Lotus Technology Inc. American Depositary Shares (LOT) Q2 2025 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to Lotus Technology, Inc. First Half and Second Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Michelle Ma, Head of Investor Relations at Lotus Technology. Please go ahead.

Thank you, Maggie. Good morning, and good evening, everyone. We appreciate you joining us as we review Lotus Tech's financial results for the first half and second quarter 2025. Our financial results and conference call materials were published earlier today and are available on our Investor Relations website. We are also broadcasting this call via webcast. Joining us today are CEO, Mr. Qingfeng, Feng; and the CFO, Dr. Daxue Wang. Before we continue, please be reminded that today's discussion will contain forward-looking statements pursuant to the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the views expressed today. Further information regarding risks and uncertainties is included in the relevant filings of Lotus Tech with the U.S. Securities and Exchange Commission. The company undertakes no obligation to update any forward-looking statements, except as required under applicable law. Please also note that our earnings press release and this conference call will include disclosure of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. You can find a reconciliation of these figures in the press release available on our Investor Relations website at ir.group/lotus.com. With that, I'd like to turn the call over to our CFO, Dr. Wang, please.

Good morning, good day, and good evening, all the shareholders, analysts and friends from the media. Thank you very much for joining our first half and second quarter 2025 earnings release. My name is Daxue Wang, the Chief Financial Officer of the Lotus. It's my privilege to briefly walk you through the company's unaudited interim financial results. In the second quarter, the company delivered over 1,400 vehicles to distributors, a decrease of 49% year-on-year. As a result, total deliveries for the first half of the year exceeded 2,800 units, down by 43% compared to the same period last year. These figures reflect a scheduled transition period as upgraded models began deliveries in Q2. The impact of the U.S. tariff policies as well as ongoing destocking activities of the company. Revenue narrowed to USD 126 million in the second quarter and USD 218 million for the first half, down 44% and 45% year-on-year, respectively. Gross margin for the Q2 stood at 5%, down 4 percentage points from the same quarter last year. Although quarterly gross margin decreased by 5 percentage points, on a year-on-year basis, we achieved the first half gross margin of 8%, remaining safely in the positive territory. Now let me break down our sales by category and by region. The category, lifestyle vehicles accounted for 83% of the total deliveries in the Q2, up from 56% in Q1. As a result, they contributed 68% of total deliveries in the first half of the year. By region, deliveries in China showed notable growth following the start of the deliveries of the upgraded Eletre Hyper SUV in the second quarter. In fact, it has become a leading model in China's premium battery electric SUV segment during this period. In the U.K., our battery electric lifestyle vehicles demonstrated significant year-on-year improvement. Deliveries of the Emira to North America were disrupted in Q2 due to tariff disputes, but already resumed in July. In terms of sales channels, the total number and regional composition of our retail stores remained stable throughout the first half of the year. Now turn to the key financials. I've already covered deliveries, revenues and gross margin. Now let me move to other financial metrics. The cost of revenues decreased by 42% year-on-year to USD 199 million in Q2 and USD 200 million in the first half of the year. This resulted in a gross profit of USD 7 million for the first quarter -- for the second quarter and USD 80 million for the half. We reported operating loss of USD 160 million in Q2, a 22% improvement year-on-year. Net loss for the quarter was USD 130 million, down 36%. For the first half of the year, operating loss was USD 263 million, a 40% year-on-year decrease, while the net loss narrowed to USD 313 million, down by 32%. For reference, on a non-GAAP adjusted basis, net loss for the quarter was USD 2 million lower, primarily due to the impact of share-based compensation. Beyond these numbers, I would like to emphasize that we have now reduced operating expenses for 7 consecutive quarters, underscoring the company's strong commitment to enhancing the operational efficiency and continuing to deliver value. Our first half operating expense has lowered by 42% year-on-year. Despite challenges caused by market volatility and policy uncertainties, we have achieved several key milestones. Our CEO, Ms. Feng, will elaborate on this shortly. With that, I will now turn the floor over to Ms. Feng. Thank you.

[Interpreted] Hello, everyone. This is Qingfeng, Feng, CEO of Lotus Technology. Let me brief you on the latest achievements and then recent developments. First, let me begin with the new funding arrangements of the company. So on August 19, 2025, we have entered into a security purchase agreement with ATW Partners, pursuant to which the company agreed to issue and sell convertible notes for up to an aggregate principal amount of USD 300 million. Pursuant to this agreement, Lotus has issued already notes in the original principal amount of 10 million on the date of August 19. And on the other side, we have also secured funding commitments from our strategic partner, Geely. So on July 28, 2025, Lotus has also entered into a master credit facility framework agreement with Geely. On the marketing front, in July, we have proudly announced our official return to Goodwood Festival by unveiling the Emira Cup race car at the event, and we have also exhibited our concept vehicle Theory 1, with also the full lineup, including Hypercar Evija, Hypercar Evija, Hyper GT Emeya, Hyper SUV Eletre, and also our proud sports car Emira as well as several legacy racecars to numerous Goodwood visitors. And then we have also seen a positive result in terms of our U.K. market sales. And on the AI side, the Lotus Robotics, a wholly owned subsidiary of the company, which will focus on AI and autonomous driving, the company has entered into MOU with a strategic partner in the Middle East to pursue a strategic collaboration in terms of AI and autonomous driving technologies, including the exploration of robotaxi in Saudi Arabia. A few words on the product pipeline, beginning with our sports car Emira. So we are rolling out the model year '26 next month globally. And then in terms of our future plan for Emira, we're going to upgrade our powertrain in 2027 to comply with EU7. That includes also the potential consideration of a V6 engine and then also alternative hybrid solutions. And the model year '26 Eletre and Emira are being delivered to the market globally. And also, as most of our friends are concerned, the plug-in hybrid vehicle, we are in good progress. We're going to start our production of that model end of this year and then begin to market entry deliveries quarter 1 next year, beginning with China market. And then for the future, we'll also roll out to Europe and some other markets. And then we have also a new model, internal project code we call Vision X, that project, we are foreseeing to launch into the market in 2027. And also a brief introduction of the hyper hybrid technology, which Lotus possess. Some highlights of the 900-volt hyper-hybrid EV technology. So we can -- with this technology, we can deliver the combined driving range of over 1,000 kilometers. And also the highlights of the technology includes the industry-leading dual hypercharging technology, meaning that we enjoy the ultra-fast plug-in charging and also the ultra-fast on-the-drive charging. The ultrafast plug-in charging speed is leading the industry, very similar to a battery swap and then also on-the-drive charging, we can achieve the rate of 5x the power consumption of the typical driving. And also, we can provide uninterrupted electric driving performance in any of the situations, including acceleration at very high speeds and also extreme cold weather. So with this technology, Lotus will be unveiling this technology into our first plug-in hybrid model this year, the deliveries of the model, which I have previously introduced will begin in 2026, quarter 1. And also, I would like to mention a few words on our intelligent chassis system, which will be also equipped in our first plug- in hybrid model launching end of this year. So with this technology, we are able to achieve a dual mode of driving function -- driving mode. So on a comfort mode that we are tuning this vehicle to allow the comfort of the daily use and also we can tune to the performance mode while the drivers or users can enjoy in extreme conditions, extreme performance. So with this technology, previously -- without this technology, previously, that comfort and performance is always hard to balance. But with this technology equipped in our vehicle and with the fine-tuning of our chassis performance team that we'll be able to elaborate, we will be able to perform the vehicle of two very different driving modes. We can enjoy the comfort in daily use and also we can enjoy the performance in the performance driving mode. And then some of our global market strategy. So in China market, the sales network, we have also plans to strategically phase out some of the underperforming outlets while we'll continue to broaden our urban coverage. We also developed a very customized and tailor-made pricing and product strategies aligned with every single market and every single user demand that we enter into across the globe. Whilst we are strategically prioritizing the tariff advantaged markets and then the premium EV markets with growth potential. This is supported by an U.K. anchored brand hub for expansion into the Europe. We are actively collaborating with multiple strategic partners to architect a localized market entry solution, leveraging the Geely's global ecosystem. synergies. As according to our plan, the regional share of our deliveries is balanced. So North America enjoyed 20%, Europe enjoyed 38%, ROW 13%, while China enjoyed 29%. A few words on our AI front. So as we previously introduced the Lotus Robotics. It does not only provide intelligent driving solutions to Lotus, but also to other global leading auto partners. It is a one-stop provider of intelligent driving and also providing the R&D and engineering solutions to our customers. So it provides intelligent driving software and hardware R&D and including the procurement services. We're leading one model algorithm and then also providing the L2 and L2+ ADAS software and its upgrades over the year. We have the global coverage. So to date, the ADAS and PAS solution, fully delivered across Europe, Asia, GCC, North America, ASEAN and so on. with the latest highway assist functions upgraded in Europe and well received by the market. Our clients include multiple brands from the Geely ecosystem, but also to emphasize as well as other clients, external clients such as the leading European conglomerate, a top Japanese Tier 1 supplier and a few others. On the future growth in the next 2 or 3 years, we are planning to equip -- to provide the services to another 10 different models, including passenger vehicles and also the commercial vehicles. And we are actively seeking upgrades of our technology solution using the large model algorithm to be able to enable the company to deliver a Level 4 or Level 5 solutions to the globe. And also, we introduced previously, we have entered into a strategic partnership to allow us to explore the Robotaxi project expansion in Saudi Arabia. Thank you.

Thank you, Mr. Feng, and Dr. Wang. This concludes our opening comments, and we will now move to the Q&A portion of the call. Operator, please.

[Operator Instructions] First question comes from Edison Yu from Deutsche Bank.

This is Laura on for Edison. Could you share more details about the company's product road map and the future business outlook? How should we think about the upcoming product launches and the growth trajectory, et cetera?

[Interpreted] So as we introduced earlier that the powertrain technology, I will say a few more on the powertrain technology. So we will actively promoting our Hyper Hybrid technology. And then the first vehicle to equipped will be an SUV launching into the market beginning delivery to the customer, starting from quarter 1 next year. So -- and also, you can see in the presentation deck that we have another vehicle, it's a new type of vehicle also will be equipped with the Hyper Hybrid technology. It will have the strong embedded Lotus DNA inside with the performance targeted product definition. So as a global brand, every single products that we develop, we are developing into global standards and global compliance. So basically, that's for Eletre, Emira, we have the homologation of majority of the markets, including the U.S. However, that we have seen the US tariff fluctuations throughout this year. So we expect that with ease -- we expect if the tension is eased then we will be hoping to divert those vehicles into the United States again. In terms of our proud Emira sports car, so we are having a facelift in the 2027 due to the EU7 kick in. So for that, we are planning to have an upgrade on our V6 engine and also plug-in hybrid as an alternative.

Next, we have [ Eugene Hsiao ] from Macquarie Capital.

[Interpreted] I'd like to ask about the put option that was exercised, I think, in early July and the expected merger with Lotus U.K. Could you please help explain the ONE LOTUS strategy and then how you plan to integrate this business and any expected synergies?

[Interpreted] So on the ONE LOTUS. So basically, as per current status, so we have the Lotus cars in the U.K. who develop and manufacture sports cars, and we have Lotus Tech to develop and manufacture the lifestyle vehicles. So in terms of consolidation plan that we see big room for efficiency improvement while we consolidate a lot of the functions together, so including the technology synergies. So basically, that we introduced the Emira. Once we have done the consolidation of ONE LOTUS, so Lotus U.K. will be also enjoying the Lotus Tech's Hyper Hybrid -- plug-in hybrid solution. And then we have also ambitious goals for the Lotus cars operation in the future that we will focus on the very high performance attributes and also the high-performance engineering services that we can seek external clients. And then as per the Lotus Tech operation in China that we will focus on the intelligent and then also electrification, engineering and development in China, while we have the synergies between both. Because the company has delivered all the prerequisites of the put option in 2024, so we are -- and then also the consolidation plan has been officially approved by the Board. So we are now in the process of closing. We are targeting to close the deal by end of this year, no latest by quarter 1 next year.

Due to time constraints, we will conclude the Q&A session. I will now pass back to Michelle for closing remarks.

Great. All right. And with that, I think we are all done for today. If you have any questions, please feel free to contact our IR team through the contact information on our website. We look forward to talking to you next quarter. Thank you very much, and goodbye.

This concludes today's conference call. Thank you for participating. You may now disconnect. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]