Polestar Automotive Holding UK Limited

Polestar's strategy update highlights key changes the company is implementing and important news about the business and future products. Based on a well-positioned brand and exciting products, Polestar is entering the next chapter on its journey to accelerate the change towards a sustainable electric future by making the performance cars of tomorrow. My name is Stephanie Johansson. I'm a freelance interviewer and moderator and spent some time with Polestar to get a better understanding of the company's plans going forward, identifying the changes, challenges and opportunities that lie ahead. So Michael, what was it about this role that convinced you to join?

I admire what the Polestar brand stands for. Pure progressive performance and of course I love the exciting Polestar cars. I experienced myself, the Polestar 2, right at the beginning and Polestar is working on the future without emission and this combined with performance I think is exciting and I'm happy to be part of the team.

And why do you think you're the right person for the job?

I'm in the automotive industry for 25 years. I have done various CFO but also CEO roles and I'm convinced that Polestar has the right products. I have worked in legacy OEM companies and also in young companies and I think with this experience and of course I also bring a little bit of enthusiasm to this mobility of the future. So I think this fact-based approach based on the experience but also guiding, leading the company into this new chapter, I'm totally excited about that.

So now Michael, if we maybe talk about the situation that we're in right now, I guess you could kind of call it a perfect storm situation. The transition to EVs is taking a little bit longer maybe than what was expected. Protectionism is also increasing plus competition is fierce. It's getting fiercer by the day. So how do you at Polestar plan to kind of adapt to that market?

Well let's walk through the different topics you addressed. First of all, the EV market is growing. Is it as strong as we were hoping three years ago? No, but there is still significant growth in all regions of the world for EVs and I think that's important to remind ourselves. It is true that obviously the duty situation is something we need to pay a lot of attention. We manufacture regionally for the different regions in the world so to be protected and make sure that we don't depend on sudden changes. And yes, it is also true that there are more and more offers in the BEV market. So the market becomes much more competitive and that is good obviously for customers because they have more choices. But for us, it means there is more pricing pressure and it also means we have to do a better job focusing on the key things, making sure that we have a real cost competitive product and that's exactly what we do going forward. And that's why the platform strategy is of highest importance because efficiency have to increase and cost have to come down.

So if we talk about the numbers now, how would you describe overall your financial performance?

2024 was very much a transition year for Polestar. Why do I say that? First of all, we made the transition from one car, Polestar 2, to launching now and ramping up Polestar 3 and 4. We made significant changes on the sales and distribution side. So more retail partners, more salespeople. And we also initiated a lot of points in terms of efficiency, improving efficiency and reducing cost. All this bringing together in a market which gets much more competitive, where also the pricing pressure is there, really 2024 transition year for Polestar. But I feel we are well positioned now going into 2025 with the right cars, with the right distribution and obviously a much, much better focus on significant cost reduction and increasing efficiency.

And what role do you think CO2 credits will play in terms of revenue and funding support?

It plays a very important role because Polestar is doing the right things. We sell zero emission mobility and therefore we gain CO2 credits. And that is also being defined like this by the politicians in the various markets of the world. And these CO2 credits have now a value. And obviously we want to monetize this value in order to invest into the future of our company, into the future of our products. And that's why this topic is really important. We expect also for 2025 that we have three digit million amounts coming to our company, which obviously is a financial benefit. And I want to make sure that we continue to focus on this part of the business because it's a result of all the good work Polestar has done in terms of selling EV cars.

So taking all this into account now, where does that put you on expected growth, you think, in the coming years when it comes to both profitability and volume?

Volume is obviously important. We are a young company established now in the market, but we have clear volume targets, and we expect a compound annual growth rate between 24 and 27, between 30 and 35 percent approximately. And this is obviously a strong growth in this period of time. And we believe that we can achieve this through the product lineup and the improved sales performance in the various markets which we have. So that's the first one. Volume growth clearly defined, clearly defined also in terms of milestones. In terms of financial performance, we target for this year, 2025, a positive adjusted EBITDA, which will then improve in 26. And by 2027, we target a positive free cash flow after investments. So that's obviously right sizing the business, taking into account the different circumstances, but making sure we have very clearly defined milestones, which we then execute and obviously report back to the markets on a quarterly basis. So we feel very good about this business plan because first, it's our business plan done by the Polestar people, clearly defined milestone, taking into consideration also the changes. If

we talk about change, what would you say are kind of the most important things that are going to change and how will kind of your sales approach change to meet that?

Polestar has a very strong foundation with its brand. It's very well positioned brand, the exciting products. But now a lot of things need to change, starting with the sales and distribution side. I call it from showing to active selling, whereas the company has done a good job setting up the direct to consumer baseline. Now the key task is making sure that the active selling through retail partners is improving. What does that mean? More locations closer to the customers, more qualified salespeople, those that customers are well informed and are really happy with not only the car, but also the service. And that's one of the key key changes in the company.

Stretching from Switzerland and US with full wholesale to the rest of Europe, Korea and Australia with non-genuine agency model, which meaning that we are now actively selling and you can really already now see that the orders are taking off. Two grand examples of that is UK and Sweden, which was early in the transition and change. We have more retail partners in those markets and more to come. And they are all transitioned into this new business model of active selling. And we are constantly training the salespeople and the new staff that are coming in to take on a commission based business model for them that will also strive in the sales model. And the footprint is growing. And we can also see like in markets like Sweden, we are going from five spaces to 25 in 12 months. And we do the same in the UK, where we go from eight to almost 20 in 12 months as well. So overall, we are increasing. We are taking more on more investors to actually build a footprint for the future. That will allow our customers to be able to visit us, to do a test drive, and also to purchase with a competent and experienced salesperson as part of the journey. Or if the customer still wants to do the journey online, they can do a full journey online with full support from us, our inside sales teams and our customer care teams. So it's up to the customer. But it is a big difference from where we were.

So last year, the company announced new market expansions, both in Europe and South America. But now I understand the focus is on France. Why? France

is one of the biggest bath markets in the world. And of course, we Polestar understand Europe very well. And therefore, we want to capture this potential. And we want to do it now in 2025, because I'm a big believer it's all about the execution now. And therefore, 2025 is all about the introduction in France with very competent French management, with French retail partners, all our processes. And of course, we have the existing car lines, which are very well suited for France. Then going forward, 2026 and onwards, we will also enter Eastern and Central European markets. We will also go to Latin America and Southeast Asia. But let's go step by step and make sure we implement and we execute very well. And 2025 is all about France.

So, Monnet, tell me about the Polestar community that you built up and why it's so important. Yeah,

in the last few years, we've built up this community of passionate Polestar owners. And we interact with them both on and offline. And we've grown it to 35,000, actually more than 35,000 members to date, which is about one fifth of our entire car park. For our owners, it's an opportunity for them to connect with each other, to ask questions, and to really talk about all the things that matter, the car's performance, innovation, and so on. For us, it's hugely important also because it generates a lot of insights for us and it informs the decision making that we do so that we ensure that we're always very customer centric.

And that's the online community. I know that you also meet with them in person as well.

Yes, that's correct. We do events every year. So we do official track driving events that customers join from all over the world where they meet our experts. And then we also do behind the scenes events here at HQ. I think a lot of them are saying that they're very different to anything they've been to before. Obviously, phenomenal driving experience. But then we have a very special Polestar family field that I think is very unique. And

I know you're very close to your customers. I'm sure you track their customer retention. That is, how loyal are they?

Yeah, I think now that we have a growing lineup of cars, it's the first time that we can properly do that from one model to another. And super excited to see that with the Polestar 4, 20% of the retail customers actually drove a Polestar 2 previously. So good.

Three, two, one,

go. Yeah, it's good.

So then if we look at the model lineup, what is it do you think that differentiates Polestar in the market?

Well, first of all, Polestar has an exciting portfolio now. So we have the Polestar 2, which really is the basis of the brand. And Polestar has sold more than 170,000 Polestar 2. For a young company, that is a very big achievement. And now Polestar has added in 24 the Polestar 3, a real like sporty SUV, a sports car, and a real design coupe SUV with the Polestar 4. So I think this portfolio is amazing. It demonstrates what the brand stands for in terms of performance, but also the excitement. And I think that's a very important basis. And yes, we will have to change several things in the company, but the basis in terms of brand and product is very strong.

Okay,

talking on the yacht. Oh my God. I don't see anything like this. No. Now we're going up. This is like Nubo Green here. Are you sure? Yes.

Now today is sincerely wet.

I'm done.

What's next in the lineup?

Oh, can I talk about Polestar 5 now as well? Sure. Because it is so important and is such an amazing sports car that is really a brand halo of Polestar. And if you think about the development, the Polestar 2, then the 3 and 4, and now this amazing sports car is super exciting. Polestar also showed the Polestar 6, which will come at a later stage. But today I'm so happy to announce that we will launch the Polestar 7, which is a compact SUV, and we will also manufacture that here in Europe. So fantastic news for all the fans, all the future customers, and of course also the Polestar brand. We will enter the compact SUV segment, by the way, the biggest and fastest growing segment in the world. And we will obviously make sure it comes with all the Polestar DNA.

One thing that will remain constant in Polestar's future is its focus on design. The company has brought in Philipp Brummers, who brings with him lots of experience from traditional OEMs and a fresh perspective.

Welcome,

Philipp. So it's just a few days on the job for you. What are your first impressions?

I mean, first of all, I feel very privileged to be here. To become a head of design is, of course, something very, very special for me personally, of course. But becoming head of design of Polestar is even more special because Polestar is such a design-driven brand. It's a role model in terms of design-driven automotive brand. And yeah, to be here is fantastic, actually.

And how was it to meet the team kind of responsible for this design? You

know, I met the team already. That's right. Actually, it was fantastic, I have to say. This team really built all these cars within the last years. And this is really impressive because there was nothing. They established now this brand. And yeah, I'm really looking forward now to create the next chapter of Polestar.

Yeah. So how do you plan on kind of honoring that design DNA at Polestar you talked about for this well-established brand, but also then injecting new ideas, new perspectives?

I mean, Polestar stands really for pure progressive and performance. And this is a quite clear value set. And I like it a lot. But I think there is room for the next chapter as I would really express even more the topic of performance. Polestar is born out of a racing team. And actually, I also drove all the Polestars from the one until an early prototype of the five. And I was really deeply impressed how they drove. I really thought to express this even more in the design. And this will be a strong inspiration for me. Actually, one thing we are doing, and you see this behind me already, kind of as a teaser. And yeah, we will go to the Fat Ice Race pretty soon. I'm really looking forward to it. And this is all coming together to really stress the topic of performance.

So, Philipp, the Polestar 7. Michael mentioned it. I know this will be a big project for you and your team going forward. Tell us a little bit about that.

Yeah, as you probably expect, this will be a very, very progressive compact SUV. Of course, very performance oriented. And when I talk about progressiveness, every Polestar has kind of a USP. And we will make sure that also the Polestar 7 will have a strong USP. And I'm really looking forward to work on this project with the team within the next month.

And can we get a hint of what that special feature will be? Not yet.

We are still on it.

Okay, we'll have to wait and see. Thanks so much and good luck with everything.

Thank you.

Thank you, Philipp.

Thank you, Michael. Thank you, Michael. Thank you, Michael. Thank you, Michael. Thank you, Michael. Thank you, Michael. Thank you, Michael. Thank you, Michael. Thank you, Michael. Thank you, Michael. Thank you, Michael. Thank you, Michael. Thank you, Michael. Thank you, Michael. Thank you, Michael. Thank you, Michael. Thank you, Michael. Thank you, Michael. Thank you, Michael. Thank you, Michael. Thank you, Michael. Thank you, Michael. Thank you, Michael. Thank you, Michael. So, we have a very interesting Polestar 7. Polestar 7 will be produced in Europe and in terms of partners and technology more to come. But I think it's fair to say we have a very intelligent manufacturing strategy, manufacturer locally for the local markets. In terms of platform strategy is first of all important to see Polestar in the past has had various different platforms that obviously has some benefits but also it has disadvantages. And my intention is now that we harmonize the platforms and in future have only one platform which is in a real consistent platform strategy. And we put over time all our cars on this integrated platform.

Great. Okay. So, we talked earlier about the current model lineup and that's kind of a differentiator for Polestar. But sustainability has also been that from day one. It's really in your DNA. Will that continue?

Absolutely. And Polestar is doing the right things and sustainability is so important and we feel that every day and it's so important that we continue this. And it is important for our customers because they really appreciate it and value it. And of course we want to make sure that we get better every day and we have achieved big milestones. The Polestar 2 has seen significant CO2 reductions. Polestar 4 has been awarded the most sustainable EV car in the UK and those are important milestones. And at the end of the day, Polestar is doing the right things for the customer. And we don't want to have emissions and we want to do better on sustainability using recycled materials.

What about other revenue streams connected to your offers?

Another important topic is the energy side of the business. We call it Polestar Energy. And there we offer smart charging to our customers. What does that mean? Basically, you get a charging then at a time, for example, during the day or during the night where costs are beneficial for our customers. So customers can actually achieve a big cost saving. And we can also get reimbursement then from utility companies. All this, I would say, is really win-win for everybody. We now started this in the Netherlands and UK and we roll it out to other European markets. So I'm hopeful that this Polestar Energy becomes another important pillar of our business and also from customer discussions. Customers really like this, right? Because they see then, hey, it's beneficial and it's like also new technology in a way. And they very much appreciate that.

So finally then, Michael, you've been about four months on this job. Looking ahead then, what makes you so confident in the future success of Polestar?

Well, I'm optimistic for several reasons. First of all, we are very focused on the key things of the business. Polestar has a great brand, exciting products. We now tackle the important additional topics of the business, sales and distribution, significant cost reductions, increase of efficiency. Polestar has fantastic talent. We have formed a great management team. It's our plan. And at the end of the day, it's all about execution. We are highly motivated to execute and I'm convinced that 2025 will be the best year in the history of Polestar.

Thank you so much for all your insights today, Michael.

Thank you, Stephanie.

It's all about the pursuit. The drive to develop, design and create the performance cars of tomorrow. The determination to never settle. Pushing every pixel, moving every millimeter, making more than just machines. Creating the biggest difference with the smallest climate impact. Our pursuit for pure beauty goes beyond the metal. Chasing those smiles of surprise, those moments of unfiltered joy and quiet drive. But it's not just about the destination. It's about the progress we make along the way. Because if it wasn't. How is change ever supposed to happen?

Good afternoon, everyone, and thank you for joining us. My name is Theo Schellberg, head of corporate communication and with me today I have our CEO, Michael Lohscheller, our COO, Jonas Engström and our CFO, Jean-Francois Madin. Before moving on, I would like to remind participants that many of our comments today will be considered forward-looking statements under US federal securities laws and are subject to numerous risks and uncertainties that may cause Polestar's 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, near-term outlook and medium-term targets, fundraising and funding requirements, macroeconomic and industry trends, company initiatives and other events. Forward-looking statements made today are effective only as of today and Polestar undertakes no obligation to update any of its forward-looking statements. For discussion of some of the factors that could cause our actual results to differ, please review the risk factors contained in our SEC filings. In addition, management might make references to non-GAAP financial measures during this call. A discussion of why we use non-GAAP financial measures and a reconciliation to the most directly comparable GAAP measures can be found in the appendix of the PR and in the Form 6K published today. With that said, and before we move into the Q&A session, I'll hand over the word to Michael and Jean-Francois, our two most recent management team additions for some introductory comments.

Thanks, Theo. Michael Luschel here. Good afternoon and warm welcome to everybody for this important conference call. And first time that I have the possibility to welcome you in this new management setup. Before we go into this important dialogue, I want to highlight two things which are very evident and also very important for me. First of all, I am sure you have seen in our introductory video how exciting our products are and how I'm excited. Also, I am personally about those exciting products. The second one is on people. And we have an excellent management team. And this is the first time that we're here together with Jonas as our COO and Jean-Francois as our CFO and have this important dialogue. But overall, there is exceptional talent in Polestar and that's an important basis for obviously going through this transformation of the company. So again, warm welcome from my side and I hand it over to Jean-Francois.

Thank you, Michael, for the introduction. Good morning, good afternoon, good evening, everyone. It's an honor to stand before you today as the new CFO of Polestar. This is my first call and I would like to take the opportunity to thanks my new colleagues for the warm welcome I have received. I am filled today with a sense of excitement and responsibility. Polestar is a new vibrant and fast moving company and I am committed to participate to this new chapter. I have spent the past three months after joining Polestar getting to know our company, our product, and most importantly, our key asset, our people. What I have seen has really impressed me deeply. The talent, dedication, and innovative spirit in this organization are truly remarkable. As we look to the future now, I see tremendous opportunities to improve the way we execute our strategy. And my focus will be on three main areas that I can control. The first one will be about maximizing value to protect and to secure our cash, but also to improve our profitability. The second one will be about delivering efficiency, starting with cost reduction, but also better control of our operation and process. And the third main area will be about driving the transformation, not only into finance, with the best efficient organization, with the best process and procedure, relying on the best in-class system. Also, I'm very much looking forward to engage with you. And meet you soon. Now, I turn to the operator to open the Q&A session.

Thank you. To ask a question, please 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. Once again, please 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 are now going to proceed with our first question. The questions come from the line of Andrew Sheppard from Canter Fitzgerald. Please ask your question. Your line is opened.

Hi, good afternoon. Can you hear me okay? Yes, we can hear you, Andrews. Welcome.

Wonderful. Well, thank you so much. Good afternoon and congratulations on the business update and certainly looking forward to working together going forward. A lot of helpful information during the presentation. Just have maybe a few quick questions to get through. To start, I realize you're not guiding 2025 deliveries at the moment, but just wondering if you might be able to give us some insight as to how to think about deliveries for next year directionally. What might we expect from deliveries in 2025? Thank you.

Thank you, Anders. Michael, let me take this question and put this a little bit into perspective. Obviously, we closed 2024 and we have made the clear statement also in our release today that we target a growth between 30 and 35% for the next coming years. That's also a way to think about 2025. An important information from my perspective was what happened in the fourth quarter of 2024 because there was now the quarter where we started also to put more retail locations into the various markets. And there, our order intake improved against prior year by 37%. That's obviously an encouraging signal that we are doing the right things. Obviously, also in that ballpark, we want to continue going forward. So what we said, 30 to 35% growth is how we would think about 2025, but then also 26 and 27.

Wonderful. That's super helpful. I appreciate that. Secondly, I'm wondering if you just remind us of your capital needs. You had that loan that you received in December, but just wondering, do you still expect to pursue external capital raising opportunities this year? Thank you.

I let Jean-Francois comment on some of the details, but what I also would like to highlight right at the beginning, this obviously is a new business plan based on realistic market assumptions. Also, what we think is achievable in terms of volume growth. We also have highlighted in the core significant improvements on product cost and cost overall. So our first task is really to reduce the funding needs, right? Because it's not like, okay, those are the funding needs and that's it. Let's talk how we manage that. First and highest important for us is to reduce the funding needs. But it's also fair to say till we reach a positive cash flow in 2027 after investment, there will be funding needs and maybe Jean-Francois, you comment on some of the details here.

No, indeed. Currently, we have an approximate cash burn of 100 to 120 million US dollar per month. This is not a sustainable, neither an acceptable situation. Clearly, we have a plan entering 2025 to reduce this cash burn, starting with growing our operating profit, but also optimizing our working capital, reducing first our inventory. And I think that the shift of our business model from direct to sell to customer to retailer model for which some of our retailers will take ownership of the stock will help us on this aspect. But also we want to reduce our capex spending. We had very much recently a very rich product launch with Polestar 3, Polestar 4 and Polestar 5. Normally, our need in terms of capex need should reduce quite significantly, even if we are going to launch Polestar 7 and then that will contribute by reducing this cash burn quite significantly. But so far, we cannot comment on our capital need. We know that currently we are quite heavyweighting in terms of debt that we will need to have some equity funding, but more to come on those points.

Wonderful. Very, very helpful. And maybe just one last question for me, if I may. Wondering if you can give us your perspective on tariffs. Wondering how you might address that. Obviously, some of your manufacturing is being done in China. Last year, you opened your facility in South Carolina. You talked about producing the Polestar 7 in Europe. So just wondering your high view on tariffs and what can be maybe done to try to minimize the impact there. Thank you.

Yeah, thank you. Let me take this. So obviously, tariffs are a challenge we have to work through and we want to really manufacture locally and not only for the tariff situation, but also in terms of optimizing our cost. I think the times where you ship cars around the world are a little bit over and we need to make sure we have a super cost competitive setup. And best is to regionally produce. That's why, for example, the Polestar 7 decision we did to produce locally in Europe where the majority of the sales will be is a decision which makes a lot of sense, not only from a tariff point of view, but also from a cost point of view. Now, talking about the U.S., there obviously we have the setup with Volvo plant in South Carolina, which is also very helpful, produced locally in North America. Then we also have the facility, the manufacturing facility in South Korea, in Busan, where we produce in a Renault factory. Then the Polestar 4 for the U.S. That is optimal in terms of duties. Obviously there you have the logistic element, but that's how we try to optimize the overall tariff situation and cost situation at the same time, because in a way I think they go hand in hand. And with this approach, we feel well prepared.

Wonderful. Very helpful. I appreciate all the context. Congratulations again on the business update. I'll pass it on.

Thank you.

Thank you. We are now going to proceed with our next question. The next questions come from the line of Dan Levy from Barclays. Please ask your question.

Hi, this is Trevor Young on for Dan today. Thanks for the presentation and giving us the opportunities of questions. First one I wanted to ask, it's pretty topical here and I appreciate it's the early days, but this is obviously pretty important given your connections to Geely. Can you explain just your how you expect the recent rule from the US around connected cars from China or associate with China to impact US operations?

Yeah, thanks Trevor for the question. Michael, let me take this. So first of all, US is an important market for us, right? So we have the local manufacturing facility I already talked about in South Carolina. We have already 27 dealer partners in the US and now we are ramping this up. We have great progress with the Polestar Street. So the US is a very important market and I think also very well positioned is Polestar in terms of a Scandinavian brand. Now in terms of the legislation which was finalized yesterday, this will then start being effective for model year 27. And as for all our markets, we will make sure that we are compliant in all the markets in which we operate. And the same is true for the US and now we will work on solutions, be it on the product side and all the various elements. And I think in a way it's good that we have now the final rule from yesterday because before we had various discussions around this. Now we have the final rule and now between yesterday or today and the model year 27, we will find solution for the US because the US is an important market. We are creating American jobs. We are a company which is listed as NASDAQ in the US. So US is of highest importance and we will find solution for this and obviously we'll announce in more details at a later stage about that.

Okay. Thank you. I guess just the ruling there, you know, the way it sounds with the ownership element does seem like that could create a pretty substantial transaction. So we'll be on the lookout for that. Thank you. Just a follow up here. I was curious within your 30 to 35 percent volume CAGR target for the next couple of years, could you give a sense of how you expect this to flow by model? I can't give specific guidance on that but just in general expectation broad strokes.

Yeah. Happy to do that, Trevor. And obviously the situation of Polestar is very well known. We started with the Polestar 2 and this will continue which is a successful car but now Polestar 3 and 4 are obviously important additions. When I look at the order intake for Q4, more than 50 percent, I think 56 percent to be precise of the total order intake was for Polestar 3 and 4. I think this will actually increase a bit more towards Polestar 3 and 4 as those cars are just ramping up gaining momentum and also exceptional cars. So high level, I would say 60, 65 percent plus will be Polestar 3 and 4.

That's really helpful. Thank you. If I can just squeeze one more in, I was curious if you could give us a sense for the potential step up in Opex spend or Opex as a percentage of sales that we should expect from the more active selling strategy?

In terms of the Opex for the active selling model you said, right? Just to make sure.

Yeah, just the change from moving to a more active approach. Is it material or?

Yeah. No, no. Good point. First of all, the direct to consumer distribution was in terms of cost efficiency the best solution. No question, right? Because we set up the digital processes and then customers order this and that's very, very cost efficient. But it limits us. Therefore, we go to the active settle selling model on top of the direct to consumer model and obviously pay to retail partners a certain margin that varies by country. So if I give you a percentage now, I probably have very different country reviews here. All right. It differs, but it is not substantial. It is significantly below what I know from the competition from a traditional dealer setup. And that's why when you think about our distribution, it is really cost effective because we have still as a hybrid, the direct to consumer and a very, very cost efficient agent approach. And therefore the ideas that obviously then the retail partners get high throughput, but it's not substantial. It's not substantial.

That's very helpful, Kolek. Thank you.

We are now going to proceed with our next question. The questions come from the line of John Babcock from Bank of America. Please ask your question.

Morning and thanks for taking my questions. I guess just quickly following up on the retail spaces and change in strategy here. Can you just talk about how you're thinking about growth there in terms of the number of spaces out there? How much that's coming from adding new poll star spaces versus perhaps adding dealer contacts there? Just any detail on that would be helpful.

Yeah. Thank you, John, for that question. So the way to think about is so today we have around 140 retail locations. And again, we have agency agreements with our partners due to the cost efficiency we were talking about. We want to increase this this year to around 200 and then going to 300. So ballpark numbers, obviously, if we can do even better because we feel this closeness to customers is important because not everybody is going long distances. So but high level from 140 to 300 as quickly as we can.

Okay, that's helpful. And then just next, you know, you did very quickly touch on the Polestar seven. Is there any way you can share any additional information in terms of, you know, on the form factor size, any other notable information there? And also, I think you did mention that it's going to be targeted probably more for the European market. You know, how do you also view this as a product for other markets out there as well?

Yeah. So obviously, we work through many details and will announce those details also at a later stage. But a couple of things I want to highlight. So first of all, the segment is really, really big. It's the fastest growing segment. And I think it's also important that we are in those bigger profit pools going forward, right? But then in terms of details, in terms of the cars, also which factories, also technical details, we will share that at a later stage as we are in the process of finalizing that. But the clear decision to do this has been made and therefore also very important announcement for us following our overall manufacturing strategy. And it's important to have this decision. We go into the big profit pools of the market because the compact SUV segment is one of the biggest profit pools, not only in Europe, but globally. The reason why we think we will do exceptionally well in Europe is because we see our sales performance in Europe being really, really good. And also the segment size of smaller SUVs is larger in Europe, but more to come at a later stage, John.

Okay, I assume is it too early to talk about launch date? I mean, I think we've been assuming it comes out in calendar year 27. You know, is that roughly a timeframe that makes sense? Or, you know, is it too early to announce that as well?

Well, look, it's relatively easy, the sooner the better, because as I said, it's a big profit pool. I want to be part of this big profit pool. The sooner the better, but let's work through this. And then we will announce it at a later stage with all those other details as well.

Okay, fair and then just my last question before I pass it over. You know, just you did talk about getting to EBITDA positive in 25. Could you talk about the key levers that get you there? You know, and then also do you expect to stay EBITDA positive in 26 and 27?

Yeah, maybe I start. So obviously, the volume growth is supporting this, right? So more volume helps. I think the way to think about the Polestar P&L is margin improvement in terms of product mix is a big element. So when we talked early on like more Polestar 3, more Polestar 4, this has significant impact on the P&L. Then as John Francois mentioned, our cost situation where we make also good progress. So high level revenue growth, margin improvement, especially on product mix and cost reductions. That's the key drivers. And John Francois, you want to talk about 26, 27? But

just maybe to complement in terms of cost reduction. So we'll focus on the three main buckets. So the first one will be related to the product cost reduction where we are going to start working actively with our manufacturing partners and suppliers to reduce the cost of the manufacturing costs and bill of material. We are going to look at as well on for some efficiencies regarding our R&D, capex and spending. And lastly, we will focus on the selling and general and administrative expenses. On this point, I would like to mention that Polestar started a right sizing, quite dynamic program from 2023 until 2024. You have to consider that we have reduced our headcount by nearly 25% during this period of time. And that's going to allow us to enter 2025 with a carry forward of significant benefit. And of course, we'll continue working actively looking for more efficiencies. So this is quite positive for 2025 moving forward. So we are targeting an improvement of the adjusted EBITDA in 2026, leveraging as well the top line, the mix, but also the cost reduction in order to reach a cash flow break even in 2020, 2027, according to our guidance.

Okay, thank you. Appreciate it.

We are now going to proceed with our next question. The questions come from the line of Daniel Rusca from Bernstein. Please ask your question. Your line is opened.

Michelle, Jean-Francois, welcome and best of success for the journey ahead. Could we start talking about kind of platform and manufacturing and some of the announcements you just made preceding the Q&A? One of the big strategies of Polestar always was going into what I would call contract manufacturing with your partners. And now you said you're going to go to a harmonized platform. Michelle, strategically, does that imply you're moving away from contract manufacturing and there could be Polestar factories kind of owned and built by you at some point in time? And could you give us a little more kind of detail on that platform vision you outlined earlier?

Absolutely. Thanks, Daniel, for the question. So first of all, Polestar will continue the asset light approach, which you quite rightly highlighted is very important, very beneficial. So we will not have owned factories. We will use our partners and continue the asset light approach, which I think is super helpful. It's financially doesn't make sense and has a lot of benefits for Polestar as a company and also as a brand. Now, talking about the platform strategy, the way to think about this is we continue with the asset light approach as said, but over time we will harmonize our platform. So when we have the compact SUV car, this platform, let's call it like a group architecture for this call here, we will then put future cars on that platform as well. And we'll make sure obviously that the Polestar DNA with steering, braking, trusty tuning, all these things will be integrated. And then over time, this will give us more cost efficiencies over and above the current situation where we have different architectures. But long story short, asset light model will continue, no factories for Polestar and we will harmonize over time. And as we all know, the industry this will take time, but we will harmonize the architectures and platforms over time.

Great. I'd like to dive a bit deeper into profitability. You already mentioned some of the big levers, but could I get you to contrast the current cross margins between the different models? I'm pretty sure you're not going to give me a number, but maybe you can kind of give us a qualitative assessment where two, three, and four kind of fit in terms of cross-profits and kind of where you see the upside, right? What's driving the upside? Is it just the fixed cost aggression or do you have, for example, some opportunities also still on Polestar 2 to kind of get that to break even with some more Polestar programs?

So I will say, Daniel, that in terms of gross margin profitability, clearly our profit pool will be on Polestar 4, followed by Polestar 3 and Polestar 2. But we don't want to give up on Polestar 2 profitability. Our plan clearly is to attack the product cost reduction, including on Polestar 2. We have already in mind to re-engineer some part of the Polestar 2 in order to protect the profitability of Polestar 2 and to improve the margin on this car, but also to face as well a quite competitive EV market where we can see high discount from our competitors. So in order to protect our margin, we will have to work clearly, I will say, on this path of reducing the product cost of our product. Those products have been developed quite fast, especially the recent ones. So we have some quite leverage here to attack in order to gain in terms of profitability.

Great, thank you. Maybe last question, financial and targets. Number one, Jean-Francois, really, really quickly. One, what's happening to the Covenant? And maybe two, if I could get you, Michel, and Jean-Francois to comment independently and say, look, in 12 months time, the market can change. A lot can happen that's beyond your control. So if you could give me two items where you say, if we meet in 12 months time, this is what we should measure you by in this uncertain environment. So one, maybe just a short comment on the Covenant, and then 12 months, if we meet again, what are the things you would really have confidence in and accomplishing?

So I will say, regarding the Covenant, first to mention that we are always in active and constricting dialogue with our partners, lending partners. At the end of the year, we have amended the Covenant of Revenue, and we got a waiver on the debt to asset ratio. And moving forward and considering our new financial path, we will continue engaging with our partner in order to amend those Covenants. But so far, we have a positive relationship with our lenders. Then moving forward, I will say that the main KPI on which you will have to assess our performance will be, of course, the growth of the retail sale, the growth of our revenue, the gross profit margin and the adjusted EBITDA, and of course, our free cash flows. So those are the measure on which we will communicate with you moving forward.

And if I may add to what Jean-François said, so a few things are obviously in our control, costs are in our control. CO2 credits are also in our control because we know exactly how many credits we have, and it's also very clear that we can sell those at very important values. The planning we have done is based on realistic market assumptions. Obviously, pricing is not completely in our control, but I would say we have realistic assumptions. So most of the things are in our control. So I would say if we meet in 12 months time, you can measure us on the things Jean-François highlighted. Absolutely.

Thank you, gentlemen. Thanks very much. Thank you,

Dan. We are now going to proceed with our next question. The questions come from the line of Tobias Bieth from Redburn Atlantic. Please ask your question.

Great. Good afternoon, Michael, Jean-François. I have three questions, please, which I'll ask separately if that's okay. The recast free cash flow target now includes at least $100 million of operating cash flow from the sale of regulatory credits. Are you able to confirm whether the vehicle business on an underlying basis will be self-funding in its own right?

So I see those separate. So first of all, we need to make sure that the automotive business, the car business is making money and we have initiated many, many things to do that. The CO2 credit comes really on top of that and is an important generation of what we have done. But I don't want to link it. I also don't measure margins, including CO2 credit. So it's very separate. But the reason why we highlighted it so prominently is because those are big amounts, significant amounts, and they will obviously grow as the CO2 credits, the value will increase. But they're two separate work streams for us. So making sure the automotive, the car business is making money. And 2025 with a positive EBITDA are the first steps. And CO2 credits is separate and will increase in value.

OK, understood. Will platform consolidation trigger any impairments from assets that were anticipated to be used for longer and with higher volume or charges from your contract manufacturing partners?

Platform harmonization will happen over time, right? And the Polestar 7 is really the starting architecture or platform. And then all new cars will also go on this group architecture. So that doesn't mean that we stop cars earlier or basically don't use it. So we optimize everything we have. But I think, as we all know, the automotive business is a long cycle business and decisions today have long term impacts. And therefore, this harmonization of architectures is important. But this will not trigger any negative financial consequences of the existing ones.

All right, that is helpful. Thank you. And then finally, I was wondering if you could share a split of the retail volumes in the fourth quarter by nameplate and then perhaps comment on how it evolves from where you finished the year into something that's potentially 30% higher over the full year of 2025.

Yeah, so they're actually, as I said, Polestar 2 in terms of percentage is coming down. So the order intake for Polestar 3 and 4 was above 50%, 56% to be precise. And that's a way to think also about the business going forward. But that doesn't mean, let's say, Polestar 2 will stop. But the growth of Polestar 3 and 4 is significant. And we are just beginning to launch these cars successfully in all the markets. So that's why I said early on, it's more 60% to 65% plus.

OK, being all willing to put a number on the Polestar 3 and 4 volumes today for 2024 fourth quarter.

No, we do that at a later stage when we report out in March.

Cool, understood. All right, thank you, gentlemen.

Thank you. Thank you very much, operator. We will now take one of the questions from our registered retail shareholders via the Say Technologies platform. And this one is for you, Michael, to answer before we wrap up the call. Question that was most highly voted was why are you not reporting quarterly earnings and are you planning to file for bankruptcy?

Yeah, so let's start with the question on the quarterly earnings. We have announced on October 11th that we will publish first the commercial update and then moving forward the key financial highlights. And that is what exactly we have done today. We have done it a bit later because we were focusing on this updated business plan. So going forward for the first and the third quarter of every year, we will highlight financial key numbers, report them out. But then for the full year and also the half year, have the extended financial reporting. So this will come to a regular rhythm then again. And for example, the fourth quarter 2024 and also the financial full year will be reported on March 6th. So we come to a regular reporting again. And of course, today we have presented our new updated business plan. I think that's also answering the question in terms of next financial improvement. And I think we are on a good path to implement those step by step. Good. So this was the last question. So then I want to thank you all for joining this. It was a real pleasure for Jonas, Jean-Francois and myself to do this for the first time. Obviously an important new business plan for Polestar. We appreciate the dialogue. Hope to see you soon in person and looking forward to the continued dialogue. Have a wonderful day. Best regards from Gothenburg.