Polestar Automotive Holding UK Limited

Good day and thank you for standing by. Welcome to the Polestar Q2 2023 results conference. 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 would now like to hand the conference over to your speaker today, Bojana Flint. Please go ahead.

Thank you, operator. Hello, everyone. My name is Bojana Flint from Polestar Investor Relations. Thank you for joining our Q2 2023 results call. Before handing over to Thomas Singen-Lars, our CEO, and Johan Malmqvist, our CFO, for their opening remarks, I will cover some housekeeping points. I would like to remind participants that many of our comments today will be considered forward-looking statements under U.S. federal securities laws and are subject to numerous risks and uncertainties that may cause pollsters' actual results to differ materially from what has been communicated. These forward-looking statements include, but are not limited to, statements regarding the future financial performance of the company, production and delivery volumes, financial and operating results outlook and guidance, macroeconomic and industry trends, company initiatives, and other future events. Forward-looking statements made today are effective only as of today, and POSTA undertakes no obligation to update any of its forward-looking statements. For a discussion of some of the factors that could cause our actual results to differ, please review the risk factor sections of our annual report on Form 20-F filed with the SEC. In addition, Management will make references to non-GAAP financial measures during the call. A discussion of why we use non-GAAP financial measures and information regarding reconciliation of our non-GAAP financial measures with our most directly comparable GAAP measures is in the investor after the presentation issued earlier today. With that, I'd like to turn the call over to Thomas. Please go ahead.

Thank you, Bayana. Let me reflect on some of the key operational and business highlights and outlook for 2023. It was a record second quarter for us, with 36% growth in deliveries versus last year. Combined with the first quarter, we delivered around 28,000 vehicles in the first six months of this year, with particularly strong growth in many of our established markets and solid growth in some of our newest markets. We increased revenue by 18% to $1.2 billion for the first six months of 2023. And with continued strong momentum into the second half of the year, we expect to deliver between 60,000 and 70,000 vehicles and a gross margin of 4% for 2023. Coming to recent business developments, Last quarter, I talked about the first customer deliveries of our upgraded Polestar 2, and these have now started to ramp up, taking us past another milestone, having 150,000 cars manufactured in just over three years. The upgraded Polestar 2 is the best version to date. We improved software, longer range of up to 650 kilometers, and faster charging, with an effect of up to 205 kilowatt. All while reducing created gate carbon emissions by three tons per car and introducing the new smart zone face identity from poster three on the two. It is a fantastic car. JD Power's Tech Experience Index placed Polestar 3 in the top three, and there are a number of enthusiastic independent reviews across motoring magazines and on YouTube. Just a few weeks ago, we were at the Goodwood Festival of Speed in the UK, where Polestar 3 and Polestar 5 had their dynamic debuts, making the traditional hill climb in front of the crowds. Seeing these two cars and what they are capable of in terms of performance and driving experience is a testament to our outstanding engineering teams. I'm delighted that Posta 3 is now available for customers to experience in many of our retail spaces around the world. And Posta 5 shows what the next steps are for our brand, reflected in its design handling and top-level sport premium positioning. We have started formally taking orders for Polestar 4, our SUV coupé, less than a week ago at the Chengdu Auto Show. And now, three days in, reception and order take have been fantastic. As a reminder, our SUV coupé combines the great space with amazing dynamic driving attributes. It is positioned between Polestar 2 and the Polestar 3 in terms of size and price. POSA4 is on track to start production in November, with the first customer deliveries in China expected before year-end. Deliveries to the rest of the world are planned for early 2024. Now moving on to our joint venture in China, which is taking steps to strengthen the development of our brand there. I believe that this innovative partnership with Xingji Meizhu Group An acknowledged mobile device company with excellent software competence is the best way to succeed in this important and highly competitive EV market. Software and user experience will be the key to the success. The latest steps on the important technology journey is autonomous driving. Last week, we announced a collaboration with Mobileye for the adoption of their autonomous driving solutions. making Polestar 4 the first production car to feature mobile ICE Chauffeur technology. When launched, Chauffeur is expected to offer ICE off point-to-point autonomous driving on highways, as well as ICE on automated driving for other environments. As our lineup grows, we continue to develop our commercial footprint, shifting to permanent larger retail spaces to deliver a premium customer experience. We have recently opened spaces in Porto, Portugal, Chengdu, China, and Houston and Palm Beach in the United States. In the UK, we are opening new retail spaces in Glasgow and North London in the coming months. And in Canada, we are expanding with additional spaces in cities where we already have a presence like Vancouver, Toronto, and Montreal. Staying in North America, We have announced the adoption of Tesla's charging standard for all new Polestar sold in the US and Canada from 2025, making it even easier to own and charge your Polestar. Finally, before I hand over to Johann, I want to touch upon the outlook. Despite macroeconomic uncertainty, we continue to expect a stronger second half, supported by the easing of supply chain disruptions and reducing raw material costs. As mentioned, we expect to deliver a 4% gross margin for the year. But this level of profitability is not enough. We have already taken steps to manage costs and are taking an even harder look at ways that will improve our margins. We continue to work closely with our two very supportive main shareholders on funding options. We will provide more detail on all our efforts and concrete actions in conjunction with the third quarter results. Thank you for listening in, and I look forward to taking your questions after Johan's remarks. Thank you, Thomas.

Hello, everyone, and thank you for joining us today. In the first six months of 2023, we have delivered 27,841 cars globally. up 31% year over year, with strong volume growth in markets such as the UK, Canada, and Australia, and with incremental sales in our newest markets of Italy and Spain. With an established global presence in 27 markets on four continents, we have opened 25 new Polestar spaces since June last year, bringing the total to 150. We're developing our retail sales footprint into larger permanent facilities that will better accommodate our growing lineup. Our customers continue to benefit from an extensive service point footprint, up 200 in a year to about 1,130. And as Thomas said, we are adopting the Tesla's North American charging standard for all new Polestar sales in the US and Canada from 2025. Before moving on to the financial highlights and the 2023 outlook, I would like to echo the points Thomas raised on expecting a stronger second half of the year, reflecting the transition to the upgraded Polestar 2 model year 24 with higher anticipated both volume and margin. We also expect first deliveries of Polestar 4 in China. As a reminder, and looking further ahead to 2024, we will benefit from the rollout of the Polestar 4 to other markets, as well as the commencement of Polestar 3 deliveries from Q2 2024. The cost-saving measures announced last quarter, which include taking out both existing headcount as well as roles that were planned for this year, are progressing well. In addition, as Thomas said, we continue to explore other areas where we can become leaner and more efficient to take down costs further and improve our competitiveness. And here we will give an update at our next earnings call. Moving to the financial highlights for the second quarter of 2023. Revenue increased 16% from 589 million to 685 million. driven by higher post R2 deliveries and price increases implemented last year on model year 23, in part offset by sales channel mix, product mix and higher discounts. Gross profit decreased from 61 million to a negative 1 million. Last year, the quarter benefited from two positive items, an inventory valuation and the release of accruals related to the 2020 recall. This year, there are three items that adversely impacted cost of sales in the quarter. A higher contract manufacturing costs of 52 million, supplier charges for semiconductors and batteries of nearly 18 million, and an inventory impairment of 10 million. These were partially offset by positive foreign currency effect of 12 million. Selling general and administrative expenses were up 25 million to 260 million. reflecting primarily higher advertising, selling and promotional activities. Research and development expenses were down 21 million due to lower amortization for the Polestar 2, in part offset by continued investment in future vehicles and technologies. As reported, operating loss decreased 353 million or 56% to 274 million. Excluding the one-time share-based listing charge of 372 million in Q2 2022, operating loss increased 8% or 19 million, predominantly impacted by the negative gross profit. Moving on to cash flow. Cash used for operating activities for the first six months of 2023 was 661 million, mainly driven by operating loss higher levels of inventory, and trade payable payments. Cash used for investing activities was 281 million, primarily as a result of Polestar 2, Polestar 3, and Polestar 4 intellectual property investments. Cash provided by financing activities was 1 billion 64 million, reflecting short-term borrowings of 1,672,000,000, of which 750,000,000 was drawn down from the Volvo Cars shareholder loan facility, and principal repayments of 608,000,000. At the end of the second quarter of 2023, cash and cash equivalents stood at 1,057,000,000. Before I hand over to the operator, let me wrap up with our 2023 outlook. We are reaffirming our previous guidance, expecting between 60 and 70,000 vehicle deliveries for the year, which represents annual growth of approximately 16 to 36%. We also expect a full year growth margin of around 4% on the back of an anticipated stronger second half. In regards to funding, during the first half of the year, we've tapped into various funding sources where today we still have available capacity. such as continuing to access short-term working capital facilities. We have also upsized our trade finance facility to 600 million euros, and we have utilized part of the $1.6 billion shareholder support package. Also, since quarter end, as part of our ongoing program to maximize liquidity, we sold our Chengdu plant that previously manufactured the Polestar 1, for $71 million. We are working on multiple options to address the broader funding need. These efforts are driven hand in hand with our two main shareholders who continue to be very supportive. Thank you again for joining and over to the operator for the live Q&A by the analysts, and then we will answer top questions from our shareholders.

Thank you. 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. Thank you. We will now take our first question. The first question comes from a line of Alexander Potter from Piper Sandler. Please go ahead.

Great. Thanks, guys. Maybe first question is on the launch timing of Polestar 4 versus Polestar 3. So it's great to see Polestar 4 still on track. You said you're going to start production here, I think, in November, start deliveries in China end of the year, and then deliveries for Polestar 3 are going to start the middle of next year. I know those vehicles are built on different platforms, so that's partially impacting the difference in timing. But I think it'd be helpful if you could just summarize exactly what those differences are between the platforms and why it's possible for you to remain on track for Polestar 4 and what sort of learnings you'll have going forward with future launches to make sure that future launches more resemble the Polestar 4 launch versus the Polestar 3 launch.

Yeah. Thomas here. Thanks for the question. Well, the difference, I'm very happy to point out the difference between the two SUVs, because let's face it, yes, the label SUV is both the same. But there is a significant difference between a Polestar 3, very much different. bringing to the customer what is a high seating position. And that's, um, what people associate with the traditional SUV that you have that kind of superior feeling of having a great overview. Well, the poster four is a bit more of a different animal here. Um, we call it for that reason, the SUV coupe. So it is, um, uh, on, on the lower side of the SUVs. And, um, For that reason, when you see the two cars together, and that's, of course, the great thing happening now, people can compare it and see what big difference there is in stance and what it does in delivery of customer experience. Positioning is well different. Obviously, there is a price difference. The Polestar 4 is clearly positioned price-wise below the Polestar 3. So for that reason, there's a much, much bigger difference scope of customer segment that we can reach with with these two cars in our hands and we could do with just one car and as well about launch cadence i mean obviously the poster 4 now being on sale in uh in in china already and launching there and being in the market first while the poster free will of course make the entrance first in in europe and in the us so it's kind of the other way around one car um in in very strong in china um first first time now and the the other car in europe and us and then um they vice versa coming then in this in the second phase into U.S. and Europe, the POSTA 4, and the POSTA 3 then to China. So that's kind of the couple that are coming there to the market in 23-4. Now, technology-wise, we have to as well make sure that people understand this. Indeed, all new platform that POSTA 3 is built on is, of course, technology-wise as well, the pinnacle with NVIDIA, computing in the Luminar LiDAR included in the technology. Very complex, not easy to handle. I have to give that to the engineers being there full-time on the job doing it. But of course, this is as well contributing to the car coming only into production in January in the beginning of 2024. So I think software is, the learning is, software and competence and handling software is, of course, a core competence to have high focus on, take all the learnings that we made with this, and, of course, emphasize the competence within our company, but, of course, as well within the group. That's clearly where we have big learnings from companies these two all new products.

Okay, great. So second question, maybe on the macroeconomic situation and the mix or price sensitivity of your incoming orders. Just wondering if you noticed obviously your revenue was going slower than your deliveries, which implies mix or more price sensitivity, lower price trims, not that very high-end packages. Do you think that that's a function of sensitivity to interest rates, the macro situation, just anything you'd be willing to say on, I suppose, mix and price within your order book would be helpful.

Yeah, Alex. Hi, Johan here. I mean, you touched upon the influencing factors here. When we look at the average selling price, there is an impact of, in part, like you said, a negative mix effect attributable to both channel and product variant. There is also then a component of higher discounts. And then the third element is a negative translation effect. So all those three weigh in. We saw that tendency also in Q1. And if we look at, on a go-forward basis, of course, save for FX. At some point, the channel mix and the product mix will settle down because here we are comparing in regards to the development from last year. And then we do expect the discounts also to level off. There was in Q2, for example, in part tied to the selling of the model year 23 and clearing out that inventory. So we should see an impact of that, and that's also playing into our affirmation of the 4% gross margin guidance for the year.

Okay, good. That's very helpful. Maybe the last one, then I'll turn it over. You mentioned a number of drivers regarding the expectation for higher deliveries in the second half versus the first half. Obviously, you've got the upgraded Pulsar 2. You have some deliveries of Pulsar 4. Would it be possible, I don't know how much visibility you have on specifics here, but how much additional tailwind could you have from potentially opening new markets? I think you mentioned Spain and some others, driving greater penetration maybe of regions that historically haven't been able to order as many Polestar 2s. How big of a driver is that of your incremental growth versus just basically saying, look, we have more products. I think our products are more compelling, and that's why we're going to get more orders.

Well, I tend to emphasize here rather the customer waiting for the model year 24. We see that a lot of people have been intrigued by the improvements that we have made with range. A rear wheel driven single motor, definitely that is where especially in the markets where the Polestar 2 is known, where people were looking forward to this model. And for that reason, that will be the stronger effect on a stronger second half of 2023. We indeed see, of course, the effect that investment that you do in opening a market. You definitely need a certain time to spend in the market before you see figures picking up. So, indeed, there will be an effect of our investment going now further down in the south of Europe. That will pay off bit by bit. Can we expect 2023 second half already showing much of that? I think it's more an investment for 2024 and 2025 that we made there in these markets.

Okay. Very helpful. Thanks. Thank you.

Thank you. We'll now take our next question. This is from the line of Stephen Fox from Fox Advisors. Please go ahead.

Hi. Good morning. Good afternoon. Could you talk a little bit about the margin expectation for the second half? So you roughly are talking about 520 basis points improvement in gross margins, half over half. Can you maybe break down how much is coming from volume versus mix versus other changes in your cost structure? And then I had to follow up.

Sure. I mean, the reaffirmation of the full year guidance of 4% is based upon a couple of things. One driver is the improved profitability that comes with the Polestar 2 model year 24 sales. I mentioned the targeted campaigns to sell out the model year 23, falling away as we're clearing out that inventory. And then the third component part is really with the easing of the supply chain disruptions and seeing lower raw material costs coming through. So those are the three drivers that lead us to the improved margins for the second half.

And just one other quick question on that. How much should we assume, how much back-end loaded that is, Q4 versus Q3? Do you expect meaningful improvement in Q3, or do we have to wait for that mix to improve much more in Q4?

I think you should expect to see a gradual improvement.

Okay, that's helpful. And then just in terms of the liquidity situation, I might have missed this, but beyond the cash on the balance sheet, Can you talk about what's the total dollars available of liquidity untapped to this point after all the changes in Q2? And I know it's a tough time to be talking specifically about capital raises, but can you talk broadly speaking about capital raise versus further strategic actions in terms of maybe... you know, narrowing the band of focus on the sales and marketing in order to preserve cash versus shareholder dilution, things like that. Thank you.

Okay. Let me provide some color there, and we'll see if you have any follow-on questions. But, okay, in regards to funding and liquidity in general, first, let's start with the fact that we had about $1 billion of cash on the balance sheet at the quarter end. And then, as I mentioned in my opening remarks, we've tapped into various funding sources during the course of the first half. Continuing to access short-term working capital facilities, that's very much of an ongoing exercise. We've upsized the trade financing facility to 600 million euros. At quarter end, I believe we utilized around 400 million euros of that facility. I mentioned the fact that we utilized part of the 1.6 billion shareholder support package, and there we've utilized around 1 billion of that support package, where, as we've disclosed, now fully drawn on the 800 shareholder loan from Volvo and utilized around 200 million of the commitment from PSD. You also saw that at the beginning of Q3 here, we sold our Shangdu plant, the one that previously Manus' Post won for $70 million. And then I think just from a broader perspective, then we are continuing to work on multiple options to address the broader funding need. And that's, of course, an ongoing activity as well.

Great. That's helpful. So it sounds like roughly untapped liquidity is about $800 billion. 800 million euros still, and then on top of that, the cash is understated for the plant sale. Is that roughly correct?

What was the last question or comment, sorry?

The sale of the plant in China came after the quarter ended, so the cash is understated.

But it added $70 million, correct?

Right. So there's about 800 million untapped euro of liquidity available on top of the cash on the balance sheet. Correct. Okay. And so it sounds like at this point there wouldn't be any changes in sales and marketing strategy, manufacturing strategy, product rollouts as in reaction to where your balance sheet stands. It sounds like you can continue with your strategy for the next couple of quarters at least.

Yeah, there's no change in the strategy. With that being said, as both Thomas and I alluded to in our opening remarks, We are continuing to work on the overall cost structure, taking a hard look at not only the OPEX, but also the gross margins. And there we expect to be able to come back in the next earnings call with some more concrete color around that. But it doesn't impact the overall strategy of the company now.

Great. That's all very helpful. I'll get back in the queue. Thank you.

Thank you. We'll now take our next question. This is from the line of Andres Shepherd from Cantor Fitzgerald. Please go ahead.

Hi, good morning. Good afternoon. Congratulations on the quarter and thank you for taking our questions. I want to maybe start off just curious if we can perhaps get a bit of an update on the Hertz partnership. Just curious if you're able to maybe give us a bit more details on how that relationship is taking shape and if we can maybe get a sense of how those deliveries are going currently. Thank you.

Yeah, Thomas, happy to confirm on one end the relationship being one which I think for both sides is a good one, happy one. see that what we were aiming for with this is taking place. And that means Polestar Truth being available for people to experience the brand, the car, and getting to know something that they might have not done before and experience an electric car. And we have this five-year contract with 65,000 volume around the Polestar 2 kicked off already in 2022 with first deliveries. But of course, after this initial trans in 22, we have already now in the first quarter continue to deliver to Hertz. And this will gradually continue, slightly go as well. But of course, within the 65,000 frame, over 23, 24 to 25. So there we have for the Pulsar 2 this journey ahead. Having said that, with Pulsar 3 and 4 joining, of course, we will be exploring how they could become part of this relationship with Hertz as well.

Got it. Thank you, Thomas. That's very helpful. Maybe as a quick follow-up, in terms of your delivery, guidance for this year. You know, we know that Q4 tends to have the higher seasonality. And so I think it's safe to assume that the higher number of volumes should take place in Q4. But how should we think about Q3 as it relates to maybe Q2 in terms of deliveries, just trying to get a sense of how those deliveries will shape up for the second half of the year? Thank you.

Yeah, the model year 24 is now in quarter three, the big new thing about delivery. So this is when it's happening that the first customers will get their Polestar 2 with the new smart zone and the new technical features and the volume growth indeed towards the The peak in the fourth quarter, but the third quarter will be in continuous growth towards the quarter four. So that's how quarter three, of course, is a very important quarter for us where we have a high focus now to keep that momentum going.

But I think you're right. It will be weighted towards the Q4, as you pointed out. Again, just like on the gross margins, a gradual improvement.

And thank God our organization is very well trained for this Christmas hype.

Maybe just one last one, if I could. I know we've asked already about the capital needs. And I'm just curious in terms of your thought process here, leaning more towards some sort of equity race or fixed income race or perhaps a strategic private placement of source. Just curious how you are thinking about the upcoming capital race requirement and whether you're leaning maybe more one way than another way. Thank you.

Yeah, no, it's a good question. And of course, it has a lot of considerations to it. I think we're very conscious of the fact that we have a low free float. So getting equity in the company and issuing more shares, of course, would help address that. With that being said, we also recognize that the dilution impact, given where the share price is at, and then also just the overall Macro perspective where the markets are is another nuance to take into account. So we are looking into both tracks, both equity and debt, recognizing that it's going to require a combination of both of those in order to address our overall broader funding plan. And this is, you know, again, as I mentioned before, we're working very hand in hand with our owners on these to drive these efforts.

Understood. Thank you very much. Congratulations on the quarter again. I'll pass it on. Thank you.

Thank you. Thanks.

Thank you. We'll now take the next question. This is from the line of Tobias Bates from Redburn. Please go ahead.

Hi. Good afternoon. Thanks for taking my questions. I had three, if that's okay. And I guess where I'd like to start is, on the sequential gross margin bridge. And actually, I would just like a little bit more information here on, I guess, why it deteriorated so much. And then I've got two follow-ups. Thank you.

So if I understand your question, I just wanted some more color on Q2. Q2 was slightly below expectation, and that's in part due to, there was some true up of costs related to 22 for semiconductors. So that's one part. Fundamentally though, I mean, it's just as the trend was in Q1 impacted by then the full year run rate effect of the higher raw material and freight costs compared to last year. And as I mentioned also the impact of higher discounts. So I think it was a carry over from Q1 and something that we had guided on before, anticipating a low growth margin for the first half of the year. So to some extent, in line with that, again, I think the true up of the supplier charges and the inventory impairment is, I would say, probably the main deviating factors.

Okay, understood. And then my second question relates to your balance sheet. It looks like... potentially your backlog increase. If I have a look at your advance payments from customers, they increase about 10 million quarter of a quarter. And I was wondering if you could perhaps comment on order intake in the period and whether the driver of this increase is primarily from fleet or the consumer channel.

I would say that, you know, I mean, OK, the number on the balance sheet, as you said, is, of course, there's a correlation to the order book. There's an FX impact as well there to take into consideration. But I think when we look at the order book in general, I think that the same comment applies to what we said in Q1, that we've seen that now kind of stabilized to call it more normalized levels. And that's where we still are today.

Okay, fine, understood. And then I guess my last question relates to financing. In your subsequent event disclosure, it highlights that you raised an additional $800 million of debt at an effective interest rate of about 7%. I was wondering what the motivation was here rather than raising equity. And perhaps whether you have a timeline on paying down your working capital loans, given the balance outstanding is now more than $2 billion.

Okay, so if we look at the funding activities for the first six months and some subsequent activity, that's very much tied to the short-term working capital facilities that we have, that we have been working to refinance. We have also the drawdown of the shareholder loan from Volvo weighing in there. And I think those are sources of funding that have been made available to us. And as we indicated in earlier calls, the intention was then to draw down on those and for that to materialize as a means to fund us here through 2023. So there we're simply executing on that plan as we, in parallel, look for alternative or more diverse funding sources, including equity. Sorry, what was the last part of the question?

The outstanding balance of working capital... Oh, sorry.

Yeah, okay. That's right. Sorry. Thank you. In regards to working capital, there is an outstanding overdue related party balance to Volvo Cars, and our intention is to settle that during the course of Q3 to a large extent.

Okay. Sorry, that is useful information, but I was more interested in your expectations on repaying the other companies

loans that you have to credit institutions it looks like that balance is now two billion dollars yeah okay i mean that's that's part of the overall cap structure and that's very much tied into our overall funding plan here so um you know as we grow the business uh there's of course a need for uh to take in additional capital and there we can do that in the form of debt or equity So the development of the capital structure and the balance sheet will be a function of that. And there, like I said, we're working on and looking at different ways to then fund us going forward.

Okay, understood. This has been very helpful. Thank you both. Okay.

Thank you. We'll now take the next question. Please stand by. This is from the line of Eric Golwang from SEB. Please go ahead.

Yes, thank you. I have two questions. First one, I think you said a $10 million impairment in the quarter. Was that just finished PS2's inventory or what specifically was that? Yes, that's right.

Eric, that's a quick answer, yes.

Thank you. Then the second question on the Polestar 4. production starting in November, I guess it's super early, but can you say anything about expected volumes here in Q4 or if it's just insignificant Q1 indications and just general traction sort of order intake, given that a lot of OEMs struggle a bit to get momentum for new models in China at the moment. And then the third question, coming back to the topic of cash and the balance sheet, if we think about underlying cash flow here and the run rate you've had in Q1 and Q2. Anything, any reason to expect that changing much in the second half for thinking to count higher volumes and a slightly better gross margin? Anything else that would make underlying cash flow here in H1 better or worse than it actually is? Thank you.

Thomas, let me start with the first part of your question about POSTA4 and start of production and volumes. Now, for us, it's of course important to have now a good, secure start with high quality in the first weeks. Having said that, there's a steep, good ramp-up curve planned, which nevertheless, of course, will have its effect in quarter one. And quarter one is, of course, the first strong quarter that has Polestar 4 volume significantly then kicking in to our deliveries. Launch of the car now in Chengdu with a couple of them on the stand as well and I would love to take a little moment here for highlighting what the JV that we announced couple of weeks ago and that's there for us you know that in Chengdu as well it was then part of the presentation of the poster for that the software that goes into poster for will be from start the post OS which is the big contribution of our JV partner mobile phone company that obviously has a very strong core competence in customer facing software user experience that builds the bridge links your devices the the car and the phone and brings you that one holistic experience and indeed we see that this is a big game changer and a strong strong asset um that we that we got here which will make the poster for a very very hot topic and it is and people are very interested curious and excited about it and fly me autocore which is underlaying um base start for this poster os um gets gets very very good credits and rating in terms of um user experience and great connectivity. So that's where, despite the fact that we see, of course, an incredible competitive market there in China, but we believe that this was a very, very crucial step for us to have a highly competitive position in this market. So we are looking very much forward to the development of this JV in China.

And then just to come back to your second point there, you're right, I would, I think, expect a similar cash flow profile for the second half as for the first half. I would add one consideration is what I touched upon before. There are attention then to settle a large part of the overdue related party payables to Volvo. So I would make consideration for that. And then just a final comment to round that question off. I mean, in addition to the available capacity and the cash on the balance sheet that we discussed earlier, there, of course, is ongoing work to access additional funds here during the fall. And don't forget, we have two very supportive shareholders supporting us as well.

Thank you for taking my questions.

Thank you. We'll now take the next question. This is from the line of Dan Levy from Barclays. Please go ahead.

Hi. Thank you. Good afternoon to you. Thank you for taking questions. Wanted to start with a question on the mix in the second quarter. There's some disclosure in the MD&A that fleet was 70% of your sales in the second quarter. So I'm hoping if you could just unpack that figure, how much of that was to the car rental channel as opposed to corporate customers in Europe who will frequently purchase on fleet? And what is the go-forward expectation on the mix of fleet?

Yeah, okay. We don't necessarily discuss the specifics of the fleet, the mix within that channel. What we can see is that we have seen, and as you've noted, a gradual shift in the channel mix to more fleet deals. And of course, now we're getting to a point where that's starting to settle down, so to speak, in line with what you would expect.

To add here, I mean, the corporate company car market is, of course, very important for us in the premium segment that makes a high percentage of where you work. In our Europe mix, you know that one of the strongest and successful market is UK. And that contributes, of course, with a very high percentage to this fleet percentage. So for that reason, it is indeed at a level now where we see as well that we definitely don't want to exceed this. But on the other hand, it's almost natural and it is, of course, to a certain degree, a healthy level because we, again, with the UK success, it brings this percentage with it.

Right. Thank you. So just to clarify on the car rental mix within that, are you clear now of sort of the excess Polestar to inventory? And so, you know, certainly car rental was probably a piece of this. Are you past sort of the need to rely a bit more heavily on the car rental channel?

Well, we elaborated a little already on the model year change from model year 23 to 24. And obviously, a model year going out has certain other necessities than a new model year with great new features, customers waiting for that. So yes, indeed, we of course see as well a change between the first half this year and the second half connected to the model year change within Polestar 2.

Okay, thank you. And then my follow-up is a question on Mix broadly. You're going to launch Polestar 4 later this year, Polestar 3 next year. Obviously, those come with premium ASPs versus where you're selling Polestar 2. Maybe you can give us a sense of the magnitude of uplift you'll get on Mix. from those vehicles.

Yeah, I mean, it's correct, as you point out, Dan, that with those cars and the higher price points and higher margins, there will be margin accretion next year. We haven't guided on 24 at this point in time. But I mean, directionally, that's, of course, where we're heading.

I would even dare to say that, of course, this is a very crucial element for 2024 being a year where we not only in the volume with Porsche 3 and 4 coming into it, but as well when it comes to margins with this price points of these cars, we of course... see great potential with this.

And it is just a final comment. I mean, it is one of the primary drivers in the margin in our journey to improve gross margins, of course, is the product mix. So it is a fundamental driver to margin accretion.

Great. Thank you.

We should move to the retail shareholder questions now because we only have 10 minutes left.

All right. And let me take that then. I'll read them out as well.

Yeah. That would be great, Thomas. Thank you.

All right. Last minutes then on questions from retail. What's your strategy for recovering your stock is the first question. And I... I understand why this is, of course, on the top of the list. And let's be clear. I mean, I believe definitely that our shares are undervalued. And especially since, you know, we report on great ticking the boxes of our milestones and delivering. So we talked as well about two technical limitations in that. I mean, our finance. Our funding position, we have, Johannes addressed it before already, of course, this is putting pressure on it. And on the other hand, the free float, which again is, of course, going ahead, one of our aims to heal that and increase the free float. Now, having said that, we should as well, of course, mention that It's a macroeconomic environment with high interest rates and general uncertainty that is, of course, not only impacting us, but the whole industry. Very clearly, the year ahead, what is going to happen with Polestar 3 and 4, I mean, imagine, I mean, we have two SUVs joining our program, our spaces together. and them landing in 27 markets that we have invested into, prepared, and that are ready to work with these cars. Of course, we expect that the picture of how people look, how investors look upon Polestar will dramatically change with this happening in the months to come. We have, I think, a brand that has an incredible sympathy amongst journalists, people, investors. I think with this commercial success that we expect with the model range coming into the markets, I think that should be a great, great mixture to indeed recover our stocks. Next question was, number two, could you please provide insight into Pulsar's strategy for expanding its market presence and achieving sustainable growth, especially in the light of evolving electric vehicle landscape and increasing competition. Yeah, again, the market presence that we have invested into, that we are not only in Europe, but in the U.S. and Asia Pacific, in 27 markets out there. And we have been working on that very, very closely. the rapid model rollout. Again, something which is, I think, very, very unique. Three cars in the pipeline, also three, four and five prototypes, very, very far developed and production facilities ready to take these cars, not only in one compartment, region, but with Charleston ready to produce a poster 3 in 2024. Of course, we think that that is a very favorable position to fight the competition. Number three is, when will South Carolina facility begin producing vehicles? Now, I answered that just now. Middle of 2024, the production in Carolina will ramp up and start the poster 3. Just mentioning here that this, again, is something very unique that we can already now open that manufacturing in a different region that quickly after us having started production at all. Now the question number four, how do you plan to keep stock afloat? Why is there absolutely no buzz about your great vehicles? First part of it, how do you plan to keep stock float? I think I've answered the question before. The second part, well, there is a buzz. We have, and now I concentrate a bit on the U.S. because obviously this question is very much tainted from a U.S. background. We have the U.S. poster tour. We had it in spring in New York, in L.A. We have in 65% of our spaces in the US have now a poster free on display and each and every space is locally making the bus and events and inviting customers into the space to experience the car. The marketing spend in the US is up 20%. year-to-date versus 22, 15,000 test drives have been conducted so far. And of the model year 24 Polestar 2, the test drives have just this week started in Denver. And I think you will see in the tag out and the lifestyle media reflections of this test drive. And I pretty sure that they will be as enthusiastic and positive as we have seen it here in Europe. Yeah, last but not least, all the spaces in the U.S. on the 21st of September will host a simultaneous consumer night. So you can see there are a lot of actions now happening around Polestar 2 and Model Year 24 and Polestar 3. And on top of that, we, of course, know as well that we have to improve and work with communication companies generally, and we are planning to come to the US as well towards the end of the year and make a big event in November in the US. So that's as a heads up of all what's still coming. I come now to the last question, which is given the rapid advancement in autonomous driving tech and the increasing integration of AI in the automotive sector, Could you share how Polestar is positioning itself to capitalize on those developments and ensure its vehicles remain at the forefront of innovation and safety? Right, the beauty of our model, of how we are set up, building on various platforms, I think we highlighted this the press release recently about the integration of mobile IAD technology in the POSTA4, how this is nicely playing out. We have on one hand in the Hightech POSTA3 with SenseAct software preparing for the highway hands-free and ice-off piloting a car that is prepared for redundancy. On one end, on the other hand, in the Polestar 4, with the Mobileye ADAS equipment, and then switching in the future to, as well, hands-off, and then eyes-on, eyes-off, depending on the timing, obviously, the chauffeur functionality that Mobileye is preparing going into Polestar 4 as a world first so we have in both products I think very well prepared for us participating in the very exciting I think it will be a very big thing for the automotive sector when really indeed now in the coming two three years finally I say the autonomous drive functionality for the for the private driver becomes reality and becomes something which definitely will be part of the premium luxury segment. So that's where we, I think, have a very, very good position with two strong partners providing technology and developing that together with us into customer products.

That's it.

That's it. Here we go.

Perfect. Well, thank you everyone for joining and we shall speak soon in our next quarter results.

Thank you. Thank you. Bye-bye.

Thank you. This does conclude the conference for today. Thank you for participating and you may now disconnect.