Lotus Technology Inc.

Good day and thank you for standing by. Welcome to the Lotus Technology first half 2026 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 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. Please be advised, today's conference is being recorded. I'd now like to hand the conference over to your first speaker today, Ms. Michelle Ma, Head of Investor Relations. Please go ahead.

Thank you, operator, and welcome to Lotus Tech's first half of 2026 earning call. My name is Michelle Ma, the Head of Investor Relations here at Lotus. With me today are the CEO, Mr. Qingfeng Feng, and the CFO, Dr. Daxue Wang. Our conference call materials were issued today and available on our Investor Relations website. We are also broadcasting the call via webcast. Before we continue, please be reminded that today's discussion will contain forward-looking statements. First went to the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual future results may be materially different from the views expressed today. For the information regarding represented certainties is included in the notice text relevant following with the U.S. Securities and Exchange Commission. The company undertakes no obligation to update any forward-looking statements except as required under applicable laws. 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 these figures in the press release available on our investor relations website at ir.group-lotus.com. With that, I'm delighted to turn the call over to our CFO, Dr. Wang Li.

Thank you, Michelle. Good morning, good day and good evening. distinguished shareholders, analysts, and media friends. Thank you for joining our first half of 2036 learnings release. Again, this is Daxue Wang, the Chief Financial Officer of Lotus. I'm excited to brief you the audited financial results of the company. In the first half of 2036, the company delivered 3,904 units, representing like a 39% year-over-year increase of performing the reference traditional premium and luxury segments. This solid delivery performance reflects the company's growing market presence and competitiveness, producing in the high-end automated sectors Strong delivery growth directly drove revenues up 23% year-over-year to $268 million for the first half of 2036, with strong momentum in the China market Average selling price dropped slightly by 3% year-over-year, attributable to an increased sales peak of the lower-priced Electro-X. Gross profit rose 47% year-over-year to $26 million, while gross margin expanded 1.6% to 10%. This improvement was supported by a favorable product mix following the successful launch of Electro-X. are the first-ever PHEV in its 78-year history, marking the early validation of our multipower train strategy. To maintain our disciplined cost management trajectory, the operating loss narrowed 63% year-over-year to $97 million in the first half of 2026. This improvement stems from rigorous financial management, better operating leverage and a one-off license fee refund linked to the product pipeline adjustments. Excluding these one-off items, the operating loss narrowed 26% year-over-year to 195 million US dollars, demonstrated the company's ongoing focus on driving operational efficiency and upholding the strict financial discipline. And in May 2026, we unveiled our Focus 2030 strategy, which Ms. Feng will address in his remarks. This improved financial outcomes so as tangible proof of our progress against core pillars of Focus 2030, namely our multi-power train strategy and commitment to financial discipline, which are translating into measurable operational and financial advancement. In the first half of 2026, Lifestyle vehicles deliveries made up 77% of companies' total vehicle deliveries for the period, driven largely by the successful market introduction of the Electro-X in China. China market deliveries grew 60% year over year, keeping China as the company's largest market and accounting for 58% of total deliveries during the period. Deliveries outside China rose 17.4% year over year, including 45% growth across the Americas and 164% growth in ROW. European delivers 570% year-over-year amid intensifying competition in the luxury BEV segment. In Europe, we will continue to refine inventory management, enhance product value, and enforce pricing discipline to protect residual values and rebuild momentum. Electronics opened for stores for orders across mainland Europe on June 3rd, with customer deliveries commencing in the fourth quarter. UK launches will follow in mid-2027. We expect this new model to fuel delivery growth over the upcoming quarters. China market deliveries expansion outpaced overall growth across China's premium passenger vehicle segment. This result underscores the strong inherent of the Lotus full product portfolio even made mounting competition across the border for the auto industry. Now let's move to the half year financials. Overall, our first half 2026 financial performance improved meaningfully versus the prior year period. I've already covered deliveries, revenues, and gross margin. I will not repeat them here. In line with revenue, cost of revenues for first half of 2076 stood at $242 million of 21% year-over-year As a result, gross profit reached $26 million, a 47% year-over-year increase Operating expenses during the period came in at $127.5 million, a 46% year-over-year, primarily comprising the following and the expense stood at negative 2 million US dollars in the first half due to the aforementioned one-off items. Steeping out of this specific special one-time adjustment, and the expenses totaled 96 million dollars, a modest 4% year-over-year interest versus 92 million in the first half of 2075, driven by technology investment for the Electro-X. Selling and marketing expenses increased to $83 million of 5% year-over-year The uplift reflects higher sales commissions tied to driving vehicle volumes alongside marketing activities for the Electro-X launch in China and the pre-launch campaigns in overseas markets General administrative expenses decreased to 46 million U.S. dollars, down 27% year-over-year, as we tightly control travel, agency, and other costs, and optimize our organizational structures. With the above, even excluding one of the effects, the operating expense-to-revenue ratio improved from 107% in first half 2027 to 84% in first half 2026. reinforcing our priority to lift operational efficiency and maintain strict cost controls. Accordingly, operating loss and net loss for the first half of 2026 narrowed 63% and 52% respectively. Our non-GAAP adjusted basis, adjusted EBITDA loss for the first half of the year narrowed 57% to $104 million, compared with the $240 million 40 million US dollars loss in the same period last year. Beyond high demand metrics, I would like to emphasize that we have delivered a sustained operating expense reduction through the value driven initiatives. This reflects our continued focus on cost optimization and operational efficiency. And looking ahead, We aim to advance towards profitability and create long-term shareholder value by maximizing product positioning, expanding margins via optimized product mix, and executing rigorous cost reduction actions. With that, I'll hand over to Miss Feng. Thank you very much.

Hello, everyone. I'm Jun Feng, CEO of Lotus. Thank you all for participating in the first half of the COVID-19 launch conference. In the first half of the year, the company achieved an improvement in core management indicators and gradually landed our FOX 2030 strategy plan. Next, I will introduce it to you in detail.

Good day, I am Feng Qingfeng, CEO of Lotus Tech. Thank you for joining us in the Lotus Tech's first half 2026 earnings call. In the first half of the current year, we delivered improvements across all our core operating metrics and steadily rolled out the focus 2030 strategy unveiled earlier of this year. I will now walk you through the details.

First of all, we have developed some highlights recently. We are still following the English track, the racing field, and other brands to expand the new market and new products. After the launch of the new SUV, the SUV was officially launched in the Canadian market and arrived in July. This marks the first Chinese-made luxury electric car to be sold in Canada, which is also an important milestone in strengthening North American rules.

We will start with recent development highlights rooted in our British heritage of trap-bred performance. We continue to strengthen our brand DNA while seizing new opportunities in emerging markets and product segments. Following its official launch in the Canadian market, the all-electric hyper-SUV Electra arrived in the country in July, marking the first time Chinese-made luxury EVs hit the Canadian market and representing a significant milestone in Lotus' efforts to expand its North American footprint.

This year, we launched our first product, Electro-X, which is well-known in China. After being sold in China, it has been popular and has led to a market share of more than 500,000 yuan in China. In the second quarter, it increased by nearly 2%. In June, Electro-X officially opened in the European continent and is expected to start selling in the fourth quarter.

Our first hybrid offering this year, the Electro-X, known in China as 4Me, has received an easy response since its domestic release. The model has helped lift the Lotus market share in China's passenger vehicle segment, priced above RMB 500,000 to nearly 2% in the second quarter. In June, we opened orders for the Electro-X in the EU market, with deliveries scheduled to commence in the fourth quarter.

We are continuing to launch limited edition sports car products. For example, we launched the Emera 420 Sport in May. Everyone calls it the King of the Boundaries. While it has increased horsepower, it has also reduced the weight of 25 kilograms, making Emera more capable of crossing the border. In July, we launched the Emera Square Limited Edition in China. This is a support for the 2017 XCT Square. In China, there are nine limited editions, 60 in North America, and one in the military.

We continue to refine and roll out limited-edition sports cars in May. For instance, we introduced the Emira 420 Sports Edition, widely held by enthusiasts as the corner king. With a power boost and a 25-kilogram weight reduction, the Emira 420 delivers even sharper cornering poise. In July, we launched the Emira Skura Limited Edition in China, attributed to Exige Skura from 17 years ago. With only 9 units allocated to China and 60 to North America, the entire run sold out immediately. Under the Focus 2030 strategy, we will unveil the Type 135 mid-engine with 8 hybrid hypercar in 2028.

In July, EMEA set a new EV lab record at Malaysia's Sipai International Circus, surpassing the previously publicly recorded Fardis EV lab by a significant margin, yet another testament to Lotus' performance credentials. In addition, Lianhua also issued a 2025 Sustainable Development Report, showing our continued investment in global sustainable development. At the same time, we signed an MOU with Web5 platform and leading payment institutions, Formal Fee, to explore the chain of payment in the field of luxury travel and the integrated application of food assets.

Besides, we have published our 2025 sustainability report, underscoring our ongoing commitment to global sustainable development. Meanwhile, we have signed MOUs with the Web5 platform FinLoop and the leading payment institution FormalPay to jointly explore compliant applications of on-chain payments and reward assets to organizations within the luxury mobility space.

Next, I would like to focus on the company's recent and newly released FOCUS 2030 strategic plan. to adapt to the changing external environment. Through this strategy, we have repeated the core strategy of Lotus. The four main strategic pillars include, first, the 78-year-old Maldonian Lotus, the channel control machine to strengthen the brand's inheritance. Second, the multi-power overall strategy to flexibly respond to the needs of global users. Third, rely on the integration of One Lotus and the integrated ecosystem to further reduce the cost efficiency and optimize financial performance.

Now, let me turn to the recently unveiled Focus 2030 strategy designed to adapt to an evolving external landscape. This strategy redefines Lotus' core strategic positioning, which rests on four pillars. First, anchoring our brand heritage in 78 years of track-hung driving dynamics. Second, adopting a multi-power train strategy to flexibly address diverse global customer preferences. Third, leveraging the One Lotus integration and the Gilead ecosystem synergies to further drive cost efficiencies and operational effectiveness. Fourth, optimizing financial performances to achieve profitability at an annual sales volume of 30,000 units, delivering a lean yet productive sustainable growth model.

FOX 2030's first major pillar is the strengthening and inheritance of the brand foundation. and Yituo to provide extreme driving pleasure to drivers.

Focus 2030 Pillar 1, strengthening and passing on our brand heritage. Lotus is rooted in the British racing pedigree and powered by Geely's global leading technology, together enabling the purest driving engagement for enthusiasts.

On this basis, we have developed a different brand landing strategy for the core areas of the world. In Europe, we have developed a chain of brands on the original track, and through a multi-power product combination, we have strengthened the brand influence. In China, we have grasped the consumer needs of high-end new drivers, and have built the chain into a luxury electric car market, which is a representative of high-performance and intelligent brands. In the United States, we use sports cars as our main product. Through the launch of Eletro in Canada,

On this very foundation, we have tailored brand activation strategies for each of our core global regions. In Europe, we are capitalizing on Lotus TrackPorn brand premium, reinforcing our presence through a multi-part train product portfolio. In China, we are tapping into the rising demands for premium new energy vehicles, positioning Lotus as a brand that embodies both high performance and intelligence in the luxury EV segment. In the Americas, our focus remains on sports cars, while the electric launch in Canada serves as our entry point into the North American lifestyle vehicle segment. We are also concurrently expanding our sales network across South America. In other regions, we continue to broaden sales channels, step up brand building efforts, and reach new customer segments.

China, China, China, China, China, China

As of June the 30th, Lotus has established a well-balanced global sales network with 217 retail locations, which break down into 60 stores in Europe, 65 in China, 53 in the Americas, and 39 across the rest of the world. China and Europe remain our two core volume contributors, while North America stands as our largest market for sports cars.

The second major factor in the 2030 strategy is the energy strategy. in 2018.

Back in 2018, Lotus was the first luxury brand to commit to full electrification. However, we have since recognized that the global transition to electrification is far from uniform. In response, we have adjusted our strategic direction in a timely manner, choosing to pursue pure electric, hybrid, and internal combustion powertrains in parallel. Every one of our products remains uncompromisingly driver-centric.

In terms of products, our first hybrid model was launched in March this year. It will also be delivered in Europe in the fourth quarter of this year. Later, we will build the next-generation super sports car Type 135. This is also a hybrid product, with two power versions, V6 and V8.

Our first hybrid model, the Fumi, made its Chinese debut this March with European deliveries scheduled for the fourth quarter. Looking ahead, we are focused on developing our next-generation hypercar, the Type 135, and also a hybrid available in both V6 and V8 powertrain variants.

We hope that this sports car product can become a flagship product to improve the overall profitability of the company.

The Type 135 will fill the gap between the eMira and the eVaya, preserving the emotional connection eMira owners have with Lotus mechanical handling while leveraging V8 hybrid technology to approach the technical benchmark set by the eVaya. This creates a natural product upgrade and elevates the brand upwards. Through a combination of lightweight design and chassis responsiveness, the Type 135 will demonstrate that Lotus still has what it takes to be a technical benchmark in the next generation of high-performance sports cars. We envision this model as our flagship, one that will enhance the company's overall profitability.

In the past 22 years, Lotus has once again launched its Zongzi V8 engine. . . . . We will also work with Hofer and Pulse to jointly develop 8DCT While doing large torque, the weight will be lighter In terms of the sports car series, as mentioned earlier, we optimized the product and launched Inera 420 Also launched some personalized products such as Inera Square We will continue to launch Inera's foldable belt in the future Improve Inera as the last fuel-powered sports car price

The Type 135 has already generated tremendous excitement among Lotus fans worldwide. After 22 years, we are bringing back a mid-engine V8 powered motor with over 1,000 horsepower, while targeting a total weight of around just 1.5 tons. Lightweight engineering is both our greatest strength and our biggest challenge here. Achieving that target with an 800-voltage architecture, a hybrid system, a V8 engine, and electric motors all within just 1.5 tons is not easy. To put that in perspective, while a typical 150-kilowatt motor weighs between 75 and 95 kilograms, we have leveraged Formula One technology to bring it down to just 20 kilograms. We are also co-developing an eight-speed DCT with force, designed to handle high torque while keeping weight to a minimum. On the sports car front, as mentioned earlier, we have introduced the Emira 420 and special editions such as the Emira Skura. We will continue to roll out new Emira springs going forward, reinforcing its value as Lotus' final pure combustion sports car.

. . . . .

In the lifestyle vehicle category, we are also introducing the Electro 900 Gold Edition and EMEA 900 Gold Edition, available for pre-order starting August. We will keep refining the product's competency in this segment. The launch of the Electro-X has given the mainstream luxury vehicle buyers more choices, and will further expand the Lotus market reach and customer coverage.

Focus 2030's third major strategy is the ecosystem of ecological integration and cooperation. The ecosystem is divided into two parts. One is the integration and integration, and the other is the ecosystem integration and cooperation.

Focus 2030 Pillar 3, Deepening Ecosystem Synergies with Partners. Our ecosystem synergies are built on two core pillars, Lotus Integration and Deeper Collaboration with the Gilead Ecosystem.

Last Friday, on August 21, we officially completed the acquisition of Lotus UK and are rapidly advancing comprehensive integration work. This integration will combine Lotus UK's track and track technology with Lotus technology.

Last Friday on August 21st, we formally completed the acquisition of the Lotus UK and we are now accelerating the comprehensive integration process. This integration combines Lotus UK's track-bred racing DNA with Lotus Technology's cutting-edge technologies, further sharpening Lotus' distinctive positioning in the luxury automotive space.

Thank you. We are committed to the one Lotus strategy on three fronts.

Brand, we will maintain a globally unified premium luxury, ultra luxury brand identity, ensuring that the Lotus brand image, product experience, and the customer perception remain consistent across every market. Governance. Our governance structure will be further streamlined to enable more efficient decision-making, agile resource allocation, and faster responses to market shifts, allowing us to channel greater focus into product development and customer experience enhancement. Synergy. Through coordinated efforts in technology sharing, supply chain integration, and unified management, we will eliminate redundant investments and fragmented resource allocation, delivering a dual uplift in brand value and operational efficiencies.

We will also continue to deepen the competitive advantage of a system-based competition that is difficult to replicate in other independent luxury brands, including advanced technology, including this pure electricity, hybrid, and smart solution. We are in the field of electrification and smart technology to keep the industry leading, reduce costs, and shorten the production cycle of new technologies. . . . . . can help Lianhua to accelerate product landing, expand business scale, and establish cost advantage.

We will also continue to deepen synergies with the Gili ecosystem. The Gili Group provides loaders with systematic competitive advantages that other independent luxury brands could find hard to replicate, including advanced technologies. Across pure electric hybrid and intelligent solutions, Gili's platform enabled us to stay at the forefront of electrification and smart technology while reducing costs and shortening the golden market duration for new technologies. By leveraging Geely's shared platform, Lotus can concentrate its R&D efforts on signature technologies such as lightweight engineering, aerodynamics, and chassis tuning. Mature Supplying Chain With access to Geely's global procurement scale and supplier network, we can secure high-quality components at more competitive costs, effectively hedging against the raw material price, volatility, and geopolitical risks. Flexible Manufacturing Geely's global distributed flexible production system helps Lotus to accelerate product launches, scale up operations, and build cost advantages.

. . . . . .

Such collaboration is bi-directional empowerment, Lotus proprietary know-how, extreme handling, aerodynamics, lightweight engineering, and chassis tuning feed back into the Zilis ecosystem in return, driving technological advancements across the broader group. Our Lotus Engineering division, in particular, covering 12 service domains including design engineering, vehicle dynamics, chassis, and lightweight solutions, have been providing engineering service to the world since its founding in 1952, empowering not only Geely but also the wider industry. We maintain ongoing joint development programs with Geely's R&D teams to ensure that Lotus' unique driving DNA is fully preserved.

Focus 2030's strategy is to optimize the financial situation. Under the Focus 2030 strategy, we place great emphasis on quality growth. As our product portfolio matures, we target annual sales of 30,000 units and sustainable profitability. . . . . . The second one is to maximize the net profit. The goal is to increase the net profit by more than 20% in 2030. In terms of income, by strengthening the brand, listing and customizing new models, and increasing the average price and profit rate, the cost is based on the cost-efficiency structure of the joint and local supply chain and the co-operation and scale-up of the production chain. The third is that on the basis of the first two points, we strictly implement the cost control. The goal is to reduce the net profit by 25% in 2030.

Our path to achieving these objectives rests on three key drivers. First, delivering steady volume growth through brand building and portfolio expansion. With the launch of the Electro-X in 2026 and the Type 135 in 2028, we are fully leveraging the flexibility of our multi-power chain strategy to capture differentiated demands across different markets, continuously expanding product portfolio for volume ramp-up. We expect a compound annual growth rate of 36% in sales volume from 2025 to 2030. Second, driving sustained growth margin improvements with a target of exceeding 20% by 2030 On the revenue side, we will raise average selling price and margin through brand strengthening, new model launches, and customization offerings. On cost side, we will leverage loaded integration, daily supply chain, and product synergies and economic scale to effectively optimize cost control. Third, adopting strict expense discipline based on the first two drivers, we are implementing rigorous cost control codes as Gen A and R&D with the goal of reducing the combined share of revenues to below 25 by 2030, enabling our EBITDA to turn positive.

Thank you.

In summary, Focus 2030 provides a clear and actionable profitability roadmap, drive volume growth through product extension, lift growth margins through brand premium and cost discipline, and deliver positive earnings through integration synergies and lean operation. Our first top 2026 business performance already reflects our firm commitment to moving in this direction.

Thank you all.

Thank you. We will now begin the question and answer session. If you would like to ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. If you are able to, please translate your questions into Chinese. Please stand by while we compile the Q&A queue.

Thank you. We will now take the first question.

This is from Laura Lee from Deutsche Bank. Please go ahead.

Thank you for taking that question. Firstly, I want to check about the Lotus for me, the PHEV model. Since it was launched in March, could you discuss the order intake, the delivery, and the initial market response and the customer profile? and what are your expectations for the four-year sales and margin?

And what are your expectations for the four-year sales and margin? And what are your expectations for the four-year sales and margin? And what are your expectations for the four-year sales and margin? And what are your expectations for the four-year sales and margin? And what are your expectations for the four-year sales and margin? At present,

At present, four-meat deliveries are primarily concentrated in China as of June 30. Cumulative orders of four-meat in China stood at 2,200 units, with deliveries exceeding 1,800 units, largely in line with company expectations. EU deliveries are scheduled to commence in the fourth quarter, with markets in the Middle East and other regions to follow in December. As a hybrid model featuring a smaller battery pack and lower farm costs, the Bomi commands a higher growth margin than our pure electric vehicles. In addition, the model benefits from deeper collaboration with Geely, leveraging platform sharing and economic scale, which further supports a healthy margin profile. Production and self-performing are still in the ramp-up phase, and we are confident that the margins will continue to improve as we treat steady-state volumes

In the first half of the year in 2026, the sales of car-only vehicles with a market of more than 500,000 in the Chinese market fell by 18.5 million, which fell by 12.8% in the same ratio. But the new energy penetration rate increased to 40.2%, mainly due to the rapid increase in the penetration rate of mixed vehicles. From 0.9% in 2025 to 21.6%, the sales increased by more than 20 times, reaching 40,000. and Zeng Cheng to become the largest new energy segment. In March, the company launched 4Me. In China, the number of cars in the market has increased by nearly 2% in the second quarter. The user structure of 4Me is also very outstanding. So far, the total number of new customers has increased by 63%. More than 70% of consumers have chosen the high-end version. In the second half of the year, we will integrate and others, and continue to spread the product's popularity and sales rhythm. Because of the increase in hybrid models, the channel layout of Lianhua in China has been further improved, strengthening the layout of northern regions, especially the northwest and northeast, to open up new markets for the next sales growth.

In the first half of 2026, the Chinese passenger vehicle market priced above RMB 500,000 recorded sales of 185,000 units, down 12.8% year-on-year. However, new energy penetration in this segment climbed to 40.2%, driven primarily by a sharp rise in VHF penetration, from 0.9% in 2085 to 21.6% in the first half of 2026. have self-searched more than 20 folks year-on-year to 40,000 units, overtaking range extenders at the largest new energy sub-segments. Using this opportunity, Lotus launched 4Me in late March, lifting our market share in China's above RMB 500,000 passenger vehicle segments to nearly 2% in the second quarter. The customer profile of 4Me have also been highly encouraging. To date, 63% of buyers are new to the Lotus brand, and over 70% of customers have opted for the higher spec variants. In the second half, we were the same momentum to integrate the test drive experience events and ongoing word-of-mouth marketing to maintain product bias and sales cadence. With the addition of hybrid models, Lotus dealership footprint in China has been further optimized, particularly in the northern region, with trends in the northeast and northwest, opening up new markets for future sales growth.

In the first half of Europe, we officially launched Electro-X's order collection. In the second half of the year, we will provide new energy for future sales growth. In the first half of the year of 2026, the sales volume of more than 700,000 SUVs in Europe was 1640,000. New energy penetration rate remained at a 52% high, of which mixed SUV sales volume was 58,000, accounting for nearly 70% of new energy. . . . . . . . . In Europe, we formally commenced the order taking for the Electro-X in the first half, adding a fresh growth driver for the second half and beyond. In the first half of 2026,

EFUV cells above 70,000 euros reached 160,000 units with new energy penetration remaining high at 52%. Within that, PFSUVs accounted for 58,000 units representing nearly 70% of the new energy mix. We conducted multiple rounds of marketing pre-launch activities in Europe during the first half generating positive market feedback and establishing a solid foundation for the product rollout. In parallel, we have been advancing our digital marketing strategy across Europe, building a customer pipeline to support order conversion in the second half and further expanding our prospect base. Our EU marketing strategy will gradually shift from brand awareness to self-conversion, leveraging diverse in-depth experience events and sustained digital engagement to strengthen customer relationships and improve conversion rates. The introduction of the Electro-X have effectively enabled us to access market segments and niches that our pure electric offerings alone could not cover. As such, we are equally confident in the incremental volume that the Electro-X will deliver following its European launch and deliveries.

Thank you.

I appreciate the caller. Secondly, I want to talk about the Type 135 hybrid sports car that you're planning to launch. Could you provide any update or could you introduce a bit like the strategic rationale or logic behind this model?

Type 135 is a high-performance hybrid product that is very important in the next phase of the Lotus industry. At the brand level, As mentioned earlier, TEP135 is a medium-sized V8 product launched again in 22 years. It will process high-performance sports cars with the technology of high-performance sports cars with the technology of high-performance sports cars with the technology of high-performance sports cars with the technology of high-performance sports cars with the technology of high-performance sports cars with the technology of high-performance sports cars with the technology of high-performance sports cars with the technology of high-performance sports cars Type-135 mixed flagship supercars, Evia, collection level high-performance hybrid cars, and complete sports cars to lead the chain to the top. Emira has GT4, we will participate in the GT4 competition, and we also achieved some results. For example, in Macau's Grand Prix, we beat GT3. After the Type-135 comes out, we will enter the GT3 competition style. At the same time, the launch of the Type-135 can also support the lifeboat series. The Type 135 is a critical high-performance hybrid product for Lotus in the next phase of our development. As mentioned earlier, the Type 135 marks the return of a mid-engine V8 model after 22 years.

Leveraging Lotus' expertise in aerodynamics, lightweight engineering, and chassis tuning, the Type 135 will establish a new technical benchmark for high-performance sports cars, reaffirming to the market our ability to translate track-bred engineering into extraordinary road and driving experience. and the third spot deletifying the Lotus brand air source and image. The Type 135 will bridge the product gap between the E-Mira and the E-Vaya, creating a complete sports car portfolio that spans the E-Mira as an engine-level combustion sports car, the Type 135 as a hybrid flagship hypercar, and the E-Vaya as a collectible ultimate performance hypercar. positioning the Lotus brand for a decisive upward move. On the motorsports front, the E-Mira already competes in GT4 events, where we have achieved notable results including podium finishes at the Macau Grand Prix Greater Bay Area GT Cup, With the Type 135, we will take the next step forward and enter GT3 competitions. Beyond its brand-boosting effects, the Type 135 will also elevate our lifestyle vehicle lineup, complementing the Electra-X Luxury Hybrid SUV, the all-electric Electra Enterprise Sedan EMEA, this multi-powered twin-strategy coverage will enhance brand recognition and appear across our lifestyle vehicle portfolios.

From the demand of the market, the core product sales of the racing market are outstanding. From 2022 to 2025, the annual sales growth rate is 7% to 9%. In 2025, the total sales of the global market reached 150,000 units. It is expected that in 2028, the market capacity can reach up to 190,000 units. In 2030, it can reach 220,000 units. The racing market will increase by more than 600,000 in the United States every year. and over 600,000 European high-end sports cars. In the first half of 2026, the percentage of mixed sports cars increased from 26% in 2025 to 35%. European and American core sports cars have been highly recognized for their built-in sound, mechanical driving, texture, pure electric supercar, and battery capacity. It is hard to persuade the traditional performance buyers. Type 135 mixed sports car, V6 plus V8, can meet From a market demand perspective, sales of our core sports car competitors have been impressive, with a compound annual growth rate of 79% from 2022 to 2025.

Global sports car sales reached 150,000 units in 2025, with the addressable market expected to pick up at up to 190,000 units in 2028 and 220,000 units by 2030. In the United States, above US 600,000 sports car segments have shown steady year-on-year growth, while the premium above U.S. 600,000 sports car market in both Europe and the U.S. is seeing a clear trend towards hybrid transition, with the hybrid share rising from 26% in 2025 to 35% in the first half of 2026. Cool sports car enthusiasts in Europe and the U.S. place high value on the visco appearance of internal combustion engines, sound and mechanical driving technologies, Pure electric supercars constrained by battery weight and charging infrastructure have structured to win over traditional performance buyers. The Type 135 hybrid V6 plus V8 approach offers the ideal solution, delivering compliance with global emission regulations while preserving the essential Lotus DNA of lightweight engineering, aerodynamics, and extreme track-focused driving dynamics, filling a clear gap in the market.

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On the technology front, our Lotus has more than seven decades of history. Limited in-house powertrain capabilities have been our most significant handicap. We have traditionally relied on outsourcing. This time, with Gili's strong support and technology enablement, we are co-developing a high-performance powertrain with HOOS. This collaboration allows them to leverage Lotus core strength in lightweight engineering, aerodynamic design, and sophisticated chassis tuning while tapping into Gillies' resources, global supply chain, and scale advantages, meeting the Type 135's power requirement while balancing R&D, investments, and per unit cost. This technology will be applicable to future generations of the Electro-X.

The type 135 will continue to be the most fundamental principles of the Lotus brand. As the product remains in the development phase, further technical and product details will be disclosed at an appropriate time in the future. Thank you.

Okay, got it. That's very helpful. If I can sneak one more question in. How do you plan to sustain the growth momentum in the second half of this year? How should we think about the growth drivers? Thank you.

按照不同的国家和地区来说一下, 首先是中国,通过一体化的市价体验活动, 保持方便上市的热度和节奏, 维持住Q2的销量节奏, We have also released the Marriott 420 Sport and Marriott Electro E-Maya dual gold 900 series. Through the launch of new high-performance products, we have increased the brand's popularity and value tags, increased market attention, strengthened user operation, and increased user introduction rate. By mixing and strengthening the northern sales channel layout, we have treated some high potential channels, and turned the market opportunity into a sales result.

We have developed different strategies and plans for different regions. For example, for China market. First, we are going to maintain the market momentum and launch cadence for the FOMI through an integrated test drive experience program. Sustaining the sales cadence established in Q2. Second, we have also introduced the Lotus Emira 420 Sports and the Lotus Elettra and EMEA 900 Gold Edition. These high-performance new products will elevate brand awareness, reinforce our value proposition, and motivate market engagement. Third, strengthen customer engagement and increase the customer referral rate. And fourth, Leverage hybrid models to enhance our sales network footprint in northern China, upgrading distribution network in high potential markets to convert market opportunities into tangible sales results.

In Europe, Electro-X will gradually release the market demand that led to the launch of Electro-X. In the second half of the year, the marketing strategy will expose the brand, gradually turn to sales transformation, focus on high-transformation channels and customer operations.

In Europe, we will first start with the launch of Electro-X, which will progressively unlock initial market demand. And second, in the second half, our marketing strategies will shift from brand exposure to sales conversion, with a sharpened focus on high conversion channels. and Customer Relationship Management. Lastly, we will continue advancing channel development in key markets, further optimizing the dealer network and retail operational capabilities.

Baxi is the third largest sales engine in the United States and Canada. In the second half of the year, it will officially start delivery. With the launch of eMailer 420 Sponsor and the launch of Model Year 2, it will strengthen eMailer's driving pleasure and drive center market balance. to meet the needs of production 718 to strengthen the transformation and new addition of open orders to the supply chain.

As for the American region, Brazil, our third largest volume driver in the American region after the U.S. and Canada, will officially commence deliveries in the second half. Besides, with the introduction of the Emira 424 and the Model Year 27, we will reinforce the Emira's driver-centric positioning centered on driving engagements, capture demands created by the discommunication of the Porsche 718, and accelerate order conversion at the dealers while generating new pre-orders.

In the second half of the year, the most important event in other regions is the official listing of a product in the Middle East region. At the end of the year, Electro-X will officially enter the Middle East region, promoting sales growth. In addition, as E-mail 420 continues to enter the global market, it is expected to contribute to sales growth in countries such as the Middle East region and Australia. We will also continue to expand the network, including the high-capacity areas and the Middle East.

For the rest of the world market, the most significant milestone for the second half is the official market launch of the PHEP product in the Middle East, with the Electro-X scheduled to arrive in the region by year-end to drive volume growth. Additionally, as the EMIRA 420 rolls out to global markets, we expect it to contribute to incremental sales in the Middle East, Australia, and other countries and regions. We will also work on continued network expansion, including the Caucasus regions and the Middle East regions.

Thank you.

Okay, got it. Appreciate the conversation. Thank you. We will now take our next question. And this is from the line of Jiang Xiao from Barclays. Please go ahead.

Thank you, Guan Yicheng, for giving me the opportunity to ask a question. I have two questions here. First, I would like to follow up on our Focus 2030 plan. We just mentioned that we have a plan to pay 30,000 units per year, and the interest rate is over 20%, and the transfer rate of EBITDA. I would like to ask, Guan Yicheng, when you set up these goals, what are your thoughts? Then the source of confidence and the current progress And then the second one is that we just finished the acquisition We have now officially handed over the chain to the UK And then can you update us on the financial impact after the exchange And then when will it be released I'll translate it myself. So my first question is about focus 2030. We guided towards a steady ramp up to 30,000 deliveries. Over 20% growth from origin and positive EBIT under the plan. Can management comment on your thinking when setting up these goals? What gave you the confidence and progress you've seen so far? And second is around our Lotus UK acquisition. Can management give us an update on financial impact and guidance post-official closing of the transaction, and when the company will start to disclose consolidated results. Thank you.

First of all, I would like to talk about the first question, and then our CFO will add to it. The second question will be answered by our CFO. First of all, we have full confidence in our long-term business goals. and Zhicheng Logic. First of all, in the brand section, by operating in the global market, for example, Lotus Cup, Lotus driving training, and the launch of the first-ever super-sport Type 13 racing event, we will continue to enhance the brand value by increasing the performance level of the 78-year-old Lotus brand. As for the channel section, as of June 30, there will be 217 retail stores in Europe, China, the United States, and a dozen other countries. are new to the South American market in Brazil, Paraguay, Ecuador, etc. We will continue to expand our channels around the world, continue to optimize and treat existing channels, strengthen user operations, and enhance user conversion. At the product end, we will form a complete car-shaped giant in 2030, which will cover all luxury performance systems, plug-in, pure electricity, and dual power supply. to meet the needs of users in different markets, to promote the brand from the track to the road, and to increase the brand price. Currently, Electro-X, which has been launched, has opened deals in six overseas markets in China. In the fourth quarter, it will enter the European market, and the Middle East region will start dealing with it at the end of the year. The British market plans to start dealing with it in 2027. I will take the privilege to answer your first question and leave the second question to our CFO.

We have strong confidence in our medium to long-term operating targets underpinned by the following pillars. First, the brand. Through global motorsports events, for example, Lotus Cup and Lotus Driving Academy and the launch of the hybrid flagship Hypercar Type 135, we will continue to reinforce Lotus' 78 years performance DNA and elevate brand value. Next, channels. As of June the 30th, we operated a total of 217 retail stores across Europe, China, and the Americas and the rest of the world, with new market entrants into Brazil, Paraguay, El Dorado, and other South American countries. We will sustain global channel expansion, continuously optimize and upgrade our existing network, strengthen customer engagement, and improve conversion rates. Finally, product. By 2030, we will establish a comprehensive product portfolio covering the entire luxury performance spectrum with both plug-in hybrid and pure electric high-volume models to address diverse customer needs across different markets. Our sports cars will showcase those driving DNA running through tracks to roads and enhance brand premium. We have already launched the Electro-X with deliveries underway in China and the six overseas markets. EU market entry is scheduled for the fourth quarter, Middle East deliveries by year-end, and the EU market launch planned for mid-2027, all of which will contribute to volume growth. In 2028, we will also introduce the flagship hybrid hypercar type 135, providing an additional boost to sales height.

Thank you.

Thank you, Michelle, for your questions. I will complement the first question with my views on the financial part, and I will answer your second question. For the first question, I will focus on the financial side to lower the cost. We will focus on driving synergies across multiple stakeholders. First, supply chain collaboration and manufacturing scale with GIDI. For lifestyle vehicles, all 50% of components are shared with GIDI. Leveraging GIDI's centralized procurement and scale advantages. Those have gained access to a broader pool of high-quality global suppliers that enable meaningful cost reductions. And secondly, R&D platform sharing with GIDI. full in-house development of vehicles, architectures by the company alone may require over $1 billion investments. By building ITD's underlying platforms and embedding Lotus-specific technologies, we can materially lower the energy spending. And thirdly, the full integration of Lotus UK will allow substantial energy benefits, synergy benefits. And in parallel, we will diversify revenue streams through the high-end customization and limit addition models. are our target of lifting gross margin about 20%. Concurrently, we'll pursue refined operational management, exercise tax expense control, and further unlock operating leverage to deliver the profit positive. And in sum, under our Focus 23 strategy, we'll prioritize development quality and profitable growth rather than pursuing the sales volume for its own sake. So that's the answer for the first question. I'm going to continue with your second question regarding the synergies with One Lotus. And as you know, the combined Lotus brand will preserve its global consistent positioning as a high-performance luxury provider. The HESL UK site will focus on the ICE and PHEV sports car lines, pursuing a differentiated strategy centered on the limited edition modules. The Wuhan China facilities will need BEV and PHEV lifestyle vehicles under the volume production strategy. We will also prioritize oppositional integrations, binding, shares, R&D, manufacturing, and supply chain functions with the goal of building Lotus into a globally competitive high-performance auto brand. integration and the synergies across the shared and the capabilities and supply chain corporations will enable the further cost reduction and efficiency gains for the group. And financially, we expect top line growth for two key reasons. First, EVRA vehicle sales in the US will be fully recognized as gross vehicle revenue. A pre-consolidation such proceeds were only accounted for under the net revenue method. And second, Service revenue from Lotus UK will be consolidated into the next company, bringing in Lotus UK's vehicle and service. Growth margins will also improve the group's overall growth margin profile. From an expense standpoint, the near-term consolidation of Lotus UK's R&D administrative and other costs may result in wider growth-level loss. Going forward will strengthen the integration across R&D commercial and support functions teams, from both organizations streamline the organizational structure adopt lean cost management practices and lower the operating expense to revenue ratio. Given this is a business under the combination under the common control pursuant to the financial disclosure rules the company is required to carry out retrospective restatement for the consolidated financial statements. This statement for the fiscal year 2035 has been initiated They expect the stated financial statements to be disclosed a little later than the release date of the 2036 annual report. And for this part, please stay tuned with our announcement and public release. Thank you.

Thank you. Very helpful.

Thank you. We will now take our next question. And this is from Brian Lantier from Zax. Please go ahead.

Good evening, everyone. Thank you. Really impressive results considering the challenging operating environment in the domestic market in China. I'm just going to tighten together a couple of questions together into one. Could you talk about some of the drivers behind the gross margin improvement from 8% to 10% in the first half? I have a sense that you've already touched on this. It's probably a shift in mix towards the lifestyle vehicles. So despite a lower average selling price, we're seeing better margins there. And then also, if you could just give me a little bit of an insight into how memory costs are impacting your margins and what your outlook for that is going into 2027. Thanks.

Thank you, Brian. I'll take your question. The gross margin improvement was driven primarily by two factors. First, the product needs optimization The delivery share of the higher-margin PGU modules rose significantly, effectively lifting the overall cost margin. And secondly, the supply chain synergies and the economy of scale gradually took effect, with the per-vehicle manufacturing costs continuing to decline, supported by the ED's global supply chain system and the flexible production capabilities. And this also marks the first substantive financial validation since the launch of the Focus 2030 strategy. Thank you. And for your second question regarding the pricing volatility of the chips, my understanding is like this. The cheap price volatility alone drove a nearly 2% increase in our bond costs. In saying that, the cheap pricing did give some pressure on the company's gross margin in the first half of the year. In response, the company has been actively collaborating with the GED Group to expand the supplier base and navigating through the volatility smoothly. Plus, intensified bomb cost optimization to offset the cheap driven cost increase. Consequently, the company's gross margin in the first half of 2036 improved compared with the 2035. Regarding the pace of cheap since the price stabilization, and we believe the car drivers of this round price increase is caused by the AI server capacity crowding out the supply of automotive, grid, drum, and net chips. Based on the upstream buffer expansion schedule and the visibility into our chip supply chain, we expect supply and demand to rebalance around late 2036 and early 2037 with the price returning to a reasonable range. and as the industry cycle eases, the company's gross margin will have further room to improvement. Thank you so much.

Great, thank you so much for that.

Thank you. And we have no further questions at this time, so I will hand the conference back to Michelle Ma for closing comments.

Thank you all again for joining us today. You're welcome to call now. The investor relations team remains available to answer any further questions you may have. Please feel free to contact us through the contact information on our website. Have a good day, everyone. Thank you.

Thank you. This concludes today's conference call. Thank you for participating and you may now disconnect. Speakers, please stand by.