Lotus Technology Inc.

Good day and thank you for standing by. Welcome to Lotus Technology Inc. first quarter and full year 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 1 and 1 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. If you wish to ask a question via the webcast, please type it into the box and click submit. 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 and welcome to Lotus Tech's fourth quarter and the full year 2025 earnings call. My name is Michelle Ma, the Head of Investor Relations here at Lotus. With me today are the CEO, Mr. Ching Fung Fung, and the CFO, Dr. Dashie Wang. Our conference call materials were issued today and are available on our university relations website. We are also broadcasting this call via webcast. Before we continue, Please be reminded that today's discussion will contain all the looking statements. For looking statements involving inherent risks and uncertainties. As such, the company's actual future results may be materially different from the views expressed today. Further information regarding risks and uncertainties is included in Lotus Tax, relevant filings with the U.S. Securities Exchange Commission. The company undertakes no obligation to update any forward-looking statements, except as required under 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 find a reconsolidation of the figures in the press release available on our investor relations website at ir.grouppricenlotus.com. With that, I'm delighted to turn the call over to our guest host, Dr. Wang, please.

Good morning, good afternoon, and good evening to our shareholders, analysts, and media friends. Thank you very much for joining us for Lotus' fourth quarter and full year 2025 earnings discussion. I'm Da Xu Wang. Chief Financial Officer of Lotus Tech. It's my privilege to once again present the company's audited financial results. In the fourth quarter, the company delivered 1,908 vehicles, including 1,239 lifestyle SUVs and sedans, and 670 sports cars. For the full year 2025, total delivery reached 6,520 units. While this represents a 64% year-on-year decrease, these figures reflect a transitional year marked by the impact of tariffs, the phase start of the upgraded model's deliveries, and intensified market competition. Total revenues for the fourth quarter were $163 million, a 40% year-on-year decrease. For the full year 2025, total revenues were $519 million, down 44% year-on-year. Sales of goods fell 48% year-on-year to $563 million, driven by lower sales volume. While services revenue surged 69% year-on-year to $56 million, primarily due to the R&D service revenue, The commercialization of our intellectual properties through technical licensing and other channels has demonstrated significant market recognition of our pioneering technologies. Gross market improved significantly to 10% in the fourth quarter compared to negative 11% in the same period of 2024. For the full year, gross market improved to 9% from 3% in 2024. This improvement was driven by the global rollout of upgraded model deliveries, a favorable shift in our sales mix, healthy inventory dynamics, and disciplined cost control. We continued our track record of disciplined cost management. Operating loss narrowed by 65% year-to-year to $66 million. your dollars in the fourth quarter consecutive sequential quarterly reductions in operating losses demonstrate the company's commitment to operational efficiencies in fiscal year 2025 lifestyle vehicles deliveries accounted for seven percent of the total with sports car making up the remaining 30 percent deliveries were primarily driven by the china and european markets importantly growth in Chinese deliveries outpaced the broader premier auto segment, underscoring the competitive stress of our product portfolio within China. By region, China accounted for 45% of full-year deliveries, Europe 34%, North America 16%, and the rest of the world 5%. In the fourth quarter of 2025, our sports car deliveries to North America achieved remarkable QOQ growth, even with a 5% local price increases. Earlier tariff hikes hit our Q2 sales card, but the U.S. adjusting U.K. auto import tariffs down to 10% brought policy clarity. The recovery of sports car sales in the U.S. during the third and fourth quarters fully demonstrates our strong grand appeal and price acceptability in the region, serving a dual rebound in sales volume and gross profit margin. Research and development expenses were $171 million for the full year, down from $275 million in 2024, reflecting targeted prioritization of our technology investments. Selling and marketing expenses decreased to $153 million from $322 million and general and administrative administrative expenses declined to 136 million us dollars from 227 million us dollars these reductions underscore our strong commitment to enhancing operational efficiency together with growth profit increase in 2025 operating laws narrowed 46 percent year-on-year and net loss decreased 58 percent year-on-year our non-gap adjusted basis just EBITDA for the full year improved by 63% year-over-year, narrowing to a loss of $356 million from $961 million in 2024. Beyond these numbers, I would like to reiterate that we have now reduced operating expenses for multi-conservative quarters through value-added measures. Our improved margin performance in the fourth quarter and the full year of 2025 demonstrated our continued focus on cost optimization and operational efficiency. And this was also reflected in our significantly improved bottom line of results. Going forward, we expect the global launch of our PHEV model, for me, to drive sales and revenue growth. Additionally, we expect that the combination of focusing on revenue growth efforts, maximizing product positioning, and enhancing margins through the strict cost reductions will allow our business to progress towards profitability and enable us to deliver long-term value to shareholders. With that, I will now turn the floor over to Ms. Feng. Thank you.

Hello, everyone. I'm Feng Qunfeng, CEO of Lianhua.

Hello, everyone. This is Fang Qingfeng, CEO of Lotus Group.

Hello, everyone. Thank you for participating in the 4th quarter of the Lotus Technology 2025 and the All-Year Economic Development Conference. 2025 is the key year for the company's strategic transformation, facing global market fluctuations, tax adjustments, and other external challenges. We will continue to use our firm strategic execution, continuous technical innovation, and standardized operation management Thank you for joining the Lotus Technology Quarter 4 and 4 Year 2025 Earnings Conference Call.

Last year, 2025, was a really important year for us, a true turning point in our strategic transformation. Even with all the global markets ups and downs and higher tariffs, we made solid progress on our core operating metrics by staying focused on smart execution, pushing technological innovation, and tightening up how we run the business every day. I'll walk you through the latest developments in four key areas, our recent highlights, market strategy, product lineup, and the progress on our new hybrid model for me, or ElectroX.

Let me introduce you to the latest development highlights. With our 78-year racing heritage, building the Lotus brand has always been front and center for us.

In 2025, we scored some real breakthroughs on both the business and the brand front.

First of all, in terms of competition marketing, the first Lotus Cup was held in November, 2025, in the Malaysian Xuebang Highway. 44 Lotus E-Mairo competition versions were put on the same stage as a single competition, showing the strong sensitivity of the Lotus century-old track record. At the same time, the start of the 26-year season officially began on April 3rd. We will continue to pass on This brand's spirit of movement and technical strength

In motorsports, we wrapped up for the very first Lotus Cup one-make race at Sapan International Circuit in Malaysia back in November last year. 44 race-spec Lotus mirrors hit the track and it was a sensational showcase of the brand's racing DNA. The 2026 season actually kicks off on April 3rd this year and we will keep using this platform to share our motorsport spirit and karting edge tech with fans everywhere.

In terms of equity financing, we have received a strategic equity investment of $23.2 million from E-Carton. Through capital twist, deepening global strategic cooperation between the two parties, in the future, we will accelerate the innovation of the next generation of smart warehouse ecosystem together to bring users a more active AI drive experience, and jointly enhance the core competitiveness of the product.

In accuracy financing, we secured a strategic accuracy investment of 23 million US dollars from RecarX, deepening our global strategic partnership through capital ties. Going forward, we will jointly accelerate innovation in next-gen intelligent copies ecosystems to deliver AI-driven experiences to consumers and to collectively enhance product competitiveness.

In terms of technical development, our ChaoPao SUV Electra successfully obtained the European Economic Commission's 22171 certification, which has become the first and only high-speed navigation service function and China-made electric vehicle with this certification. The company is also the world's second car with this certification. This achievement not only verifies our high-level service driving skills,

On the tech side, our HyperSUV Electra became the first and only Chinese-made electric vehicle to earn UN R171.01 certification for highway navigation assistance. Lotus is also only the second automaker in the world to achieve this, which is a huge validation of our advanced driver assistance systems. and opens more doors in the premium European market.

In terms of brand development, we co-founded House Automotive to create an exclusive exhibition, In Progress, to return to the 2026 Milan Design Week, which focuses on the leading industrial and aesthetic concepts, and Zero One's concept works. By deepening our cross-border cooperation in luxury and industrial fields, we will continue to enhance the global influence and luxury tone of the brand.

On brand development, we teamed up with the House of Automotives for the exclusive in progress exhibition after the 2026 Milan Design Week. We showcased our industrial design philosophy and to the theory one concepts of car, proving once again how Lotus blends technology and aesthetics in a way that fills a luxurious and a forward thinking.

For our market strategy, Lotus is continuing to refine our global footprint and make our sales channels more efficient.

We now have a well-balanced distribution network across four major regions. As of the end of December, we had a 211 sales outlets worldwide, 67 in Europe, 58 in China, 48 in North America, and a 38 in the rest of the world.

In the Chinese market, we have further expanded our network and upgraded our supply chain. We have set up new network points in Dalian, upgraded our supply chain in Nanjing, Foshan, and Guiyang. Let the service and sales capabilities of the middle end be improved, and at the same time, the whole network of suppliers to carry out the expansion of personnel and network points, to increase the online marketing capabilities, to achieve the double improvement of customer efficiency and customer satisfaction.

In China, we kept expanding and upgrading our dealer network. We opened a new store in the city of Dalian in China and refreshed several others. Dealers have been hiring more staff, adding more outlets, and ramping up online marketing, which has clearly improved both customer acquisition and satisfaction.

For the North American market, we plan to expand the Canadian business network on the current channel. Canada currently has six suppliers. It is expected to expand to 12 at the end of the year, to fully grasp the policy opportunity of Canada's tariffs. Elettra is the only US dollar-only manufacturer in the North American market, and it is a certified Chinese-made electric vehicle. It is expected to make a strong sales growth in Canada. We plan to open a store in Canada in May.

And in North America, we plan to grow our Canadian dealer network on the basis of existing channels. Now we have six dealers in Canada. We are expected to expand to 12 by the end of the year, really leveraging local tariff policy opportunities. The Electra is the only Chinese-made electric vehicle priced above US$80,000 that's fully certified for the North American market. So we expect a strong sales growth there. We will start customer deliveries in Canada in May.

In Europe, we have reorganized and simplified the organizational structure to improve the operating efficiency. At the same time, we can focus on local market needs, strategic planning, and marketing promotion. For example, in Germany, we launched a commercial version of the vehicle,

In Europe, we streamlined our organization and run leaner and gave each region more freedom to tailor strategies to local needs. For example, we introduced the business edition models and vehicle value protection plan from Germany and we are expanding corporate and leasing business in the UK. As I previously mentioned in the Q3 earnings conference call, Lotus is staying disciplined on costs while closing a few underperforming stores, expanding the high-performing ones, and redirecting resources to the markets that matter most.

Uh, uh, uh, uh, uh, uh, uh.

On our product lineup, we are driving product competitiveness by expanding both our product range and power options, playing to our strengths while fixing any gaps. The extension and upgrading of the product portfolio were core highlights of our work through the year.

In 2025, EMERA, ELECTRA, and EMEA will launch new products in major markets and conduct global exchanges to obtain good market feedback. The new sales volume will continue to increase,

In 2025, new variants of the Mira, Elettra, and EMEA were launched and delivered in major markets, receiving positive market feedback.

The sales proportion of new models continues to increase, helping stabilize product sales. In 2025, we also focused on hybrid product development

And in the first quarter of this year, we launched our all-new hybrid SUV, 4Me Electra X. And the delivery started just one day after the launch. This hybrid model gives mainstream luxury buyers another great option. And let's reach markets that are moving more slowly towards 4EVs, like Italy, Spain, and Saudi Arabia. It's also bringing in a broader mix of customers.

In the future, we will continue to improve the product quality of the company in the two tracks of running and daily use vehicles. At the same time, we will introduce more super-multi-tooled vehicles with a multi-multi-multi-multi-multi-multi-multi-multi-multi-multi-multi-multi-multi

In the future, we will keep strengthening both the sports car and lifestyle vehicle to our lineup, and we will roll out more hybrids built on our new X-Hybrid architecture. This gives consumers real choice, combustion, battery, electric, or hybrids, whatever fits their needs.

Today, I would like to focus on the introduction of the FOMI product to you. This important product has a history of 78 years, In Europe, we call it Electro-X. It uses super-movement to break the limit of super-run SUVs, so that users no longer have to make choices for the scene. The model was officially launched in China on March 29, 2016, and was officially delivered in China on March 30.

And also allow me to share with you the progress of the launch of 4Me, which is the first hybrid in Lotus 78 years. In the EU, it is bashed as an Electra X, like I previously mentioned. It completely changes what a Hyper-SUV can do. 4Me was launched in China on March 29th, 2026, and deliveries began on March 30th.

Before launching in China, we also invited European suppliers Before the launch, we actually invited the dealers and the media outlets from the EU to test the ride and to test the drive of this particular vehicle, and we have received a wide positive feedback. With a 70 degree large battery as the core, the total power of the system reaches 952 horsepower. The overall range of the CLTC is more than 1,400 kilometers. The overall fuel consumption of the WLTC is only 0.07 liters, which is 100 kilometers of fuel consumption. Even in the case of power loss, the WLTC 100-kilometer fuel consumption is only 6.1 liters.

FOMI runs on our ex-hybrid architecture, a 900-volt high-voltage platform paired with a 70 kilowatt-hour battery and a total output of 952 horsepower. In CLTC testing, it delivers more than 1,400 kilometers of total range. Fuel consumption is just 0.7 liters per 100 kilometers. in WLTC. And even when the battery is depleted, it's only 6.1 liters per 100 kilometers.

For me, to use a powerful power to achieve 0-100kmh, it only takes 3.3 seconds. More importantly, even when the battery is out of power, only 10% of the battery is out of power, 0-100kmh can still reach 3.5 seconds. This performance will never be tied to the power, whether it's full or out of power. The performance will always be online. At the same time, the 100-kilometer braking distance has also reached 33.9 meters. Even if it is a continuous 12-time full braking, it is still above international standards. Not only that, the Lotus 4Me is the only four-wheel drive that can be changed. It can also become an air brake at an emergency braking speed of 170 kilometers per hour, providing 120 kilograms of downforce to help shorten the braking distance. Increase the stability and automatic performance of the vehicle under high-speed automatic driving, and bring the driver with the ultimate security and driving confidence.

From 0 to 100 km power, Lotus 4Me or ElectraX only takes 3.3 seconds, and even when the battery is down to 10%, it still hits 3.5 seconds. In other words, performance stays strong no matter the battery level. Braking is equally impressive, 100 to 0 kilometers per hour in just 33.9 meters. And the car stays above international standards even after 12 heavy stops in a row. Plus, at high speeds, the four-speed active railway can flip into air brake at 170 kilometers per hour, generating 120 kilograms of downforce. to help shorten the stopping distance and keep the car stable, bringing safety, protection, and driving confidence to drivers and passengers.

FOMI continues to develop the advantages of Lianhua's aerodynamic technology. On this FOMI, it continues the family-style air design language, low-pass posture, and exaggerated air-conditioning. Each line serves the aerodynamic technology. The car has four sets of eight RACE-L, which is a real conventional air-conditioning. Aerodynamics remain a Lotus signature.

For me, carries forward our porosity design language with a low purposeful stance and a functional air duct. Every line has a purpose. Eight race aeroducts use the venturi effect to boost the downforce. and the 26-degree wind showed Angle cost-strike effectively.

In the second half of the year, Fangmei will gradually move to the global market. The EU market's wholesale business will start at the end of October of 2026. The vehicle certification work in the Middle East market will be completed by the end of this year. Our plan is to launch wholesale in the Middle East in October of this year. In November, it will be officially listed in the area and will start delivery in December.

For me, we'll be gradually launched to the global market in the second half of the year. Wholesale deliveries in the EU start at the end of October. Certification for Middle East will wrap up by year end, with orders opening in October, official launch in November, and deliveries in December. In the UK, we expect the wholesale to begin in mid-2027.

Looking forward to the future, we will continue to accelerate product delivery and market expansion. On the one hand, we will promote the global supply and delivery of semi-automatic vehicles. At the same time, we plan to promote the development and listing of subsequent vehicles and enrich product governance. On the other hand, we will deepen the technical cooperation of the global channel layout and continue to enhance the influence of brands and the world.

Looking ahead, we will keep accelerating product updates and the market expansion. On the one hand, we will ramp up 4Me global deliveries and at the same time advance the R&D and launch of new models as planned. On the other hand, we will deepen our channel partnerships and technical collaborations to make the Lotus name even stronger worldwide.

Thank you for your attention and support. Next, I will give the floor to the host. Thank you again for your time and support.

I will now hand it back to the host for your questions.

Thank you. We will now begin the question and answer session. As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. And if you wish to ask a question via the webcast, please type it into the box and click submit. There may be a short pause while we compile the Q&A roster. Once again, that's star 11 for questions. We will now take our first question from the line of Laura Lee of Deutsche Bank. Please ask your question. Laura, your line is open.

Hey, thank you for taking my question. I want to ask about, just think about the total deliveries of 2025. We actually went down year on year by almost a half. So, what are the main drivers of this volume decline in 2025? And how should we think about the potential impact of the geopolitical situation on the future?

First of all, this year, the overall situation is indeed declining. We have also been affected by various factors. First of all, it's the tariffs. Due to the uncertainty of the tariffs, It has had a great impact on us. It has also brought challenges to the company's storage management and production industry. For example, the US and UK tariffs have caused our delivery volume to drop by about 60%. Electric vehicles, due to the European tariffs and the US tariffs, have also affected our sales price in Europe. The US market is basically unable to enter. At the same time, under the influence of tariffs, our inventory was also under some pressure. We had to work hard to get rid of old products. In order to deal with uncertainty in the second half of 2024, we took the initiative to work hard. At the same time, we adjusted the product line and launched some new products. New products entered the market due to logistics and other factors. The sales have also dropped a little. In the past 25 years, we have made some progress. The stockpile in Europe and China has dropped significantly by 40%. The stockpile has returned to a healthy level, which is the basis for the power generation in the last 26 years. At the same time, we have developed a strategy for small and medium-sized enterprises, so that our profits can be restored.

Yes, I do see there's a decrease, a delivery volume decrease here and here, and it has been affected by a lot of elements. The first one is the uncertainty of tariffs. it has negatively impacts our production and also inventory. For example, the US tariff to UK-made vehicles affected our volumes about 60%. In addition to that, the EU and the US tariffs against the Chinese-made EVs have also exerted a pressure on our pricing in EU. And for the US market, basically, it is impossible for us to enter. For those influences, they have also affected our inventory management and our destocking progress. We actively started the destocking in 2025 and adjusted our product lineup. But after the adjustment, the logistics have also taken some time and leading us to some late entry to some markets. In 2025, our stock level has been reduced dramatically by 43% to a very healthy level, and it's a very solid ground for 2026. In addition to that, we've also adopted a lean but efficient organization to help us boost our profit margin.

Although we were affected by geopolitics, we also saw some opportunities. For example, the U.S. and UK tariffs have been resolved, especially the U.S. tariffs on the UK have been lowered to 10%. In this way, our EMERA sales in the U.S. have been restored to a normal level. At the same time, Canada has also announced that the tariffs on Chinese electric vehicles have dropped from 100% to 6.1%. In this way, we can expand in North America, especially in Canada. This is also due to the fact that Electra was the pioneer in the United States. It was the first to grab the popularity of Canada. Another good thing is that after the launch of Electra X PHEV, Despite the negative impact of geopolitics,

and tariff, we do see some new opportunities. For example, the tariff between U.S. and U.K. have been settled. The U.K.-made vehicles to the U.S. will be charged a 10% tariff, and it is beneficial news for our EMEA cells. And actually, the EMEA cells in the U.S. have been recovered to a normal status. In addition to that, Canada have also announced a policy towards China-made EV that tariff will be lowered from 100% to 6.1%. It is conducive to our exploration in North America. Given we have already certified electric for the US, it's a good opportunity to leverage such channels to boost our sales volume. In addition to that, for our PHEV, EU at this moment currently kept 10% tariff to Chinese-made PHEV. So this is also a good window opportunity for us to launch PHEV in October to EU markets.

Although the US and Europe have been affected by the tariffs, we have performed well in China in the past 25 years. China's delivery volume has increased by 3% from 2,800 units to 2,900 units at the same time. The overall speed has won over China's luxury car market. China's luxury car has more than 400,000 The passenger car market fell by 4.4%, but we increased by 3%. This shows that Lianhua's products are very competitive. It's not easy to maintain steady growth in this intense competitive environment. This also shows that Lianhua's brand can gradually be strengthened.

Despite the challenges that we've seen in the US and EU markets, we do see some positive feedback from China markets. Our sales volume has been increased from 2,800 to 2,900. an increase of a 3% year on year. And actually in 2025, the luxury market in China priced over 400,000 RMB, dropped to 4.4%. But in that circumstances, we actually kept a 3% increase. And it is a demonstration that Lotus product is very competitive. We can achieve stable increase in such a fierce competition. And the brand of Lotus have been gradually recognized in China market.

Especially in 2026, after the introduction of the super hybrid, we can enter a wider market. For example, in Italy and Spain, where the pure electric process is relatively slow, we can reach a wider audience. People who are anxious about pure electric vehicles can choose the super hybrid.

In 2026 as we are going to roll out the PHEV in different markets, it will help us to reach a wider market. For example, some markets with a slow adoption of EVs, such as Italy or Spain. And it will also help us to touch a wider customer group who may have a range anxiety about battery electric vehicle. And in the future, we are pretty confident that 2026 is going to be a year for Lotus to recover.

At the same time, we are also expanding our new market, such as the market in Brazil. We have set up a retail store in Brazil.

In addition to that, we're also exploring new markets such as South America, Brazil. We've already had a dealer there.

The shop is going to be opened in mid of this year and the first batch of the vehicle has been wholesale.

Again, in summary, despite those negative influences from last year, we see some positive opportunities lying ahead. Thank you.

Okay, great. Appreciate it, Tyler. Just to follow up on this volume perspective, so after the launch of LOTUS for me, the PHEV model, which have started the release by the end of last month, um could you provide an update on the current order intake and delivery progress and could you like uh elaborate more about the volume expectation and the strategic positioning this big model thank you

This is the first plug-in hybrid vehicle in 78 years. It has redefined the real high-performance, which can support the daily life, allowing users to have more options and applications for this kind of scenario, and thus expanding the user group. Now, on the core platform, the brand's human resources have increased by fivefold, This group of consultations reached the top 20 in the industry on the Douyin platform. On the hammer platform, the attention of the Japanese army has reached the top 10 in the country with more than 500,000 SUVs, and the exposure of users has been completed. At the same time, the awareness of our brand has also reached a historical high.

After the launch of the 4Me on 29th March, the order status is actually telling our expectation. 4Me is the first hybrid model of Lotus in the past 78 years. It redefined the hyper SUV to cover all scenarios and this is one of the reasons that we can reach a wider customer group. Our consumer assets have been increased by five times. And on the Douyin, the TikTok equivalent platform, we rank the 20th on the vehicle consultation target. And on other integration platform, for the vehicle priced above 500,000 RMB, we rank the 10th. And in other words, those indicate that 4Me and Lotus gains greater visibility and exposure and wider brand recognition.

In China, the mixed SUV sales of more than 400,000 people are still increasing. In 2023, the sales amount was 140,000. In 2024, the sales amount reached 280,000. The increase is nearly 100%. In the case of the general decline of the luxury car market, the mixed model can maintain growth. For PHEV, particularly PHEV SUV priced above 400,000,

In China, we see a trend of increasing. In 2022, the total volume of such segment is around 140,000. In 2024, it increased to 280,000. And in 2025, we see it is getting closer to 290,000. In other words, for PHEV in China, now it is a good time to enjoy the benefits.

The more important thing is that the chain of users has been expanded. In the past, most of the people who bought our electric vehicles were entrepreneurs, mainly entrepreneurs. Now, more and more corporate executives are paying attention to our models and buying our models. At the same time, the age group has also been expanded. Lotus for me helped Lotus to reach a wider customer group.

In the past, the customer who are interested in our BEV of offerings are most entrepreneurs and the owner of a business or business owners Now the company management actually shows their interest in our product. And for our target customer age group, previously it's a bit younger. Now we reached to a more senior age level.

In terms of our positive and negative ranking, Baoma X5 users and Baoshijie Cayenne users have become our highest attention.

Among all those customer groups, the owners of the BMW X5 and also Porsche Cayenne shows the great shows greatest interest on our product.

This car was delivered in Europe in the second half of the year. The European interlocking type is also growing very fast, especially as the demand for this distribution is getting more and more severe. Europe's new energy penetration rate is also increasing as is China. At present, Europe's PHEV receives only 10% of the basic tariffs. As for pure electricity, we are currently at 28.8%, which is equivalent to the advantage of 18.8% tariffs. So this is also a very good window period for us in Europe. European manufacturers are also very confident.

We are going to launch this for me or ElectraX in the second half of the year to EU markets. And for EU market per se, the PHEV penetration rate is also getting higher. Even the emission regulation is getting stricter. The tariff for Chinese made PHEV in the EU is 10%, and for Chinese made EV is 28.8%. There's a difference of 18.8%, which means this is a good opportunity that we cannot reach.

Europe's hybrid vehicles are also constantly growing. In the past 25 years, China China China

In the EU, PHEV are increasing, particularly from 2024 to 2025. There's an increase of 7.2% in some major cities, Spain, Italy, and Germany. And in 2025 December itself, we see an increase of 30% year on year.

推出的这个混动车型将是公司的产品矩阵更为完善和平衡。 It has redefined the target market area of power distribution, allowing the mainstream luxury car users to have more choices. The super hybrid and pure electric models will promote further expansion of our market coverage for different segment markets, and enter wider markets, such as Italy and Spain.

And overall speaking, the PHEV is going to help us to have a well-balanced product lineup and product portfolio and give our targeted luxury consumers more options to choose. The BEV and PHEV from Lotus will help us to acquire more market share and wider market coverage.

Thank you.

Okay, got it. Appreciate it.

Thank you. We will now take our next question from Brian Launter of SACS Small Cap Research. Please ask your question, Brian, your line is open.

Thank you for taking my question. It was really encouraging to see the improvement in gross margin going up to 9% for the full year and 10% in Q4. Obviously, services appear to have driven a lot of that. How recurring do you think that is? And do you have any guidance for 2026 gross margins?

Thank you, Brian. The company's gross margin improvement in 2025 was driven by three key factors. First, as Ms. Song has just elaborated, we successfully cleared aged vehicle inventories in the first half of the year. Then the second half saw a higher proportion of new vehicle sales and a significant reduction in overall variable sales subsidies. And second, we continuously reduced material costs through GD's centralized procurement platform. And third, we increased the share of the high margin service revenue, which lifted the overall gross margin. And looking ahead to 2026, despite significant external headwinds such as continued price increase for core components like batteries and chips which will put pressure or gross margin expect total procurement costs production costs and unit DNA to all decline at the same time they expect to maintain overall production pricing at current levels leading to further gross margin improvement and in addition the ongoing merger with the UK It is impacted to enhance the production and efficiency and further support our gross margin growth. Thank you.

Great. Thank you. That's helpful. Obviously, operating expenses were cut significantly in 2025, which helped to narrow your operating loss. Could you talk about any key cost control measures that you've implemented and whether you feel like they're sustainable in 2026?

Yeah, thank you. So the company's cost control plan consists of structural long-term initiatives rather than these temporary measures. On the R&D front, the company fully leverages GD's R&D and resources, enabling us to reduce investment in general-purpose technologies and focus on cutting technology development, thereby improving our R&D efficiency. And on the marketing front, The company dynamically and flexibly manages marketing spend to enhance marketing efficiency that Ms. Hong has elaborated. And on the management front, the company strictly controls administrative expenses, streamlines the organizational structure, and optimizes the personnel management frameworks to improve operational efficiency. And we believe these factors will continue to play a positive role in 2076. Thank you.

Great. That's all I had.

Thank you. Thank you very much for the questions. I'll now turn back to the room for questions from the webcast.

Thank you for all the questions via conference call. We will now be answering the rest of the questions via webcast. Our first question is, service revenue grew 69% year-over-year in 2025. What are its core breakdown and key drivers behind it?

I'll take this question. The company's service revenue primarily consists of R&D service revenue and vehicle service income. In 2025, R&D service revenue accounted for over 75% of the total, with customers including first-tier OEM manufacturers. This fully demonstrates the market's strong recognition of the company's R&D capabilities, as well as the company's ability to commercialize our intellectual properties. Thank you.

Our second question from the webcast is, what's the implication that the recent rise in global oil price has on the company?

Especially the rise in oil prices is undoubtedly a great opportunity for new energy vehicles, especially for our super hybrid products, which can be used for oil and electricity, and can meet the needs of multiple users. . . . .

Well, I think it's good news for a new energy vehicle and a good opportunity for us, particularly for PHEV, because for me, our first PHEV model can be solely driven by gasoline fuel or solely driven by battery. It caters to all different types of needs from our consumers. And its consumption of both fuel and electric are very low. As I previously mentioned, the comprehensive fuel consumption is only 0.07 liters per 100 kilometers. And even at the depleted status, the fuel consumption is only 6.1 liters per 100 kilometers. So overall, this is a good opportunity for us to catch.

Especially in the markets such as the Middle East,

where the charging infrastructure has not been very mature, the BEV adoption rate is slow. In those markets, we believe the PHEV model, for me, is going to play an important role.

Of course, there are also some challenges. For example, because of the rising oil prices, the cost of the entire industrial chain is rising. This will also lead to some industrial chains, for example, our BOM costs may increase. This is also a disadvantage.

Of course, we do see some headwinds given the hikes of oil price. For example, the cost of our supply chain might be increased, and the bomb cost might be also increased correspondingly. And those are some negative influences we may see.

Of course, it will also bring some luxury gasoline vehicles to accelerate the layout of the new energy brand. For example, recently, to launch its power-saving card. Even the public is using it to build some new cars.

And some of these established luxury OEMs may take this opportunity or feel the pressure to accelerate their pace into PHEV arena, such as we see Bosch has been releasing the KEN BEV model, and we also see that Volkswagen Group are launching some range extender models.

Of course, for Lotus, we will keep demonstrating our spirit to differentiate and the customization and play a leading role in this front.

Thank you.

of the question and answer session. And with that, I'll now hand the conference back to Ms. Michelle Ma for her closing comments.

Thank you all again for joining us today. We will conclude the call now. The investor relations team remains available to answer any further questions that you may 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.