Lotus Technology Inc. Q2 FY2025 Earnings Call

Good day, and thank you for standing by. Welcome to Lotus Technology, Inc. First Half and Second Quarter 2025 Earnings Conference Call. 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. 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 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, also contributed to this performance. 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 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 a first-half gross margin of 8%, remaining safely in the positive territory. Now let me break down our sales by category and by region. In terms of categories, lifestyle vehicles accounted for 83% of the total deliveries in 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, turning 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 second quarter and USD 80 million for the half. We reported an operating loss of USD 160 million in Q2, a 22% improvement year-on-year. The net loss for the quarter was USD 130 million, down 36%. For the first half of the year, the 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, the 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 seven consecutive quarters, underscoring the company's strong commitment to enhancing operational efficiency and continuing to deliver value. Our first-half operating expenses have 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.

Hello, everyone. This is Qingfeng Feng, CEO of Lotus Technology. Let me brief you on the latest achievements and recent developments. First, let me begin with the new funding arrangements of the company. So on August 19, 2025, we 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 already issued notes in the original principal amount of 10 million on the date of August 19. Additionally, we have also secured funding commitments from our strategic partner, Geely. On July 28, 2025, Lotus entered into a master credit facility framework agreement with Geely. On the marketing front, in July, we proudly announced our official return to the Goodwood Festival by unveiling the Emira Cup race car at the event. We also exhibited our concept vehicle Theory 1, along with our full lineup, including Hypercar Evija, Hyper GT Emeya, Hyper SUV Eletre, and our proud sports car Emira, as well as several legacy racecars to numerous visitors at Goodwood. We have also seen positive results in terms of our U.K. market sales. On the AI side, Lotus Robotics, a wholly-owned subsidiary of the company that focuses on AI and autonomous driving, has entered into a memorandum of understanding with a strategic partner in the Middle East to pursue collaboration in AI and autonomous driving technologies, including exploring robotaxis in Saudi Arabia. A few words on the product pipeline: our sports car Emira model year '26 is set to roll out globally next month. In terms of our future plans for Emira, we're going to upgrade our powertrain in 2027 to comply with EU7, which includes the potential consideration of a V6 engine as well as alternative hybrid solutions. The model year '26 Eletre and Emira are being delivered to the market globally. As many of our friends are concerned, our plug-in hybrid vehicle is making good progress. We're going to commence production of that model at the end of this year, with market entry deliveries beginning in the first quarter of next year, starting with the Chinese market, and will later roll out to Europe and other markets. Additionally, we have a new model, internally code-named Vision X, which we foresee launching in 2027. Briefly, regarding our hybrid technology, Lotus possesses a 900-volt hyper-hybrid EV technology that will deliver a combined driving range of over 1,000 kilometers. Some highlights of the technology include the industry-leading dual hypercharging capability, which means we enjoy ultra-fast plug-in charging and ultra-fast on-the-drive charging. The ultra-fast plug-in charging speed is leading the industry, similar to a battery swap, and the on-the-drive charging can achieve a rate of five times the power consumption of typical driving. This technology provides uninterrupted electric driving performance in all conditions, including high-speed acceleration and extreme cold weather. With this technology, Lotus will unveil our first plug-in hybrid model this year, with deliveries of the model beginning in the first quarter of 2026. Additionally, I would like to mention a few words about our intelligent chassis system, which will also be equipped in our first plug-in hybrid model launching at the end of this year. With this technology, we can achieve a dual mode of driving function. In comfort mode, the vehicle is tuned for daily use, and in performance mode, it will provide extreme performance. In our global market strategy, for the China market, we plan to strategically phase out some of the underperforming outlets while broadening our urban coverage. We have developed customized pricing and product strategies aligned with every market and user demand we enter worldwide. We are strategically prioritizing tariff-advantaged markets and premium EV markets with growth potential, supported by a U.K.-anchored brand hub for expansion into Europe. We are actively collaborating with multiple strategic partners to architect a localized market entry solution leveraging Geely's global ecosystem synergies. According to our plan, the regional share of our deliveries is balanced: North America represents 20%, Europe 38%, the rest of the world 13%, and China 29%. A few words on our AI front: Lotus Robotics not only provides intelligent driving solutions to Lotus but also to other global leading automotive partners. It serves as a one-stop provider of intelligent driving solutions and engineering services to our customers, providing R&D for intelligent driving software and hardware, including procurement services. We're leading with one model algorithm and also providing L2 and L2+ ADAS software and its upgrades throughout the year. We have global coverage for our ADAS and PAS solutions, which have fully been delivered across Europe, Asia, GCC, North America, ASEAN, and others, with the latest highway assist functions upgraded in Europe and well received by the market. Our clients include multiple brands from the Geely ecosystem, as well as other external clients, such as a leading European conglomerate and a top Japanese Tier 1 supplier. Over the next two to three years, we plan to extend our services to an additional ten different models, including both passenger and commercial vehicles. Furthermore, we are actively seeking upgrades to our technology solutions using large model algorithms to deliver Level 4 or Level 5 solutions globally. We have previously introduced a strategic partnership to explore 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.

Please proceed with the Q&A. 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 roadmap and the future business outlook? How should we think about the upcoming product launches and the growth trajectory, etc.?

As we introduced earlier regarding the powertrain technology, I would like to elaborate a bit more on it. We will actively promote our Hyper Hybrid technology, with the first vehicle equipped expected to be an SUV launching into the market, and we will begin deliveries to customers starting in the first quarter of next year. Additionally, you can see in the presentation deck that we have another new type of vehicle also geared to be equipped with the Hyper Hybrid technology, which will embody strong embedded Lotus DNA with a performance-targeted product definition. As a global brand, every single product we develop complies with global standards. In particular, for Eletre and Emira, we have obtained homologation for the majority of the markets, including the U.S. However, we've encountered fluctuations in U.S. tariffs this year. We expect that if tensions ease, we will be able to divert those vehicles to the United States once again. Regarding our proud Emira sports car, we are planning a facelift for 2027 due to the implementation of EU7 regulations, which includes an upgrade to our V6 engine, along with plug-in hybrid options.

Next, we have Eugene Hsiao from Macquarie Capital.

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 how you plan to integrate this business and any expected synergies?

Regarding the ONE LOTUS strategy, currently we have Lotus Cars in the U.K. developing and manufacturing sports cars, while Lotus Tech focuses on developing and manufacturing lifestyle vehicles. We see significant potential for efficiency improvements through consolidation, including technological synergies. Once we complete the consolidation for ONE LOTUS, Lotus U.K. will also benefit from Lotus Tech's Hyper Hybrid and plug-in hybrid solutions. Our ambitious goals for Lotus Cars will center on high-performance attributes and comprehensive engineering services for external clients. Meanwhile, the Lotus Tech operation in China will focus on intelligent engineering and development, emphasizing electrification while enabling synergies between both areas. Since the company has delivered all prerequisites of the put option in 2024, and the consolidation plan has been approved by the Board, we are now in the process of closing the deal, targeting completion by the end of this year or at the latest by the first quarter of 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.