Lotus Technology Inc. American Depositary Shares (LOT) Q2 2026 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to the Lotus Technology First Half 2026 Earnings Conference Call. [Operator Instructions] Please be advised today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Ms. Michelle Ma, Head of Investor Relations. Please go ahead.

Thank you, operator, and welcome to Lotus Tech's First Half of 2026 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 provision 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 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'm delighted to turn the call over to our CFO, Dr. Wang, please.

Thank you, Michelle. Good morning, good day, and good evening distinguished shareholders, analysts and media friends. Thank you for joining our first half 2026 earnings release. Again, this is Daxue Wang, the Chief Financial Officer of Lotus. I'm excited to brief you the unaudited financial results of the company. In the first half of 2026, the company delivered 3,904 units representing a 39% year-over-year increase, outperforming the referenced traditional premium and luxury segments. This solid delivery performance reflects the company's growing market presence and competitiveness positioning in the high-end automotive sectors. Strong delivery growth directly drove revenues up 23% year-over-year to USD 268 million for the first half of 2026 with strong momentum in the China market. Average selling price dropped slightly by 3% year-over-year, attributable to an increased sales mix of the lower-price Eletre X. Gross profit rose 47% year-over-year to USD 26 million, while gross margin expanded 1.6 percentage [indiscernible] to 10%. This improvement was supported by a favorable product mix following the successful launch of Eletre X [indiscernible] first-ever PHEV in a 78-year history, marking the -- making the -- market the [ Eletre X validates ] of our multi-powertrain strategy. We maintained our disciplined cost management trajectory. The operating loss narrowed 63% year-over-year to USD 97 million in the first half of 2026. This improvement stems from rigorous financial management, better operating leverage and a one-off license fee refund linked to the product pipeline adjustments. Excluding these one-off items, the operating loss narrowed 26% year-over-year to USD 195 million, demonstrating the company's ongoing focus on driving operational efficiency and upholding the strict financial discipline. And in May 2026, we unveiled our Focus 2030 strategy which Mr. Feng will address in his remarks. This improved financial outcomes serve as a tangible proof of our progress against core pillars of Focus 2030, namely our marketing powertrain strategy and commitment to financial discipline, which are translating into measurable operational and financial advancements. In the first half of 2026, lifestyle vehicles deliveries made up 77% of the company's total vehicle deliveries for the period, driven largely by the successful market introduction of the Eletre X in China. China market deliveries grew 60% year-over-year, keeping China as the company's largest market and accounting for 58% of total deliveries during the period. Deliveries outside China rose 17.4% year-over-year, including 45% growth across the Americas and 164% growth in ROW. European deliveries filled 17% year-over-year amid intensifying competition in the luxury BEV segment. In Europe, we will continue to refine inventory management, enhance product value and enforce pricing discipline to protect residual values and rebuild momentum. Eletre X opened for orders across Mainland Europe on June 3, with customer deliveries commencing in the fourth quarter. U.K. launches will follow in mid-2027. We expect this new model to fuel delivery growth over the upcoming quarters. China market deliveries expansion outpaced overall growth across China's premium passenger vehicle segment. As a result underscores the strong inherent competitiveness of the Lotus full product portfolio, even amidst mounting competition across the broader auto industry. Now let's move to the half year financials. Overall, our first half 2026 financial performance improved meaningfully versus the prior year period. As already covered deliveries, revenues and gross margin, I will not repeat them here. In line with the revenue, cost of revenues for first half 2026 stood at USD 242 million, up 21% year-over-year. As a result, gross profit reached USD 26 million, a 47% year-over-year increase. Operating expenses during the period came in at USD 127.5 million, down 46% year-over-year, primarily comprising the following. R&D expense stood at negative USD 2 million in the first half due to the aforementioned one-off items, shipping out of this specific special onetime adjustment, R&D expenses totaled $96 million, a modest 4% year-over-year in rise versus $92 million in the first half of 2025 driven by technology investment for the Eletre X. Selling and marketing expenses increased to USD 83 million, up 5% year-over-year. The uplift reflects higher sales commissions tied to rising vehicle volumes alongside marketing activities for the Eletre X launch in China and the prelaunch campaigns in overseas markets. General and administrating expenses decreased to USD 46 million down 27% year-over-year. As we tightly control travel agency and other costs and optimize our organizational structure. With above, even excluding one-off effects, the operating expense to revenue ratio improved from 107% in first half 2027 to 84% in first half 2026 reinforcing our priority to lift operational efficiency and maintain strict cost controls. Accordingly, operating loss and net loss for the first half 2026 narrowed 63% and 52%, respectively. On a non-GAAP adjusted basis, adjusted EBITDA loss for the first half of the year narrowed 57% to USD 104 million compared with USD 240 million loss in the same period last year. Beyond high-line metrics, I would like to emphasize that we have delivered sustained operating expense reduction through the value-driven initiatives. This reflects our continued focus on cost optimization and operational efficiency. And looking ahead, we aim to advance towards profitability and create long-term shareholder value by maximizing product positioning, expanding margins via optimized product mix and executing rigorous cost reduction actions. With that, I'll hand over to Ms. Feng. Thank you very much.

[Interpreted] Good day. I am Qingfeng Feng, CEO of Lotus Tech. Thank you for joining us in the Lotus Tech's first half 2026 Earnings Call. In the first half of the current year, we delivered improvements across all our core operating metrics and steadily rolled out the Focus 2030 strategy unwelded earlier of this year. I will now walk you through the details. We will start with recent development highlights rooted in our British heritage of trackbrand performance, we continue to strengthen our brand DNA while seizing new opportunities in emerging markets and product segments. Following official launch in the Canadian market, the all electric hyper SUV electric arrived in the country in July, marking the first time Chinese make luxury EVs in the Canadian market and representing a significant milestone in the Lotus efforts to expand its North American footprint. Our first hybrid offering this year, the Eletre X known in China as Lotus For Me has received an enthusiastic response since its domestic release. The model has helped lift the Lotus market share in China passenger vehicle segment priced above RMB 500,000 to nearly 2% in the second quarter. In June, we opened orders for the Eletre X in the EU market with deliveries scheduled to commence in the fourth quarter. We continue to refine and roll out limited edition sports cars in May. For instance, we introduced the Emira 420 sports edition, widely held by enthusiastic as the [ Corner King ]. With the power boost and a 25-kilogram weight reduction, the Emira 420 delivers even sharper cornering points. In July, we launched the Emira Scura Limited Edition in China attributed the Exige Scura from 17 years ago with only 9 units allocated to China and 60 to North America, the entire run sold out immediately under the Focus 2030 strategy, we will unveil the Type 135 mid-engine with 8 hybrid hypercar in 2028. In July, Emeya set a new EV lap record at Malaysia Sepang International Circuits, surpassing the previously publicly recorded farthest EV lap at a significant margin, yet another testament to Lotus performance credentials. Besides, we have published our 2025 sustainability report, underscoring our ongoing commitment to global sustainable development. Meanwhile, we have signed MOUs with the Web5 platform Finloop and leading payment institution, FOMO Pay to jointly explore compliance applications of on-chain payments and real-world assets to organization within the luxury mobility space. Now let me turn to the recently unveiled Focus 2030 strategy designed to adapt to an evolving external landscape. This strategy redefines Lotus core strategic positioning, which rests on 4 pillars: first, ending our brand heritage in 78 years of track home driving dynamics; second, adopting a multi-powertrain strategy to flexibly address diverse global customer preferences; third, leveraging the One Lotus integration and [ Gillys ] ecosystem synergies to further drive cost efficiencies and operational effectiveness; fourth, optimizing financial performances to achieve profitability at an annual sales volume of 30,000 units, delivering a lean yet productive, sustainable growth model. Focus 2030 Pillar 1, strengthening and passing on our brand heritage. Lotus is rooted in the British racing category and powered by [ Gilly's ] global leading technology, together enabling the pure driving engagement for enthusiasts. On this very foundation, we have tailored brand activation strategies for each of our core global regions. In Europe, we are capitalizing on Lotus Tech brand premium, reinforcing our presence through a multi-powertrain product portfolio. In China, we are tapping into the rising demand for premium new energy vehicles, positioning Lotus as a brand that embodies both high performance and intelligence in the luxury EV segment. In Americas, our focus remains on sports cars. While the Eletre launch in Canada serves as our entry point into the North American lifestyle vehicle segment, we are also concurrently expanding our sales network across South America. In other regions, we continue to broaden sales channels, step up brand building efforts and reach new customer segments. As of June 30, Lotus has established a well-balanced global sales network with 217 retail locations, which break down into 60 stores in Europe, 65 in China, 53 in the Americas and 39 across the rest of the world. China and Europe remain our core volume contributors, while North America stands as our largest market for sports cars. Back in 2018, Lotus was the first luxury brand to commit to full electrification. However, we have since recognized that the global transition to electrification is far from uniform. In response, we have adjusted our strategic direction in a timely manner, choosing to pursue pure electric, hybrid and internal combustion powertrains in parallel. Every one of our products remains uncompromisingly driver-centric. Our first hybrid model, the For Me, made in China -- made its Chinese debut this March with European delivery scheduled for the fourth quarter. Looking ahead, we are focused on developing our next-generation hybrid car Type 135 and also a hybrid available in both V6 and V8 powertrain variant. The Type 135 will fill the gap between the Emira and the Evija, preserving the emotional connection in Emira owners that we have with the Lotus mechanical handling while leveraging V8 hybrid technology to approach the technical benchmark set by the Evija. This creates a natural product upgrade and elevates the brand upwards through a combination of lightweight design and chassis responsiveness. The Type 135 will demonstrate that Lotus still has what it takes to be a technical benchmark in the next generation of high-performance sports cars. We envision this model as our flagship, one that will enhance the company's overall profit. The Type 135 has already generated tremendous excitement among Lotus fans worldwide. After 22 years, we are bringing back a mid-engine V8-powered model with over 1,000 horsepower, while targeting a total weight of around just 1.5 tons. Lightweight engineering is both our greatest strength and our biggest challenge here. Achieving that target with an 800-volt architecture, hybrid system, V8 engine and electric motors all within just 1.5 tons is not easy. To put that in perspective, while a typical 150-kilowatt motor weighs between 75 and 95 kilograms, we have leveraged Formula 1 technology to bring it down to just 20 kilograms. We are also codeveloping an 8-speed DCT with Horse designed to handle high torque while keeping weight to a minimum. On the sports car front, as mentioned earlier, we have introduced the Emira 420 and special editions such as the Exige Scura. We will continue to roll out new Emira variants going forward, reinforcing its value as Lotus final pure combustion sports car. In the lifestyle vehicle category, we are also introducing the Eletre 900 Gold Edition and Emeya 900 Gold Edition available for preorder starting August. We will keep refining the product competency in this segment. The launch of the Eletre has given the mainstream luxury vehicle buyers more choices and will further expand Lotus market reach and customer coverage. Focus 2030 Pillar 3, deepening ecosystem synergies with partners. Our ecosystem synergies are built on 2 core pillars, Lotus integration and deeper collaboration with the ecosystem. Last Friday, on August 21, we formally completed the acquisition of Lotus UK, and we are now accelerating the comprehensive integration process. This integration combines Lotus UK's track record racing DNA with Lotus Technology's cutting-edge technologies, further sharpening Lotus distinctive positioning in the luxury automotive space. We are committed to the One Lotus strategy on 3 fronts. Brand. We will maintain a globally unified premium ultra-luxury brand identity, ensuring that the Lotus brand image, product experience and customer perception remain consistent across every market. Governance. Our governance structure will be further streamlined to enable more efficient decision-making, agile resource allocation and faster responses to market shifts, allowing us to channel greater focus into product development and customer experience enhancements. Synergy through coordinated efforts in technology sharing, supply chain integration and unified management, we will eliminate redundant investments and fragmented resource allocation, delivering a dual uplift in brand value and operational efficiency. We will also continue to deepen synergies with the Geely ecosystem. The Geely Group provides Lotus with systematic competitive advantages that other independent luxury brands could find hard to replicate, including advanced technologies. Across pure electric hybrid and intelligent solutions, Geely's platform enabled us to stay at the forefront of electrification and smart technology while reducing cost and shortening the go-to-market duration for new technologies. By leveraging Geely's shared platform, Lotus can concentrate its R&D efforts on signature technologies such as lightweight engineering, aerodynamics and chassis tuning. Mature supply chain with access to Geely's global procurement scale and supplier network, we can secure high-quality components at more competitive costs, effectively hedging against the raw material price volatility and geopolitical risk. Flexible manufacturing. Geely's global distributed flexible production system helps Lotus to accelerate product launches scale up operations and build cost advantages. Such collaboration is bidirectional empowerment Lotus's proprietary know-how in train handling, aerodynamics, lightweight engineering and chassis tuning feed back into the ecosystem in return, driving technological advancements across the broader group. Our Lotus Engineering division, in particular, covering 12 service domains, including design engineering, vehicle dynamics, chassis and lightweight solutions have been providing engineering service to the world since its founding in 1952, empowering not only Geely but also the wider industry. We maintain ongoing joint development programs with Geely's R&D teams to ensure that Lotus unique driving DNA is fully preserved. Focus 2030 Pillar 4, financial optimization. Under the Focus 2030 strategy, we placed great emphasis on quality growth. As our product portfolio matures, we target annual sales of 30,000 units and sustainable profitability. Our path to achieving these objectives rests on 3 key drivers: First, delivering steady volume growth through brand building and portfolio expansion. With the launch of the Eletre X in 2026 and the Type 135 in 2028, we are fully leveraging the flexibility of our multi-powertrain strategy to capture differentiated demands across different markets, continuously expanding product portfolio for volume ramp-up. We expect a compound annual growth rate of 36% in sales volume from 2025 to 2030. Second, driving sustained gross margin improvement with a target of exceeding 20% by 2030. On the revenue side, we will raise average selling price and margin through brand strengthening, new model launches and customization offerings. On cost side, we will leverage Lotus integration, Geely supply chain and product synergies and economies of scale to effectively optimize cost control. Third, adopting strict expense discipline based on the first 2 drivers, we are implementing rigorous cost control growth SG&A and R&D with the goal of reducing the combined share of revenues to below 25% by 2030, enabling our EBITDA to turn positive. In summary, Focus 2030 provides a clear and actionable profitability road map, drive volume growth through product expansion, lift gross margin through brand premium and cost discipline and deliver positive earnings through integration synergies and lean operation. Our first half 2026 business performance already reflects our firm commitment to moving in this direction. Thank you all.

[Operator Instructions] We will now take the first question. This is from Laura Li from Deutsche Bank.

So firstly, I want to check about the Lotus For Me, the PHEV model. Since it was launched in March, could you discuss the order intake delivery and initial market response and customer profile? And what are your expectations for full year sales and margin?

[Interpreted] At present, For Me deliveries are primarily concentrated in China. As of June 30, cumulative orders of For Me in China stood at 2,200 units with deliveries exceeding 1,800 units, largely in line with company expectations. EU deliveries are scheduled to commence in the fourth quarter with market in the Middle East and other regions to follow in December. As a hybrid model featuring a smaller battery pack and lower BOM cost, For Me command a higher gross margin than our pure electric vehicles. In addition, the model benefits from deeper collaboration with Geely, leveraging platform sharing and economic scale, which further supports a healthy margin profile. Production and sales For Me are still in the ramp-up phase, and we are confident that margins will continue to improve as we steady-state volumes. In the first half of 2026, the Chinese passenger vehicle market priced above RMB 500,000 recorded sales of 185,000 units, down 12.8% year-on-year. However, new energy penetration in this segment climbed to 40.2%, driven primarily by a sharp rise in PHEV penetration from 0.9% in 2025 to 21.6% in the first half of 2026. PHEV sales surged more than 20-fold year-on-year to 40,000 units, overtaking range extenders at the largest new energy subsegment. Using this opportunity, Lotus launched For Me in late March, lifting our market share in China's above RMB 500,000 passenger vehicle segment to nearly 2% in the second quarter. The customer profile of the For Me have also been highly encouraging. To date, 63% of buyers are new to the Lotus brand and over 70% of customers have opted for the highest spec variant. In the second half, we will sustain momentum through integrated test drive experience events and ongoing word-of-mouth marketing to maintain product buzz and sales cadence. With the addition of hybrid models, Lotus's dealership footprint in China has been further optimized, particularly in the Northern region with plants operates in the Northeast and Northwest, opening up new markets for future sales growth. In Europe, we formally commenced the order taking for the Eletre X in the first half, adding a fresh growth driver for second half and beyond. In the first half of 2026, EU's SUV sales above EUR 70,000 reached 160,000 units with new energy penetration remaining high at 62%. Within that, PHEV SUVs accounted for 58,000 units, representing nearly 70% of the new energy mix. We conducted multiple rounds of marketing prelaunch activities in Europe during the first half, generating positive market feedback and establishing a solid foundation for the product rollout. In parallel, we have been advancing our digital marketing strategy across Europe, building a customer pipeline to support order conversion in the second half and further expanding our prospect base. Our EU marketing strategy will gradually shift from brand awareness to sales conversion, leveraging diverse in-depth experience events and sustained digital engagement to strengthen customer relationships and improve conversion rates. The introduction of the Eletre X has effectively enabled us to access market segments and niches that our pure electric offerings alone could not have. As such, we are equally confident in the incremental volume that the Eletre X will deliver following its European launch and deliveries.

Okay. Got it. Appreciate the color. Secondly, I want to check about the Type 135 hybrid sports car that you're planning to launch. Could you provide any update? Or could you introduce a bit like the strategic rationale or logic behind this model?

[Interpreted] The Type 135 is a critical high-performance hybrid product for Lotus in the next phase of our development. As mentioned earlier, the Type 135 marks the return of a mid-engine V8 model after 22 years. Leveraging Lotus it's expertise in aerodynamics, lightweight engineering and chassis tuning, the Type 135 will establish a new technical benchmark for high-performance sports car, reaffirming to the market our ability to translate the track-bred engineering into extraordinary driving experience and first solidifying the Lotus brand ethos and image. The Type 135 will bridge the product gap between the Emira and the Evija, creating a complete sports car portfolio that spans the Emira as entry-level combustion sports car, the Type 135 as a hybrid flagship hybrid car and the Evija as a collectible ultimate performance hypercar car, positioning the Lotus brand for decisive upward growth. On the motor sports front, the Emira already competes in GT4 events, where we have achieved notable results, including podium finishes at the Macau Grand Prix Greater Bay Area GT Cup. With the Type 135, we will take the next step forward and enter GT3 competition. Beyond its brand boosting effect, the Type 135 will also elevate our lifestyle vehicle lineup, complementing the Eletre X luxury hybrid SUV, the all-electric Eletre and the premium sedan Emeya. This multi-powertrain strategy coverage will enhance brand recognition and appear across our lifestyle vehicle portfolio. From a market demand perspective, sales of our core sports car competitors have been impressive with a compound annual growth rate of 7% to 9% from 2022 to 2025. Global sports car sales reached 150,000 units in 2025 with the addressable market expected to pick up at up to 190,000 units in 2028 and 220,000 units by 2030. In the United States, above USD 600,000 sports car segments have shown steady year-on-year growth, while the premium above USD 600,000 sports car market in both Europe and the U.S. is seeing a clear trend towards hybrid transition with the hybrid share rising from 26% in 2025 to 35% in the first half of 2026. Core sports car enthusiastic in Europe and the U.S. place high value on the visceral appeal of internal combustion engine sound and mechanical driving activity. Pure electric supercars constrained by battery weight and charging infrastructure have structured to win over traditional performance buyers. The Type 135 hybrid V6 plus V8 approach offers the ideal solution, delivering compliance with global emission regulations while preserving the essential Lotus DNA of lightweight engineering, aerodynamics and extreme track-focused driving dynamics filling a clear gap in the market. On the technology front, our Lotus more than 7 decades of history, limited in-house powertrain capabilities have been our most significant handicap. We have traditionally relied on outsourcing. This time, with Geely's strong support and technology enablement, we are co-developing a high-performance powertrains with Horse. This collaboration allows us to leverage Lotus core strength in lightweight engineering, aerodynamic design and sophisticated chassis tuning while tapping into Geely's resources, the local supply chain and scale advantages, meeting the Type 135 power requirement, while balancing R&D investments and per unit cost. This technology will be applicable to future generations of the Eletre X. The Type 135 will continue to be around the most fundamental principles of the Lotus brand. As the product remains in the development phase, further technical and product details will be disclosed at an appropriate time in the future. Thank you.

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

[Interpreted] We have developed different strategies and plans for different regions. For example, for China market. First, we are going to maintain the market momentum and launch cadence of the For Me through an integrated test drive experience program, sustaining the sales cadence established in quarter 2. Second, we have also introduced the Lotus Emira 420 Sport and the Lotus Eletre and Emeya 900 Gold Edition. This high-performance new products will elevate brand awareness, reinforce our value proposition and multi-ways market engagements. Third, strengthen customer engagement and increase the customer referral rate. And the fourth, leverage hybrid models to enhance our sales network footprint in Northern China, upgrading distribution network in high potential markets to convert market opportunities into tangible sales results. In Europe, we will first start with the launch of Eletre X, which will progressively unlock initial market demand. And second, in the second half, our marketing strategies will shift from brand exposure to sales conversion with a sharpened focus on high conversion channels and customer relationship management. Lastly, we will continue advancing channel development in key markets, further optimizing the dealer network and retail operational capabilities. As for the American region, Brazil, our third largest volume driver in the American region outside the U.S. and Canada will officially commence deliveries in the second half. Besides, with the introduction of the Emira 420 Sport and model year '27, we will reinforce the Emira's driver-centric positioning centered on driving engagement, capture demand created by the discontinuation of the Porsche 718 and accelerate order conversion at the dealers while generating new preorders. For the rest of the world market, the most significant milestone for the second half is the official market launch of the PHEV product in the Middle East with the Eletre X scheduled to arrive in the region by year-end to drive volume growth. Additionally, as the Emira 420 rolls out to global markets, we expect it to contribute incremental sales in the Middle East, Australia and other countries and regions. We will also work on continued network expansion, including the Caucasus regions and the Middle East regions. Thank you.

We will now take our next question, and this is from the line of Jiong Shao from Barclays.

[Interpreted] I'll translate myself. So my first question is about Focus 2030. We guided towards a steady ramp-up to 30,000 deliveries, over 20% gross profit margin and positive EBIT under the plan. Can management comment on your thinking when setting up these goals? What gives you the confidence and progress you've seen so far? And second is around our Lotus UK acquisition. Can management give us an update on financial impact and guidance post official closing of the transaction and when the company will start to disclose consolidated results?

[Interpreted] I will take the privilege to answer your first question and leave the second question to our CFO. We have strong confidence in our medium- to long-term operating targets underpinned by the following pillars. First, brand. Through global motor sports events, for example, Lotus Cup and Lotus Driving Academy and the launch of the hybrid flagship hybrid car Type 135, we will continue to reinforce Lotus 78 years performance DNA and elevate brand value. Next, channels. As of June 30, we operated a total of 217 retail stores across Europe, China and the Americas and the Rest of the World with new market entrants into Brazil, Paraguay, Ecuador and other South American countries. We will sustain global channel expansion, continuously optimize and upgrade our existing network, strengthen customer engagement and improve conversion rates. Finally, product by 2030, we will establish a comprehensive product portfolio covering the entire luxury performance spectrum with both plug-in hybrid and pure electric high-volume models to address diverse customer needs across different markets. Our sports cars will showcase those driving DNA running through tracks to roads and enhance brand premium. We have already launched the Eletre X, with deliveries underway in China and 6 overseas markets. EU market entry is scheduled for the fourth quarter, Middle East deliveries by year-end and the EU market launch planned for mid-2027, all of which will contribute to volume growth. In 2028, we will also introduce the flagship hybrid hypercar Type 135, providing an additional boost to sales height.

Thank you, Michelle, for your questions. I will complement the first question is my views on the financial part, and I will answer your second question. For the first question on Focus 2030 on the financial side to lower the cost, we will focus on driving synergies across multiple stakeholders. First, supply chain collaboration and manufacturing scale with Geely for lifestyle vehicles, over 50% of components share with Geely. Leveraging Geely's centralized procurement and scale advantages, Lotus gains access to a broader pool of high-quality global suppliers delivered meaningful cost reductions. And secondly, R&D platform sharing with Geely. Full in-house development of vehicle architectures by the company alone may require over $1 billion investments. By building on Geely's underlying platforms and embedding Lotus specific technologies, we can materially lower the R&D spend. And thirdly, the full integration of Lotus UK will unlock substantial R&D synergies benefits. In parallel, we will diversify revenue streams through the high-end customization and limited edition models, supporting our target of lifting gross margin about 20%. Concurrently, we will pursue refined operational management, exercise tight expense control and further unlock operating leverage to deliver profit positive. And in sum, under our Focus 2030 strategy, we will prioritize development quality and profitable growth rather than pursue the sales volume for its own sake. So that is the -- my answer for the first question. I will continue with your second question regarding the synergies with One Lotus. And as you know, the combined Lotus brand will preserve its global consistent positioning as a high-performance luxury provider. The Hethel UK site will focus on the ICE and PHEV sports car lines pursuing a differentiated strategy centered on the limited edition modules. The Wuhan China facility will lead BEV and PHEV lifestyle vehicles under the volume production strategy. We will also prioritize operational integration, spanning shared R&D manufacturing and supply chain functions with the goal of building Lotus into a globally competitive high-performance auto brand. Integration and synergies across the shared R&D capabilities and supply chain cooperation will enable the further cost reduction and efficiency gains for the group. And financially, we expect top line growth for 2 key reasons. First, Emira vehicle sales in the U.S. will be fully recognized as gross vehicle revenue. At pre-consolidation, such proceeds were only accounted for under the net revenue method. And second, service revenue from Lotus UK will be consolidated into the listed company, bringing Lotus UK's vehicle and service. Gross margins will also improve the group's overall gross margin profile. From an expense standpoint, the near-term consolidation of Lotus UK's R&D, administrative and other costs may result in a wider group level loss. Going forward, we will strengthen the integration across R&D, commercial and support functions teams from both organizations, streamline the organizational structure, adopt lean cost management practices and lower the operating expense to revenue ratio. Given this is a business under the combination, under the common control pursuant to the financial disclosure rules, the company is required to carry out retrospective restatement for the consolidated financial statements. This statement for the fiscal year 2025 has been initiated. We expect the stated financial restatements to be disclosed no later than the release date of the 2026 annual report. And for this part, please stay tuned with our announcement and public release. Thank you.

We will now take our next question. And this is from Brian Lantier from Zacks.

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

Thank you, Brian. I'll take the question. The gross margin improvement was driven primarily by 2 factors. First, the product mix optimization. The delivery share of the higher-margin PHEV models rose significantly, effectively lifting the overall gross margin. And secondly, the supply chain synergies and economy of scale gradually took effect with the per vehicle manufacturing costs continue to decline, supported by Geely's global supply chain system and flexible production capabilities. And this also marks the first substantive financial validation since the launch of the Focus 2030 strategy. Thank you. Yes. And for your second question regarding the pricing volatility of the chips. My understanding is like this, the chip price volatility alone drove a nearly 2% increase in our BOM costs. In saying that, the chip pricing give some pressure on the company's gross margin in the first half of the year. In response, company has been actively collaborating with the Geely Group to expand the supplier base and navigating through the volatility smoothly. Plus, intensified BOM cost optimization to offset the chip-driven cost increase. Consequently, the company's gross margin in the first half 2026 improved compared with 2025. Regarding the pace of chip since the fabric price stabilization, and we believe the core drivers of this stronger price increase is caused by the AI server capacity crowding out the supply of automotive-grade DRAM and NAND chips. Based on the upstream wafer expansion schedule and visibility into our chip supply chain, we expect supply and demand to rebalance around late 2026 and early 2027, with price returning to a reasonable range. And as the industry cycle eases, the company's gross margin will have further room to improvement. Thank you so much.

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

Thank you all again for joining us today. 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 good day, everyone. Thank you.

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