Earnings Call Transcript - LOT Q4 2025

Operator, Operator

Good day, and thank you for standing by. Welcome to Lotus Technology, Inc. Fourth Quarter and Full Year 2025 Earnings Conference Call. 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.

Michelle Ma, Head of Investor Relations

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 measures 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.

Daxue Wang, CFO

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, and it is my privilege to once again present the company's unaudited financial results. In the fourth quarter, the company delivered 1,108 vehicles, including 438 lifestyle vehicles and 670 sports cars. For the full year 2025, total deliveries reached 6,120 units, which represents a 64% year-on-year decrease. These figures reflect a transitional year marked by the impact of tariffs, the phased start of upgraded model deliveries and 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 USD 463 million, driven by lower sales volume, while services revenue surged 69% year-on-year to USD 36 million, primarily due to R&D service revenue. The commercialization of our intellectual property 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 inventory turnover and disciplined cost control. We continued our track record of disciplined cost management: operating loss narrowed by 65% year-on-year to USD 66 million in the fourth quarter. Consecutive sequential quarterly reductions in operating losses demonstrate the company's commitment to operational efficiencies. In fiscal year 2025, lifestyle vehicle deliveries accounted for 70% of the total, with sports cars making up the remaining 30%. Deliveries were primarily driven by the China and European markets. Importantly, growth in Chinese deliveries outpaced the broader premium 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 16% and the rest of the world 5%. In the fourth quarter of 2025, our sports car deliveries to North America saw remarkable quarter-over-quarter growth, even with a 5% local price increase. This was driven in part by the U.S. and by the adjustment of U.K. auto import tariffs to 10%, which provided broader policy clarity. The recovery of sports car sales in the U.S. during the third and fourth quarters demonstrated our strong brand appeal and price acceptability in the region, driving a 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 in 2024, 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 improvement 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 to a loss of USD 356 million from USD 961 million in 2024. Beyond these numbers, I would like to reiterate that we have maintained reduced operating expenses for multiple consecutive quarters through value-added measures. Our improved margin performance in the fourth quarter and full year of 2025 demonstrates our continued focus on cost optimization and operational efficiency. This was also reflected in our significantly improved bottom-line results. Going forward, we expect the global launch of our PHEV model 'For Me' to drive sales and revenue growth. Additionally, our combination of focusing on revenue growth, 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 Mr. Feng. Thank you.

Feng Qingfeng, CEO

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, 2025 was a really important year for us — a true turning point in our strategic transformation. Even with fluctuations in other global markets and higher tariffs, we made solid progress on our core operating metrics by staying focused on smart execution, pushing technological innovation and tightening how we run the business every day. I'll walk you through the latest developments in four key areas: recent highlights, market strategy, product lineup and the progress on our new hybrid model 'For Me'. 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 our first Lotus Cars track event in Malaysia in November last year, with 44 cars on the track — a sensational showcase of the brand's racing DNA. The 2026 season kicks off on April 3 of this year and we will keep using this platform to share our motorsports spirit and cutting-edge technology with fans everywhere. In equity financing, we secured a strategic investment of USD 23 million from ECAREX, deepening our global strategic partnership through capital support. Going forward, we will jointly accelerate innovation in next-generation intelligent cockpit ecosystems to deliver AI-driven experiences to consumers and collectively enhance product competitiveness. On the technology and compliance front, our Electra model became the first and only Chinese-made electric vehicle to earn UN-R171.01 certification for highway navigation systems. Electra 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 well-known design house for an exclusive installation following 2026 Milan Design Week. We showcased our industrial design philosophy and the progression of our cars, proving once again how Lotus blends technology and aesthetics in a luxurious and forward-thinking way. For our market strategy, Lotus is continuing to refine our global footprint and make our channels more efficient. We now have a well-balanced distribution network across four major regions: as of the end of December, we had 211 sales outlets 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 and refreshed several others. Dealers have been hiring more staff, adding more outlets and ramping up our online marketing, which has clearly improved both customer acquisition and satisfaction. In North America, we plan to grow our Canadian dealer network on the basis of existing channels. Now we have six dealers in Canada and we expect to expand further later this year as local tariff policy opportunities arise. The Electra is the only Chinese-made electric vehicle priced above USD 80,000 that's fully certified for the North American market, so we expect strong sales growth there; we will start customer deliveries in Canada in May. In Europe, we streamlined our organization and decentralized decision-making, giving each region more freedom to tailor strategies to local needs. For example, we introduced business edition models and a vehicle value proposition plan in Germany and expanded corporate and leasing business in the U.K. As I previously mentioned on the Q3 call, we maintained strict discipline on costs. We are closing a few underperforming stores, expanding the high-performing ones and redirecting resources to stronger markets. On our product line, we are driving competitiveness by expanding both our model range and powertrain options, playing to our strengths while addressing gaps. The expansion and upgrading of the portfolio were core highlights of our work through the year. In 2025, new variants for major markets in EMEA were launched and delivered, receiving positive market feedback. The sales proportion of new models continued 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 'For Me' and deliveries started just one day after the launch. This hybrid model is attractive to mainstream luxury buyers and is a great option in markets that are transitioning more slowly to BEVs 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 sports and lifestyle vehicles in our lineup and we will roll out more hybrid variants on our new hybrid architecture. This gives consumers real choice — combustion, battery-electric or hybrid — whatever fits their needs. Let me also share the progress of the launch of 'For Me', which is the first hybrid in our 78-year history. In the EU it is based on our new hybrid architecture. 'For Me' was launched in China on March 29, 2026, and deliveries began on March 30. Before the launch, we invited dealers and media outlets from the EU to test drive this vehicle and we received wide positive feedback. 'For Me' runs on our hybrid architecture: a 900-volt high-voltage platform paired with a 70-kilowatt-hour battery and a total output of 952 horsepower in internal testing. It delivers more than 1,400 kilometers of total range in combined mode. Comprehensive fuel consumption is just 0.7 liters per 100 kilometers under WLTC; even when the battery is depleted, it's 6.1 liters per 100 kilometers. From 0 to 100 kilometers per hour, 'For Me' in electric-only mode takes 3.3 seconds, and even when battery state is down to 10%, it still hits 3.5 seconds. Performance remains strong even at low battery levels. Braking performance is equally impressive: the 120 km/h stopping distance is just 33.9 meters after repeated heavy stops, and at high speeds our active aerodynamic elements generate significant downforce to help shorten stopping distance and keep the car stable, bringing safety and driving confidence to drivers and passengers. Aerodynamics remain a Lotus signature: our porosity-driven design language with low-drag vents and functional aero elements means every line has a purpose and helps generate downforce where needed. While we will gradually launch 'For Me' to the global market in the second half of the year, we expect wholesale deliveries in EU markets to begin at the end of October, certification for 'For Me' to wrap up by year-end with orders opening in October, official launch in November and deliveries in December. In the U.K., we expect wholesale to begin in mid-2027. Looking ahead, we will keep accelerating product updates and market expansion. On the one hand, we will ramp up four new global deliveries and at the same time advance R&D and launch 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, Operator

We will now take our first question from Laura Lee of Deutsche Bank.

Laura Lee, Analyst, 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 2025? And how should we think about the potential impact of geopolitical situation on future sales?

Feng Qingfeng, CEO

Yes, I do see there's a year-on-year decrease in delivery volume, and it has been affected by several factors. The first one is the uncertainty of tariffs. It has negatively impacted our production and inventory. For example, the U.S. and U.K. tariffs made vehicles affected our volumes by about 60% in certain markets. In addition, EU and U.S. tariffs against Chinese-made EVs have also exerted pressure on our pricing in the EU. For the U.S. market, entry became effectively impossible for a period. These influences also affected our inventory management and our de-stocking progress. We actively started de-stocking in 2025 and adjusted our product lineup, but after those adjustments logistics also took some time and led to later entry into some markets. In 2025, our stock level was reduced dramatically by 43% to a very healthy level and this sets a solid foundation for 2026. In addition, we've adopted a lean, efficient organization to help boost our profit margin. Despite the negative impact of geopolitics and tariffs, we see some new opportunities. For example, the tariff issue between the U.S. and the U.K. has been settled: U.K.-made vehicles into the U.S. will be charged a 10% tariff and that is beneficial news for our EMEA sales. EMEA sales in the U.S. have recovered to a normal status. In addition, Canada has announced a policy towards China-made EVs where tariffs will be lowered from very high levels to roughly 6.1%. This is conducive to our expansion in North America, given we have already certified our Electra for the U.S.; it's a good opportunity to leverage to boost sales volume. For our PHEV, the EU currently keeps a 10% tariff on Chinese-made PHEVs, so this is a good window opportunity for us to launch PHEV models in EU markets in October. Despite the challenges we've seen in the U.S. and EU markets, we do see positive feedback from the China market. Our sales volume in China increased slightly year-on-year, and in 2025 our performance in the luxury segment remained resilient. This demonstrates that the Lotus product is very competitive and that we can achieve stable increases in a challenging year as the brand becomes more recognized in China. In 2026, as we roll out the PHEV in different markets, it will help us reach a wider audience. For example, in markets with slower BEV adoption such as Italy and Spain, PHEV will broaden our customer reach. We are also exploring new markets such as South America; we already have a dealer in Brazil with outlets planned to open mid-year and the first batch of vehicles wholesale-ready. In summary, despite the negative influences last year, we see positive opportunities ahead. Thank you.

Laura Lee, Analyst, Deutsche Bank

Okay. Great. Appreciate the color. Just to follow up on this volume perspective: after the launch of 'For Me', which I believe started release by the end of last month, could you provide an update on the current order intake and delivery programs? And could you elaborate more about the volume expectation and the strategic plans?

Feng Qingfeng, CEO

After the launch of 'For Me' on March 29, dealer and market feedback has met our expectations. 'For Me' is the first hybrid Lotus model in 78 years and it redefines the hypersedan category to cover all scenarios, which is one reason we can reach a wider customer group. Our consumer reach has increased significantly. On digital platforms, the 'For Me' ranks within the top searches in its price band. For PHEV models priced around RMB 400,000 in China, we see that the segment grew substantially between 2022 and 2025: in 2024 the segment was already quite large and by 2025 it continued to expand. In other words, the timing for PHEV in China is favorable. 'For Me' helps Lotus reach a broader customer group; historically, customers interested in our BEV offerings tended to be younger entrepreneurs or business owners. Now we are attracting more senior buyers, including owners of larger luxury SUVs like the BMW X5. We plan to launch 'For Me' in the EU in the second half of the year, and given current EU tariff and emissions trends and higher PHEV penetration in markets like Spain and Italy, this is a good opportunity. PHEV will help us build a well-balanced product lineup, increase market share and broaden customer coverage. We expect 'For Me' to materially contribute to volume recovery in 2026 as it opens up new customer segments and fits markets with slower BEV adoption.

Operator, Operator

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

Brian Lantier, Analyst, 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?

Daxue Wang, CFO

Thank you, Brian. The company's gross margin improvement in 2025 was driven by three key factors. First, as Mr. Feng elaborated, we successfully cleared aged vehicle inventories in the first half of the year and the second half saw a higher portion of new vehicle sales and a significant reduction in overall variable sales subsidies. Second, we continuously reduced material costs through our centralized procurement platform. Third, we increased the share of high-margin service revenue, which lifted the overall gross margin. Looking ahead to 2026, despite external headwinds such as continued price increases for certain car components like batteries and chips, which will put pressure on gross margin, we expect to offset some of those pressures through procurement efficiencies and a continued favorable sales mix. We also expect the ongoing integration with the U.K. operations to enhance production and R&D efficiency and further support gross margin growth. While we are cautious about component cost inflation, we expect to continue margin improvement through a combination of mix, procurement and operational efficiency initiatives.

Brian Lantier, Analyst, Zacks Small-Cap Research

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?

Daxue Wang, CFO

Yes. Thank you. The company's cost control plan consists of structural long-term initiatives rather than temporary measures. On the R&D front, the company fully leverages group-level R&D resources, enabling us to reduce duplicative investment in general-purpose technologies and focus on high-priority technology development, thereby improving our R&D efficiency. On the marketing front, the company dynamically and flexibly manages its marketing plans to enhance efficiency and collaborate with dealers to improve ROI. On the management front, the company strictly controls administrative expenses, streamlined organizational structure and optimized headcount and processes to improve operational efficiency. We believe these factors will continue to play a positive role in 2026 and that the cost reductions are sustainable because they reflect structural changes in how we allocate resources.

Operator, Operator

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

Webcast Moderator, Webcast Moderator / Investor Relations

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

Daxue Wang, CFO

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 customers including first-tier OEM manufacturers. This fully demonstrates the market's strong recognition of the company's engineering capabilities as well as the company's ability to commercialize our intellectual property.

Webcast Moderator, Webcast Moderator / Investor Relations

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

Feng Qingfeng, CEO

I think rising oil prices are generally positive for new energy vehicle adoption and a good opportunity for us, particularly for PHEV. 'For Me', our first PHEV model, can be driven solely on gasoline or solely on battery; it addresses different usage needs of consumers. Overall fuel consumption is very low: as I mentioned earlier, combined consumption is 0.7 liters per 100 kilometers in WLTC, and even when the battery is depleted it is about 6.1 liters per 100 kilometers. So this is an attractive option in markets where charging infrastructure is less mature and BEV adoption is slower. Examples include parts of the Middle East. That said, cost headwinds are possible: higher oil prices can increase certain logistics and supply chain costs. Also, established luxury OEMs may accelerate their PHEV offerings in response to market dynamics. Nevertheless, Lotus will continue to differentiate through performance, customization and our product DNA.

Operator, Operator

We have reached the end of the question-and-answer session. And with that, I'll now hand the conference back to Ms. Michelle Ma for her closing comments.

Michelle Ma, Head of Investor Relations

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.

Operator, Operator

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