Lotus Technology Inc. American Depositary Shares (LOT) Q4 2025 Earnings Report, Transcript and Summary

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

Thank you, and welcome to Lotus Tech Fourth Quarter and Full Year 2025 Earnings Call. My name is Michelle Ma, the Head of Investor Relations here at Lotus. With me today are the CEO, Mr. Qingfeng Feng; and the CFO, Dr. Daxue Wang. Our conference call materials were issued today and are available on our Investor Relations website. We are also broadcasting this call via webcast. 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 future results may be materially different from the views expressed today. Further information regarding risks and uncertainties is included in Lotus Tech's relevant filings with the U.S. Securities Exchange Commission. The company undertakes no obligation to update any forward-looking statements, except as required under applicable law. Please also note that our earnings press release and this conference call will include disclosure of unaudited GAAP financial information as well as other non-GAAP financial measures. You can find a reconciliation of receivers in the press release available on our Investor Relations website at ir.group/lotus.com. With that, I'm delighted to turn the call over to our CFO, Dr. Wang, please.

Good morning, good afternoon and good evening to our shareholders, analysts and media friends. Thank you very much for joining us for Lotus Fourth Quarter and Full Year 2025 earnings discussion. I'm Daxue Wang, Chief Financial Officer of Lotus Tech, to my privilege to once again present the company's unaudited financial results. In the fourth quarter, the company delivered 1,108 vehicles, including 1,239 lifestyle [indiscernible] and 670 sports cars. For the full year 2025, total deliveries reached 6,120 units. While this represents a 64% year-on-year decrease. These figures reflect a traditional year marked by the impact of tariffs, the phase start of the upgraded models deliveries an intensified market competition. Total revenues for the fourth quarter were USD 163 million, a 40% year-on-year decrease. For the full year 2025, total revenues were USD 519 million, down 44% year-on-year. Sales of goods fell 48% year-on-year to $463 million, driven by lower sales volume, while services revenue surged 69% year-on-year to USD 36 million, primarily due to the R&D service revenue. The commercialization of our intellectual properties through technical licensing and other channels has demonstrated significant market recognition of our pioneering technologies. Gross margin improved significantly to 10% in the fourth quarter compared to negative 11% in the same period of 2024. For the full year, gross margin improved to 9% from 3% in 2024. This improvement was driven by the global rollout of upgraded model deliveries, a favorable shift in our sales mix, higher [indiscernible] inventory dynamics and disciplined cost control. We continued our track record of displayed cost management, operating loss narrowed by 65% year-on-year to $66 million [indiscernible] in the fourth quarter, consecutive sequential quarterly reductions in operating losses demonstrate the company's commitment to operational efficiencies. In fiscal year 2025, Lifestyle vehicles deliveries accounted for 7% of the total. With sports car making up the remaining 30%. Deliveries were primarily driven by the China and the European markets. Importantly, growth in Chinese deliveries outpaced the broader premier of the segments, underscoring the competitive strength of our product portfolio within China. By region, China accounted for 45% of full year deliveries, Europe, 34%; North America, 60% and the rest of the world, 5%. In the fourth quarter of 2025, our sports car deliveries to North America [indiscernible] remarkable Q-o-Q growth, even with a 5% local price increases. [indiscernible] 2 sales part by the U.S., adjusting U.K. auto import tariffs start to 10% broad policy clarity. The recovery of sports car sales in the U.S. during the third and fourth quarters fully demonstrated our strong brand appeal on the price acceptability in the region, driving a due rebound in sales volume and gross profit margin. Research and development expenses were USD 171 million for the full year, down from USD 275 million [indiscernible], reflecting targeted prioritization of our technology investments, selling and marketing expenses decreased to USD 153 million from USD 322 million, and general and administrative expenses declined to USD 136 million, from USD 227 million. These reductions underscore our strong commitment to enhancing regional efficiency. Together with gross profit increased in 2025, operating loss narrowed 46% year-on-year and net loss decreased 58% year-on-year. On a non-GAAP adjusted basis, adjusted EBITDA for the full year improved by 63% year-on-year [indiscernible] a loss of USD 356 million from USD 961 million in 2024. Beyond these numbers, I would like to reiterate that we have not reduced operating expenses for multi consecutive quarters through value-added measures. Our improved margin performance in the fourth quarter and full year of 2025 demonstrated our continued focus on cost optimization and operational efficiency. And this was also reflected in our significantly improved bottom line of results. Going forward, we expect the global launch of our PHEV model for me to drive sales and revenue growth. Additionally, we packed up the combination of focusing on revenue growth efforts maximizing product positioning and enhancing margins through strict cost reductions will allow our business to progress towards profitability and enable us to deliver long-term value to shareholders. With that, I will now turn the floor over to Ms. Feng. Thank you.

[Interpreted] Hello, everyone. This is Qingfeng Feng, CEO of Lotus Group. Thank you for joining the Lotus Technology Quarter 4 and Full Year 2025 Earnings Conference Call. Last year, 2024 was a really important year for us. A true turning point in our strategic transformation, even with other global markets, ups and downs and higher tariffs, we made solid progress on our core operating metrics by staying focused on smart execution, pushing technological innovation and tighten up how we run the business every day. I'll walk you through the latest development in 4 key areas. Our recent highlights market strategy, product lineup and the progress on our new hybrid model for me or Electrox. With our 78-year racing heritage, building the Lotus brand has always been front and center for us. In 2025, we scored some real breakthroughs on both the business and the brand front. In motorsports, we wrapped up for the very first Lotus cars, [indiscernible] in Malaysia back in November last year, 44 raise-back floater scenarios heat to the track and was a sensational [indiscernible] of the brand's rating DNA. The 2026 season actually kicks off on April 3 of this year and we will keep using this platform to share our motor sports spirit and cutting-edge tech with fans everywhere. In equity financing, we secured a strategic access investments with USD 23 million from ECAREX, deepening our global strategic partnership through capital price. Going forward, we will jointly accelerate innovation in next-gen intelligent copies, ecosystems to deliver AI-driven experiences to consumers and collectively enhanced product competitiveness. On the tax side, our [indiscernible] became the first and only Chinese-made electric vehicle to earn UN-R171.01 certification for highway navigation systems. [indiscernible] is also only the second automaker in the world to achieve this which is a huge validation of our advanced driver assistance systems and opens more doors in the premium European markets. On brand development, we teamed up with a house [indiscernible] for the exclusive in progress acquisition after the 2026 Milan design week. We showcased our industrial design philosophy and to the [indiscernible] of car, proving once again how Lotus, blends, technology and aesthetics in a way that fills a luxurious and a forward thinking. For our market strategy, Lotus is continuing to refine our global footprint and make ourselves channel more efficient. We now have a well-balanced distribution network across 4 major regions as of the end of December, we had a 211 cells [indiscernible] in Europe, 58 in China, 48 in North America and 38 in the rest of the world. In China, we kept expanding and upgrading our dealer network. We opened a new store in the city of Italian in China and refreshed to several others. Dealers have been hiring more staff, adding more outlets and ramping up our online marketing, which has clearly improved to both customer acquisition and satisfaction. And in North America, we plan to grow our Canadian dealer network on the basis of existing channels. Now we have 6 dealers in Canada. We are expected to expand to sell by the end of the year. What [indiscernible] local tariff policy opportunities. The electro is the only Chinese made electric vehicle priced above USD 80,000 that's fully certified for the North American market. So we expect a strong sales growth there we will start customer deliveries in Canada in May. In Europe, we streamlined our organization and [indiscernible] and gave each region more freedom to tailor strategies to local needs. For example, we introduced the business addition models and vehicle value production plan in Germany and by expanding corporate and leasing business in the U.K. As I previously mentioned in the quarter 3 earnings conference call notice stained discipline on costs. We are closing a few underperforming stores, expanding the high-performing ones and redirecting resources to the market [indiscernible]. On our product line, we are driving product competitive by expanding both our truck range and powertrain options playing to our strengths while fixing any gaps. The expansion and upgrading of the portfolio were core highlights of our work through the year. In 2025, new variance of [indiscernible] and EMEA were launched and delivered in major markets, receiving positive market feedback. The sales proportion of new models continue to increase helping stabilize product sales. In 2025, we also focused on hybrid product development and in the first quarter of this year, we launched our all new [indiscernible] and delivery started just 1 day after the launch. This hybrid model is mainstream luxury buyers and other great option and this reach markets that are moving more slowly towards the 4 EVs like Italy, Spain and Saudi Arabia, it's also bringing in a broader mix of customers. In the future, we will keep strengthening both the Sport Sky lifestyle vehicle to our lineup and we will roll out some more hybrid spills on our new [indiscernible] real architecture. This gives consumers real choice, combustion, battery electric or hybrid, whatever feeds their means. And also allow me to share with you the progress of the launch of FMI, which is the first hybrid in low to 78 years. In the EU, it is based as [indiscernible], like I previously mentioned, this completely changes what the [indiscernible] can do. [indiscernible] was launch in China on March 29, 2026, and deliveries began on March 30. Before the launch, we actually invited the dealers and media outlets from the EU to test the ride and to test the drive for this particular vehicle, and we have received a wide positive feedback. [indiscernible], runs on our ex hybrid architecture, a 900-volt high-voltage platform paired with a 70-kilowatt hour battery and a total output of 952-horsepower in CRTC testing, it delivers more than 1,400 kilometers of total range. Fuel consumption is just 0.7 liters per 100 kilometers in WLTC. And even when the battery is depleted, it's only 6.1 liter per 100 kilometers. From 0 to 100 kilometers of hour, Lotus [indiscernible] electric only takes 3.3 seconds. And even when the battery is down to 10%, it still hit 3.5 seconds. And in other words, performance stays strong at massive battery level. Breaking is equally impressive, 120 kilometers power in just 33.9 meters and the car state of both international [indiscernible] decision after 12 heavy stores in a row, plus at high speeds, the 4 speed active railing conflicting to air break at 170-kilometer hour, generating 120 kilograms of downforce to help shorten the stopping distance and keep the car stable, bringing safety protection and driving confidence to drivers and passengers. Aerodynamics remain a Lotus signature for me carriers forward our porosity design language with a low purpose for fans and functional [indiscernible] every line has a purpose [indiscernible] use the entry effects to boost the downfalls and the 206-degree wind showed angle cost drive effectively. [indiscernible], while we gradually launched to the global market in the second half of the year, wholesale deliveries in the EU states at the end of October, certification for mill is will wrap up by year-end with orders opening in October, official launch in November and the deliveries in December. In the U.K., we expect the wholesale to begin in mid-2027. Looking ahead, we will keep accelerating product updates and the market expansion. On the one hand, we will ramp up 4 new global deliveries and at the same time, an advance the R&D and launch of new models as planned. On the other hand, we will deepen our channel partnerships and technical collaborations to make the Lotus name even stronger worldwide. Thank you again for your time and support. I will now hand it back to the host for your questions.

[Operator Instructions] We will now take our first question from the line of Laura Lee of Deutsche Bank.

I want to ask about -- just thinking about the total delivery rates of 2025. We actually went down year-on-year by almost half. So what are the main drivers of this volume decline in '25? And how should we think about the potential impact of geopolitical situation on the future sales?

[Interpreted] Yes, I do see there's a decrease -- delivery volume decrease year-on-year, and it has been affected by a lot of elements. The first one is the uncertainty of tariffs. It has negatively impacts our production and also inventory. For example, the U.S. tariff to U.K. make vehicles affected our volumes about 60%. In addition to that, the EU and U.S. tariffs against Chinese made EVs have also exerted pressure on our pricing in the EU. And for the U.S. market, basically, it is impossible for us to enter. For those influences, they have also affected our inventory management and our destocking progress. We actively started destocking in 2025 and adjusted our product lineup. But after the adjustment, the logistics have also take some time and leading us to some late entry to some markets. In 2025, our stock level has been reduced dramatically by 43% to a very healthy level and is set a very solid accounts for our 2026. In addition to that, we've also adopted a lean efficient organization to help us boost our profit margin. Despite the negative impact of geos and tariffs, we do see some new opportunities. For example, the tariff between U.S. and U.K. have been settled. The U.K. making vehicles to the U.S. will be charged to 10% tariff and it is beneficial news for our Emera cells. And actually, the Emera cells in the U.S. have been recovered to a normal status. In addition to that, Canada has also announced a policy towards China-made EV, the tariff will be lowered from 100% to 6.1%. And it is conducive to our exploration in North America, given we have already certified our electro for U.S., it's a good opportunity to leverage such chance to boost our sales volume. In addition to that, for our PHEV, EU at this moment, currently kept 10% tariff to Chinese-made PHEV. So this is also a good window opportunity for us to launch PHEV in October to EU markets. Despite the challenges that we've seen in the U.S. and the EU markets, we do see some positive feedback from China market. Our sales volume have been increased from 2,900 to -- from 2,800 to 2,900 , an increase of 3% year-on-year. And actually, in 2025, the luxury market in China priced over RMB 400,000, dropped to 4.4%. But in that circumstances, we actually kept a 3% increase and it is a demonstration that the Lotus product is very competitive. We can achieve stable increase in such a year's competition and the brand of Lotus have been gradually recognized in China market. In 2026, as we are going to roll out the PHEV in different markets, it will help us to reach a wider market. For example, some markets with the slow adoption of EUV, such as Italy or in Spain, and it also helped us to touch a wider customer group who may have a range [indiscernible] and in the future, we are pretty confident that '26 is going to a year for notice to recover. In addition to that, we're also exploring new markets such as South America, Brazil, we've already had a dealer there. [indiscernible] to be opened in mid of this year and the first batch of the vehicle has been wholesale. Again, in summary, despite there is a negative influence the last year, we see some positive opportunities lying ahead. Thank you.

Okay. Great. Appreciate the color. Just to follow up on this volume perspective. So after the launch of Lotus For Me, the [indiscernible] model, which I believe should have started the release by the end of last month. Could you provide an update on the current order intake and delivery programs? And could you like elaborate more about the volume expectation and the strategic [indiscernible]

[Interpreted] After the launch For Me on 29th of March, the auditor status is actually telling our expectation for me is the first hybrid model of Lotus in the past for 17 years. It redefined the hypers to cover all scenario. And this is one of the reasons that we can reach a wider customer group. Our consumer assets have been increased by 5x. And on the OEM, the [indiscernible] platform, we ranked the 20th on the vehicle consultation target. And on other integration platform, for the vehicle price above RMB 500,000, you ranked the 10th. And in other words, this indicates that For Me and Lotus gains greater visibility and exposure and wider [indiscernible]. For PHEV, particularly PHEV priced about 400,000 and in China, we see a trend of increasing. In 2022, the total volume of such segment is around in 2024, it's increased to 280,000. And in 2025, we see this getting closer to 30,000. In other words, for PHEV in China, now it is a good time to enjoy the benefits. [indiscernible] helped Lotus to reach a wider customer group in the past the customers who are interested in our BEV of offerings are most entrepreneurs under the owner of the business or business owners. Now the company management actually shows their interest in our products. And of our target customer group, previously, it's a bit younger. Now we reached to a more senior age level. Among all those customer groups, the owners of the BMW X5 and also ask shows greatest interest on our products. [indiscernible] launch this For Me or [indiscernible] in the second half of the year to EU market and for EU market per se, the PHEV penetration rate is also getting higher given the emission regulation is getting stricter. The tariffs for Chinese-made in EU is 10%. And for Chinese made EV is 28.8%. There's a difference 8%, which means this is a good opportunity that we can leverage. In the EU, [indiscernible] are increasing, particularly from 2024 to 2025, there's an increase of 7.2% in some major cities, Spain, Italy and Germany. And in 2025 December itself, we see an increase of 30% year-on-year. And overall speaking, the PHEV is going to help us to have a well-balanced product lineup and product portfolio and give our targeted luxury, we can see there's more options to choose. The BEV and PHEV from Lotus will help us to acquire more market share and wider marquee coverage.

We will now take our next question from Brian Lantier of Zacks Small-Cap Research.

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

Thank you, Brian. The company's gross margin improvement in 2025 driven by 3 key factors. First, as [indiscernible] has just elaborated, we successfully clear aged vehicle inventories in the first half of the year than the second half saw a higher portion of new vehicle sales and a significant reduction in overall variable sales subsidies. And second, continuously reduced material costs through TD's centralized procurement platform as third, we increased the share of the high-margin service revenue, which lifted the overall gross margin. Looking hard 2026, despite significant external headwinds such as continued price increase for car components like batteries and tips, which will put pressure our gross margin expect total procurement costs, production costs and unit D&A to our decline. At the same time, let's start to maintain the overall production pricing at count levels leading to further gross margin improvement. And in addition, the ongoing merger with the U.K. local cars is expected to enhance the production and R&D efficiency and further support our gross margin growth.

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

Yes. Thank you. So the company's cost control plan consists of structural long-term initiatives rather than these temporary measures. On the MB front, the company fully leverages GD's R&D and resources enabling us to reduce investment in general-purpose technologies and focus on technology development, [indiscernible] improving our R&D efficiency. And on the marketing front, the company dynamically and flexibly manage its marketing plan to enhance marketing efficiency, [indiscernible] collaborated. And on the management front, the company strictly controls administrative expenses streamlined organizational structure and optimizes the personal management reworks to improve operational efficiency, and we believe these factors will continue to play a positive role in 2026. Thank you.

I'll now turn it back to the room for questions from the webcast.

Thank you for all questions on our conference call. We will now be answering investor questions a webcast. Our first question is Service revenue grew 69% year-over-year in 2025. What are its core breakdown and the key drivers behind?

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

Our second question from the webcast is what's the implication that the risk of rising global oil price has on the company?

[Interpreted] Well, I think it's a good news [indiscernible] new energy vehicle and a good opportunity for us, particularly for PHEV because for me, our first PH model can be solely present by gasoline fill or solely driven by battery. It's a case or different tax of needs from our consumers. And it's a consumption of both the fuel and the late are very low. As I previously mentioned, the comprehensive fuel consumption is only 0.07 liters per 100 kilometers. And even at the depleted status, the fuel consumption is only 6.1 liters, 100 kilometers. So overall, this is a good opportunity for us to catch. Especially in the markets such as Middle East, where the charging infrastructure has not been very mature. The BEV adoption rate is slow. In those markets, we believe the PHEV model for me is going to play an important role. Of course, we do see some headwinds given the hikes of oil price. For example, the cost of our supply chain might be increased under the bomb cost might be also increased correspondingly and those are some negative influence we may see. And some of these established luxury OEMs may take this opportunity or field pressure to accelerate their pace into PHEV arena, such as we see March has been releasing the KN BEV model. And we also see the [indiscernible] are launching some ranging standard models. Of course, for Lotus, we would keep demonstrate our spirits to be differentiated and the customization and player leading round in this front.

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

Thank you all again for joining us today. We will conclude the call now. The Investor Relations team remains available to answer any further questions you may have. Please feel free to contact us through the contact information on our website. Have a great day. Thank you.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect your lines.