ongoing.
spk06: And I believe this is the unique edges for Lotus. We can offer one intelligence driving solutions to cover global markets. This year, again, as I previously mentioned, we project a 400 million RMB revenue. Next year and the year after next year, we believe the revenue will keep growing. And this is another important revenue channel that we are currently exploring.
spk00: And we will disclose more information regarding the nomination or the collaboration with a particular OEM from Europe.
spk06: For our intelligence-driving solutions, we believe we are very competitive in three markets, including the US, Europe, and Japan.
spk00: And those three markets will be our current focus, and we will keep exploring any potential opportunities with OEMs in those three markets.
spk06: We are currently working on the implementation of the Autonomous Driving Solution in Europe. There are a lot of OEMs participating, including Hyundai, Benz, Aston Martin, and other brands, including Volvo.
spk00: At this moment, we are carrying out to test the driving and riding experiences of our intelligent driving solutions in Frankfurt. A lot of OEMs actually have participated, including Hyundai, Mercedes-Benz, Aston Martin, and Volvo.
spk06: There are many other OEMs in Frankfurt. We will continue to have almost half a month of trial driving experience activities.
spk00: More UOMs will join this 15-day tester driving and tester riding experiences. So in summary, non-China market will give Lotus and its intelligence driving solutions edges. And those two are extra revenue streams I'd like to share with you. Thank you.
spk01: That's a great and very comprehensive overview. Quick follow-up on that specific point. How are we thinking about the economics? Is it unit-based? Is it licensing? How does the $400 million relate to the number of cars those customers would sell?
spk00: Yeah.
spk02: I don't fully understand. He means to say that this is in the end is the cost of development or to say that there is a single one.
spk06: There are two aspects of income. One aspect is the cost of development and the license fee of a single car. Half and half. The revenue will be half and half. For example, the Z10 has already been launched. The development fee has already been paid. Of course, there is still a part that has not been paid yet. With the progress of our delivery, we will open up to Z10 this year. We have already opened up all the high-end and fast routes in China. Next, we will gradually open up various cities. By the end of this year and early next year, we will open up 100 city NOAs. In this way, they will pay us development fees and license fees. Each vehicle will pay us license fees. We are all using this mode. All OEMs are using this mode.
spk00: In summary, it will be 50% of development payments and also 50% through per vehicle licensing calls. To take the 10 model from LinkCo as an example, we have already started to collect the development cost and we have already provided the support of intelligence driving solutions to freeways in China. And by the end of this year, we are going to cover more cities to about 100 cities and offer NOA capabilities on the vehicle. So development payment and also licensing payment per vehicle would be our common proposal to all OEMs.
spk06: In terms of pricing strategy, we will have different strategies. For example, the Lynk Z10 will have a large volume, so we will charge a little less for the engineering development fee. In the future, we will charge more for the license fee. And for different, we will also be flexible with our strategies for Z10.
spk00: In the future, they may have a lot of sales volume. So when it comes to development cost or development payment, it is relatively less compared with the licensing per vehicle. And for commercial vehicles, the development payment or the quotation is relatively higher compared with the licensing of vehicles.
spk06: In addition to the Z10, which has already been launched into the market, we have also received a order for the other three cars. Of course, we are now also taking the order from another company, which is a new energy company. We are also taking this order.
spk00: Currently within Geely Holding Group, besides the Z10 that I previously mentioned, we have also acquired the nomination for other three models and also one extra potential nomination or collaborative opportunities with a new brand called Galaxy under Geely Holding Group.
spk06: Of course, we are not just relying on Geely. We hope that in 2027, But for sure, we are not solely relying on Geely business. Our target is that by 2027, the revenue brought by intelligent driving will, from non-Geely side, will be accounted for 70%. Yes, thank you.
spk02: Thank you for the questions. Our next question comes from Lin Zhou from UE Capital. Please ask your question.
spk05: Hi. First of all, I would like to know that we have just introduced that we have also exported smart driving technology to Linke and another European OEM. So from a technical point of view, what is the difference between the solution we export to Linke or other brands and the solution we export to our own Lutus brand?
spk06: The software is the same. We are a set of models. On the Lynk Z10, we still can do 1 AURAIN chip and 1 laser radar. Lutz's automatic driving solution is more adaptable. We have three solutions, high, middle, and low. For example, if you use AURAIN on the Invida, We can use AORNX, AORNY, and AORNAN. At the same time, we have developed a solution for high-frequency chips that can adapt to high-frequency.
spk00: So the question is, for those intelligent driving solutions that we offered for Lotus and also other OEMs, is there any differences? And Mr. Fonsan says that the software is actually the same. Based on the same model, the difference is on the hardware. But the intelligent driving hardware will be adaptive to different OEMs. For example, for Lotus ourselves, we are leveraging two Orin chips and a four LIDAR. And for our solutions to Z10, they are using one Orin chip and one LIDAR. So we have three different levels of solutions from high, medium to low. And based on those solutions, they can be adaptive to Orin, X, Y and N. In addition to that, we have also come up with the solutions that can be adaptive to Qualcomm solutions.
spk05: Thank you. So what is the current demand and take rate for the owners of our Lutec brand? Lutec's users have a very, very high use of autonomous driving to date.
spk06: If you pay attention to our app, we have an automatic driving use ranking. You can see that Lotus is very active in using automatic driving. And until now, the users of Lotus have a very high evaluation of our automatic driving.
spk00: The question is, for Lotus owners or customers, what's the demand and how's the take rate for ADAS function or intelligence driving solutions? And Mr. Fung's answer is that for our Lotus own owners, they actually use this function quite a lot. In our Lotus app, there's a dedicated session to show the take rate or the use frequency of this particular function. And we have also received positive feedback from our customers. And I can elaborate with a specific number for ADAS ranking currently on our Lotus app that you can categorize based on the range of ADAS and also based on the monthly data. And currently, what I can see on this app is that there's a intelligence driving solutions used by one of our customers with no human interruptions for 533 kilometers. In other words, you charge the vehicle once and you don't have to interrupt it under the vehicle run by itself for 533 kilometers.
spk02: I'll just add a little translation on that. Actually, what Mr. Fung mentioned was the non-intervention mileage Maximum was 533 kilometers. Yes, for one of the customers, 533 kilometers. For a single trip, non-intervention distance.
spk06: And we believe that such a performance will be the benchmark, whether in China and other markets.
spk05: Thank you. My last question is, as Mr. Feng mentioned earlier, this year's market share income is around 400 million RMB. If we look at it from a long-term perspective, what do we estimate the market share income and gross profit will be like? We will have a profit of over 60 million RMB.
spk00: Well, the question is from the previous presentation. We know that the latest projection of ADA's revenue this year is roughly 400 million RMB. What's the long-term envision for gross margin and its revenue? Mr. Feng says that in the future, the gross margin is expected at 60%.
spk02: Thank you for the questions. One moment for the next question. Next question comes from Royce Young from Morgan Stanley Investment Management China. Please go ahead.
spk08: Hi. Thank you for taking my question. And congrats on all successful delivering this year. But my question is about stock trading. I have noticed that the trading volume has been relatively low ever since the company's lifting. And I was wondering if there's any actions going to be taken regarding this liquidity issue. And what are the capital needs to fix this problem regarding this liquidity issue? Yeah, that's my only question. Thank you.
spk02: Okay, thank you. This is the CFO Alexi. I think you mentioned it right. Trading turnover or liquidity for the stock is actually very low. Given that the unlocking of the restricted shares actually happened only 23rd of August, which is about just last week. So after in which we will start to see investors other trading activities broadening. Now on one end, that is on a timeline basis. On the other end, we have very rigid IR plan to go to market. We also work with various institutions in terms of our coverage and also communicate having more deployment into the retail market. So I think those are fundamentally some of the actions that we are actually working on in terms of moving up our liquidity, broadening our coverage, and also assessing the capital market with institutional investors and both retail and institutional investors. Thank you for the question.
spk08: Thank you. I'm looking forward for improvements. Thank you.
spk02: Thank you very much. One moment for the next question. Our next question comes from Mengyang Lin from Shenzhen Equal Asset Management Company. Please go ahead.
spk04: Hello, Mr. Fang and Mr. Li. I would like to ask about the problem of interest rates. I see that our interest rate is relatively high in 2026. I would like to ask what are the specific measures to improve interest rates in the future?
spk06: First of all, we emphasize that for a high-end brand like Lotus, from a market competition standpoint, we won't take this kind of price reduction measure. We will only increase the price. For example, our EMERA, our annual sales, Basically, there is a state of supply and demand. In the future, we will plan to increase the price. That's one aspect. The second aspect is that our costs continue to drop. For example, this year, the cost of our BOM can drop by about 8%. At the same time, we need to be able to reduce our expenses. The question is...
spk00: We can see that the gross margin for 2026 is relatively high and how Lotus are going to deliver this target. And also for Lotus as a premium luxury brand, we are not going to or we will secure the price integrity. For example, for eMira, currently the demand is much bigger than the supply. So we have a plan to increase the price. In addition to that, we are also controlling the cost. For the bomb cost of our Lotus, this year is expected to reduce 8%. In addition to that, we're also managing other costs from other areas. Besides, we have also proposed a Wing 26 plan. In this plan, we projected to deliver 30,000 vehicle cells in that year, and it will give us more revenue.
spk06: Please repeat.
spk04: For gross profit margin, we definitely will want to be able to...
spk02: Or should I say it in Chinese? Yes, you can translate it into English. So, this is what the interest rate is like. This year, we have been affected, especially in terms of price. So, we hope that through the optimization of the price of different products, we can protect the interest rate structure. We believe that the interest rate is the same as last year's standard. This is our goal. We hope that from 2025 to 2026, there will be an earthquake at more than 20 points in the final period of 2026.
spk00: The question is for this year and the next year, what's the target of gross margin? And the answer is that this year we have been affected by many elements and we are going to deliver our target through product and also price increase. And gradually we will deliver the gross margin of 20% in 2026. I understand. Thank you.
spk04: We have other questions.
spk02: Thank you. Thank you for the questions. One moment for the next question. The next question comes from Yitong Huang. Please ask your question.
spk07: Hello, Mr. Feng, Mr. Li. I have two questions for you. The first one is, you just mentioned that the cost and structure optimization has begun in 2024. Can you share some specific optimization measures? Thank you.
spk06: First, in terms of technical investment and structural investment, it's basically all done. Our investment will also decrease later. Secondly, in order to win in 2026, Lotus has launched a small but beautiful plan. What is small but beautiful? It means that the company is small and the number of people is small. Ah. The global staff is very, very good. It's very stable, and it's not an increased state. We can control it within 2,000 people. This includes our marketing, our research, and so on. With the control of the staff, of course, the cost will be reduced in all aspects. The question is, in 2024, how will Lotus improve its cluster management and also its cluster structure?
spk00: And the answer is that in 2023 and 2024, basically the costs have already peaked. And we have already launched four models supported by the platform and technology that we have previously developed. We will continue to invest in technological development, but the cost is relatively less. In addition to that, in the plan of the WING26, we proposed the idea of a small but effective organization. In other words, The company or organizational structure would be relatively streamlined and people would be relatively less. However, the most important thing is to deliver great quality products and to provide excellent customer experiences so that we can secure the price integrity. For our staff and employee at this moment, it is relatively at a balanced status. It is less than 2,000 people. but they can support when it comes to commercial R&D and other necessary departments. This is how we keep the cost at an acceptable status. So for a company, the most important thing is to explore more revenue streams, which I previously elaborated. And another approach is to reduce the cost.
spk02: Let me add a little bit. In fact, Lutex itself is a green asset operating model. What does that mean? We don't have a factory on the industrial side, so we don't have an employee system on this side. On the marketing side, we have a global channel with many years of history. In addition to China being the leader, overseas, it is all the same model. After many years of cooperation with global entrepreneurs, From the overall perspective, the structure of the company must be optimized and lighter to support the number of people today that can support the business in 2026. This is the most critical adjustment from the overall point of view. It's not about how the company needs to enter a large-scale reduction concept. It's about how we build an advantageous Alex said that for Lotus, we are operating with an asset light mode.
spk00: We don't own any factory. And for the commercial side, only China is operating with the D2C mode. For our non-China markets, they are operating with the dealers with the great experiences in the past. For a company, the most important thing is how to keep a streamline, how to keep lean and light, and how to leverage the existing talent to support our achievement and promise in 2026. So the most important thing is not about redundancy process. The most important thing is how to establish a good team that can help us to deliver Win26 plan.
spk07: Okay. Thank you, Mr. Feng and Mr. Alicia. My second question is, because Mr. Feng just mentioned the two aspects of open source and flow. In terms of open source, our company expects that the sales will be more than 30,000 in 2026. Then we want to do a beta transfer. I would like to ask Mr. Feng or Mr. Li to share how to achieve these two goals.
spk06: Thank you. First of all, we can see our product plan. In addition to the two additional growths that I just mentioned, such as high-end and autonomous driving, we can see that our product plan will release a new car in 2025. In the first quarter of 2026, it will push into the market. This new car will bring us a very big growth. This will be the biggest growth point in 2026.
spk00: The question is, Mr. Feng previously mentioned about revenue exploration and the safe course and Lotus has also mentioned about target to deliver 30,000 vehicles and to achieve positive EBITDA and how Lotus could deliver that target Answer or response is that we have a robust product plan besides two revenue streams that I previously mentioned, Bespoke Service and also ADA Solutions. In 2024, we are also planning to launch a new vehicle model, and this model will go into the market in Q1 2026. And this model is going to be the major volume boost for us in 2026.
spk06: In the year of 2026, you should know that our channels are now more complete. Unlike when we launched our first and second cars, we are still improving our channels. In the year of 2025, our channels are already very complete. When a new car is launched, it can reach this trend of rapid growth.
spk00: In 2026, we will have a strong and comprehensive retail channels, unlike when we launched the first and second models years ago, which we didn't have mature retail channels. So when we launch this new model in 2025 and 2026, it will give us immediate return.
spk06: We will release this car in 2025, but the technology of this car Although this vehicle won't be launched until 2025, the technology of this vehicle will be released in Q4. So stay tuned to Guangzhou Auto Show. Thank you, Mr. Feng. I don't have any other questions. Thank you.
spk02: Thank you for the questions. With that, I would like to hand the call back to management for closing.
spk04: Thank you, everyone, for your questions, and thank you, management. Well, given the time constraint, we will conclude the call very soon. If you have any further questions, please feel free to contact our IT. And this concludes the call. Thank you, everyone, and have a great day.
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