Lotus Technology Inc.

Good day and thank you for standing by. Welcome to Lotus Technology Inc third quarter 2025 earnings conference call. At this time, all participants are in listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one and one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, Please press star 1 and 1 again. Please be advised that today's conference is being recorded. And I'd like to hand the conference over to your first speaker today, Ms. Michelle Ma, Head of Investor Relations. Please go ahead.

Thank you, Amber. Welcome to Lotus Tech's third quarter 2025 earnings call. My name is Michelle Ma, the Head of Investor Relations here at Lotus Tech. With me today are CEO Mr. Ching Fung Fung and CFO Dr. Daxue Wang. Our conference call materials were issued today and are available on our investor relations website. We are also broadcasting this call via webcast. Before we continue, please be reminded that today's discussion will contain forward-looking statements to the Safe Harbor provisions. of the US Private Securities Litigation Reform Act of 1995. Forward-looking statements involve 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 is included in relevant filings of Lotus Tech with the US Securities and Exchange Commission. The company undertakes no obligation to update any forward-looking statements except as required and applicable law. Please also note that our earnings press release and this conference call will include disclosure of unaudited GAAP financial information, as well as unaudited non-GAAP financial measures. You can also find a reconciliation of these figures in the press release available on our investor relations website at ir.group-notice.com. With that, I'm delighted to turn the call over to our CFO, Dr. Wang, please.

Good morning, good afternoon, and good evening, honored shareholders, analysts, and friends from the media. Thank you for joining us for Lotus' Q3 2025 earnings release. I'm Daxi Wang, Chief Financial Officer for Lotus, and it is my privilege once again to present the company's audited financial results. In the third quarter, the company delivered nearly 1,800 vehicles to distributors. This represents a 35% decrease year-on-year, but a 28% increase quarter-on-quarter. As a result, total delivery of the first nine months of the year reached 4,612 units, about 40% compared to the same period last year. These figures reflect a transitional period characterized by the impact of tariffs graduate stocking activities under the first commencement of the graduate upgraded module deliveries. Revenue for the third quarter was $137 million, down 46% year-on-year, but up 10% sequentially. Revenue for the first nine months totaled $356 million, down 45% year-on-year. Growth margin improved to 8% in the third quarter. up three percentage points from the previous quarter, and five percentage points from the same period last year. This improvement was driven by a favorable shift in our sales mix towards upgraded models, reflecting healthy inventory dynamics and our continuing recovery in our underlying profitability. The gross margin for the first nine months remained stable compared to the same period in 2024, safely in a positive territory. Now, allow me to break down our sales by category and regions. By category, lifestyle vehicles accounted for 77% of the total deliveries in Q3, down from 83% in Q2. Consequently, they contributed 72% of the total deliveries for the first nine months of the year. And in terms of regions, deliveries in the US sports car market began a gradual recovery in the third quarter. This improvement came after the initial US-UK tariff disruptions were resolved, with UK vehicles ultimately securing a favorable tariff rate of 10%. Overall, deliveries in the first nine months of 2025 were primarily driven by China and Europe. It's worth noting that our delivery growth in China for the first nine months outpaced the broader premium auto segment in the country. This underscores the competitive strength of our product portfolio in an increasingly challenging environment. Now, let me turn to the key financial. As I have already covered, deliveries, revenue, and gross margin are perceived to other financial metrics. The cost of revenue decreased by 35% year-on-year to $126 million in Q3, and a total of $327 million for the first nine months of 2075. This resulted in a gross profit of $11 million for the quarter and $29 million for the first nine months. We reported operating loss of $95 million in the third quarter, a 41% improvement year-on-year. The net loss for the quarter was $65 million, a 68% improvement year-on-year. For the first nine months, The operating loss was $357 million, narrowing by 40% year-on-year, while the net loss narrowed to $378 million, down 43% year-on-year. And for your reference, on a net gap adjusted basis, the net loss for the first nine months was $2 million lower, primarily due to the impact of the share-based compensation. and adjusted EBITDA under the non-GAAP for the same period narrowed by 48% year-on-year to $294 million. Beyond these numbers, I would like to reiterate that we have now reduced operating expenses for eight consecutive quarters through value-added measures. This underscores our strong commitment to enhancing operational efficiency. Our efforts in cost discipline and inventory optimization are reflected in the significantly narrowed loss for both quarter and the year to date. We remain focused on prudent resource allocation and margin enhancement, while also preparing for a more dynamic operating environment in the quarters ahead. During the third quarter, we achieved several key milestones amid challenges posed by the fierce market competition. We will be awaiting our new PHEV model in the coming months to further expand our electrification product roadmap and address consumer demand in diversified powertrain segments. Our CEO, Ms. Feng, will elaborate further on these developments. With that, I will now turn the floor over to Ms. Feng.

Thank you. Now, let me introduce the company's situation from several aspects. The first is some highlights of recent brand development. The second is the market strategy. The third is product evidence. The fourth is the integration of British Lotus.

Good morning, good afternoon, everyone. I'm Feng Qingfeng, CEO of Lotus Tech. Thank you for joining the Lotus Tech Q3 2025 Earnings Call. Now I'd like to walk you through the company's latest progress across four key areas. Recent highlights, market strategy, product portfolio, and the acquisition of Lotus UK.

As a Lotus brand with 77 years of record, it is very important to continue to strengthen the image of this global brand. So on September 5th this year, Lotus showed up at the IAA car show in Germany in 2025. It showed the concept car Zero One, Electra, E-Mail and E-Mailer. It showed Lotus' perfect integration of brand inheritance, innovative technology and electrification strategy.

For Lotus with a 77-year track DNA, it is important to keep enhancing its global image. On September 5th, Lotus made a strong appearance at IAA Mobility 2025 in Germany, showcasing the concept car theory one, electric mirror and a mirror, demonstrating a seamless blend of a brand legacy cutting-edge technology and electric strategy.

From June of this year, we started the Lotus Cup Single Brand Competition. The competition was internationalized. The third competition was successfully completed in Chengdu. After that, this month, we will be at the Malaysia Snow Gang International Track to win the annual championship.

To carry over Lotus Racing Track E&A, the 2025 Lotus Cup One Make Racing Series kicks off in June, featuring an international lineup of drivers. The third round concluded successfully in Chengdu, with the season finale set to take place in Sapa International Circuit in Malaysia this month.

On September 14, during the London Design Festival, Lianhua, as an official car partner,

On September 14th, during the London Design Festival, Lotus served as the official automotive partner and opened an immersive exhibition at our Mayfair showroom, exploring the design DNA of the brand and received positive feedback from the public.

On November 16, Lu Wenlong and Liao Qishun drove the E-Mara GT4 and won the Grand Prix Grand Prix Grand Prix Grand Prix Grand Prix Grand Prix Grand Prix Grand Prix Grand Prix Grand Prix Grand Prix Grand Prix Grand Prix Grand Prix Grand Prix Grand Prix Grand Prix Grand Prix Grand Prix Grand Prix Grand Prix Grand Prix Grand Prix Grand Prix Grand Prix Grand Prix Because of the high-speed straight and winding roads, it is recognized as one of the most challenging urban racetracks in the world. The dual-car trophy not only shows the excellent driving skills of the car owners, but also shows the excellent performance of the Emerald GT4 racing car. It also strengthens the consumer's love and interest in our racing cars, and strengthens the inheritance of our racetrack genes.

On November 16th, driver Lu Wenlong and Liu Kaisheng piloted the Mira GT4 to claim the first and third place in the Macau Grand Prix's Greater Bay Area GT Cup. This marks back-to-back podiums for the Mira GT4 following its first and second place finish in the same event in 2023. The Macau circuit, known for its long straights and tight twisting corners, is regarded as one of the most challenging street circuits. This double podium not only highlights the driver's exceptional skill, but also underscores the outstanding performance and reliability of the Mirage G24. It strengthens customers' trust and enthusiasm of our sports car, and also it carries over Lotus Racing Track DNA.

Next, regarding the global market strategy, there is no doubt that the development of this market channel is the most important part of the market strategy. We are also constantly improving the global market layout to improve the channel efficiency. By the end of September, there will be a total of 213 stores in the world, 70 in Europe and 54 in China. There are 49 and 40 in North America and other regions. The distribution of the four major sales areas is still very balanced, covering 45 markets around the world.

For market strategy, Lotus continues to optimize our global presence and enhance our retail efficiency. As of the end of September, we had 213 retail stores worldwide. With a well-balanced distribution across four key regions, Europe, we had 70, Shorps, China, 54, North America, 49, and other markets, 40. Those covers roughly 45 markets globally.

In addition to improving and improving the channel, we are also improving the efficiency of the channel in order to enhance the efficiency of the channel. We strengthen the control of cost. We adjust the cost structure of the gate. We make some changes to the high-cost central power, close some low-cost commercial power, and expand the efficient gate.

Besides the retail channel efficiency improvement, we've also explored other measures to reduce our costs and improve our efficiency. For example, we've implemented prudent cost control measures and optimized our store portfolio. This includes relocating high-cost stores, closing underperforming locations, and expanding high-efficiency outlets. It helped boost our conversion rate while reducing operating costs.

It helped boost our conversion rate while reducing operating costs. It helped boost our conversion rate while reducing operating costs.

In addition to that, we've also relocated our European headquarters from the Netherlands back to the UK, cutting operational expenses and allowing us to focus resources on key markets. Returning to London's birthplace also helped us better tell the brand's story and strengthen our reach across Europe and beyond. Such measures further improve our overall efficiency.

Then we also need to enter some new markets. For example, Brazil. Brazil is the seventh largest single market in the world. In 2024, the sales will be 2 million units. The penetration rate of new energy is 8%. In September 2025, the overall sales will be 1.44 million units. The penetration rate of new energy has increased to 10%. Then we also plan to enter this market.

We're also preparing to enter new markets, starting with Brazil. Brazil is the seventh automotive sales country in 2024. The total sales is roughly around 2 million, with a new energy vehicle penetration rate around 8%. And in the first nine months of this year, the total sales reached 1.44 million units, with a penetration rate of a new energy vehicle increased to 10.1%.

Regarding the product, two years ago, we had already deployed our super hybrid product. We had also released our Luyao hybrid technology before. You will soon be able to see these results. The company is currently selling Emera, Eletra, and EMEA vehicles. They have launched new models in 2025 and have been sold globally. The new models have received good market feedback.

As for our product portfolio, two years ago, we have already planned on that. Actually, we've already launched our hybrid technology, and we believe that all of you will be soon see the fruits. And for Lotus, we currently offer two models globally, including Mira, Electron, and Maya, all of which were updated in 2025. The new version has all been well received, with a share of total sales continuing to grow.

Based on our super-movement Luyao super-movement technology, we will launch two new models. The first super-movement model is expected to be released in China in the first quarter. We will hold a technical launch event in January. Europe will also launch it.

We plan to introduce two additional hybrid models based on our new architecture. The first hybrid model is set to launch in China in the course of one next year with a dedicated technology preview event in January, a European release well-followed.

This model still inherits the DNA of Lotus. In terms of control, we need super-good control. We also have the Lotus project, which has a history of more than 70 years of engineering. At the same time, it will also be equipped with dual-bladed air suspension and 48V active stabilizer. This will become a vehicle that will be further strengthened in terms of control. At the same time, the structure of Luyao allows us to achieve more than 1,000 kilometers of battery life. It also has a high performance of 900 horsepower. It also inherits the design of continuous inheritance of lotus flowers. The car has an extremely wide wheelbase, which continues the family gene of lotus flowers.

The new hybrid also carried over and inherited Lotus DNA in the following areas. The first is its ultimate handling, thanks to Lotus' two-year engineering. It also equipped with the dew chamber air suspension and a standard 48-volt active stabilizer. It can be capable of a long range and also high performance. It is enabled by the latest light detector delivering over 1,000 kilometers of range and 952 horsepower. It also inherits the Inspire design featuring the sensational width to height proportion of our Hyper-Kai Viya staying true to Lotus design DNA.

Super-moveable launch broadens our product line. It will also allow the mainstream luxury car users to have more options. It will also further expand the cover of the lotus market and enter a wider market. For example, the market for pure electricity is growing slowly. In Europe, there is Italy, Spain. In the Middle East, there is Saudi Arabia, and so on. These wider areas can also attract a wider audience.

The introduction of a hybrid model offers more choice for luxury vehicle buyers and will help us to expand into broader markets, including regions with a slower EV adoption, such as Italy and Spain and Saudi Arabia. It will also help us to attract new customer segments.

Next, I will introduce the integration of British Lotus. The company steadily promotes the acquisition of Lotus UK in the UK.

This acquisition is expected to be completed in 2026.

After the acquisition, the company will form a one-Lotus strategy to maintain a global unified high-performance ultra-Globalized brand. After the acquisition, we are going to operate under our One Lotus strategy.

We plan to maintain a consistent global identity as a high-performance premium luxury brand to strengthen worldwide recognition and to maximize in our heritage.

We are also streamlining reporting lines and to enable faster, clearer decision making.

a globally aligned governance model, global standards with original adaptation. It will improve oversight and support medium to long-term strategy execution.

In terms of business integration, it will integrate the unified management of the global research and development system, improve research efficiency, deepen the shared use of technical research and development results, reduce development costs, and shorten the development cycle. In terms of procurement, To realize the cost optimization of daily use cars and racing cars, to reduce production costs, to reduce the cost of all kinds of accessories, to unify sales channels and global management systems, to eliminate repeated investment and resource allocation, to realize the double improvement of brand value and operating efficiency,

For our business integration, we are driving synergy across key areas. On R&D, we consolidate global engineering under one team to improve efficiency, share technology, and accelerate new vehicle development. On purchasing, we leverage shared sourcing to reduce costs across lifestyle vehicles and sports cars. And on logistics, we will optimize warehousing and parts distribution to further lower costs. We've also aligned the channels and the system globally to eliminate duplication and boost the brand value and operational effectiveness. Thank you all. We will now open the line for your questions.

Thank you. We will now begin the question and answer session. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. For the convenience of everyone on the call, if you wish to ask your questions in Chinese, please translate your questions to English right away. We will now take our first question from Laura Lee from Deutsche Bank. Please go ahead, Laura.

Hey, thank you for taking that question. Could you elaborate a little bit more about like the key highlights of the upcoming PHEV models and maybe talk more about the strategic rationale behind those products?

Thank you very much. Let me talk about some of the highlights of our model. We define this product as a super hybrid, super structural SUV. It has three global firsts. It is the world's highest heat efficiency engine. It is the world's strongest dual motor hybrid system. At the same time, it has the world's highest power generation. uh thank you for your question first allow me to elaborate on the highlights or the features of our hybrid model it's a well features are three first

It has the best energy efficient engine and also the two best performance hybrid system and also the highest power motor. Those are three features demonstrate the Lotus DNA from both the handling and also performance perspective.

Regarding how to do the control better, how to apply the super mixed structure better, As for the details about how to further enhance its handling and performance, as well as the details of our hybrid architecture, please stay tuned to our tech preview event in January. In China's luxury car market, the ratio of mixed and upgraded models is very high, and the increase is also very fast. Out of the more than 400,000 new energy models in China, about 70% are mixed and upgraded models. We also put these upgraded models as some products with engine features to see the growth. The penetration rate of more than 400,000 new energy workers is rapidly increasing, reaching 43% in September. The penetration rate of mixed and increased production has exceeded 30%.

And also, we would like to elaborate on the strategic rationale behind our hybrid model. But first, I'd like to start with the market. For China market, the premier vehicle market in China, including plug-in hybrids and extended ranges, make up a large and rapidly growing segment. Among new energy vehicles priced above 400,000 RMB, about 70% are plug-in or extended range models. Growth is a major driver of the broader new energy vehicle expansion. The penetration rate of new energy vehicles in this price bracket has also risen quickly, reaching over 40% from January to September. Within that, plug-in and extended ranges accounted for more than 30%.

At the same time, in China, the luxury hybrid 1G SUV, we are talking about more than 500,000 levels, Compared to the luxury pure electric SUVs, there is still a lot of competition. We will become the first mixed-race model of this level. And the current mainstream models are more focused on commercial and off-road. The super mixed-race model of Lotus has provided a lot of imagination and a certain market space.

The competition in China's premium e-segment hybrid SUV is still relatively underdeveloped. The premium e-segment hybrid SUV means the price over 500,000 RMB, and the development relatively underdeveloped compared to the battery electric e-segment SUV space. And most current models also lean heavily toward business or off-road use. This creates a clear opening for Lotus to introduce our hybrid models.

In the European market, the European hybrid models have a relatively high ratio and very fast acceleration. The market is huge. In Europe, hybrid models represent a large, fast-growing share of the auto market. But as emission standards tighten, new energy vehicle adoption is accelerating in Europe, just as it is in China.

From January to September this year, any of these including a battery electric vehicle, plug-in electric vehicle and hybrid electric models reached 59 or 60% of the total market. And among those, NEVs, PHEV and HEV together counted for about 73%.

In Europe, the increase in electric motor vehicles has been very rapid. Until September, the increase was the same for seven consecutive months. In Europe, the increase was 65% in September.

And notably, plug-in hybrid, the PHEV cells have surged in Europe, as over September this year, PHEV cells have grown year-over-year for seven consecutive months, with EU-wide cells up 65% in September alone.

Especially in a super-moving luxury market like ours, we will be the first to launch such a super-moving model in Europe. Last week, when I went to Europe to do market research, our dealers were extremely interested in a model like ours. Next, we will also invite European dealers and European media to fully experience and test drive our models.

In the premium hybrid segment, Lotus will be the first one to introduce such model in the EU. Last week, I visited the EU and I heard the positive feedback from our dealers when they know about this hybrid model. And in the successive phase, we are going to invite dealers and also medias to have an in-depth test of our new models.

Thank you.

Looking forward to the launch.

Thank you. Our next question comes from Dan Lin from CICC. Please go ahead, Dan Lin.

Hello. This is Dan Lin from CICC auto team. Thanks for taking my call and congrats on your sequential improvements And I have one question about your growth margin. Do you have any guidance on your growth margin for this year and next year?

Hi, Danny. Thank you so much for your question. With the recovery of the vehicle growth margin in the second half of the year, our growth margin for the full year is expected to remain at a high single-division range. Looking ahead, our gross margin is projected to further improve primarily due to the following factors. First, the launch of the PHEV products, which is based on our LuYang architecture, will further reduce the per unit vehicle costs and achieve higher gross margins. And second, as BEV facelifted products penetrate global markets, their sales are expected to increase, thereby boosting the gross margins. And third, The implementation of the put option with Lotus EOK will further enhance efficiency. For instance, the manufacturing segment's gross profit will be consolidated into the listed companies. And the economies of scale resulting from the integration of the supply chain and the research and development will contribute to higher gross margins. So I think for the next year, we have confidence it's going to be higher than this year. Thank you so much.

Thank you. Thank you.

I am showing no further questions at this time, and with that, I'll now turn the conference back to Ms. Michelle Ma for her closing comments.

Thank you all again for joining us today. We will conclude the call soon. Investor Relations team remains available to answer any further query you have. Please feel free to contact us through the contact information on our website. Have a great day. Thank you.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect your lines.