Polestar Automotive Holding UK PLC Q2 FY2023 Earnings Call

Good day and thank you for standing by. Welcome to the Polestar Q2 2023 Results Conference. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. Please be advised today's conference is being recorded. I would now like to hand the conference over to our speaker today, Bojana Flint. Please go ahead.

Thank you, operator. Hello, everyone. My name is Bojana Flint from Polestar Investor Relations. Thank you for joining our Q2 2023 results call. Before handing over to Thomas Ingenlath, our CEO, and Johan Malmqvist, our CFO, for their opening remarks, I will cover some housekeeping points. I would like to remind participants that many of our comments today will be considered forward-looking statements under US federal securities laws and are subject to numerous risks and uncertainties that may cause Polestar's actual results to differ materially from what has been communicated. These forward-looking statements include but are not limited to statements regarding the future financial performance of the company, production and delivery volumes, financial and operating results outlook and guidance, macroeconomic and industry trends, company initiatives, and other future events. Forward-looking statements made today are effective only as of today, and Polestar undertakes no obligation to update any of its forward-looking statements. For a discussion of some of the factors that could cause our actual results to differ, please review the risk factor section of our annual report on Form 20-F filed with the SEC. In addition, management will make references to non-GAAP financial measures during the call. A discussion of why we use non-GAAP financial measures and information regarding the reconciliation of our non-GAAP financial measures with our most directly comparable GAAP measures is in the investor presentation issued earlier today. With that, I'd like to turn the call over to Thomas. Please go ahead.

Thank you, Bojana. Let me reflect on some of the key operational and business highlights and outlook for 2023. It was a record second quarter for us with 36% growth in deliveries versus last year. Combined with the first quarter, we delivered around 28,000 vehicles in the first six months of this year, with particularly strong growth in many of our established markets and solid growth in some of our newest markets. We increased revenue by 18% to $1.2 billion for the first six months of 2023, and with continued strong momentum into the second half of the year, we expect to deliver between 60,000 and 70,000 vehicles and a gross margin of 4% for 2023. Moving on to recent business developments. Last quarter, I talked about the first customer deliveries of our upgraded Polestar 2, and these have now started to ramp up, taking us past another milestone, having manufactured 150,000 cars in just over three years. The upgraded Polestar 2 is the best version to date. We improved software, with longer range capabilities of up to 650 kilometers and faster charging with an effect of up to 205 kilowatts while reducing cradle-to-gate carbon emissions by three tonnes per car and introducing the new SmartZone face identity from Polestar 3 and the 2. It is a fantastic car. J.D. Power's Tech Experience Index placed Polestar 3 in the top three, and there are a number of enthusiastic independent reviews across motoring magazines and on YouTube. Just a few weeks ago, we were at the Goodwood Festival of Speed in the UK, where Polestar 3 and Polestar 5 had their dynamic debuts, making the traditional hill climb in front of the crowd. Seeing these two cars and what they are capable of in terms of performance and driving experience is a testament to our outstanding engineering teams. I'm delighted that Polestar 3 is now available for customers to experience in many of our retail spaces around the world. And Polestar 5 shows what the next steps are for our brand, reflected in its design handling and top-level premium positioning. We have started formally taking orders for Polestar 4, our SUV coupe, less than a week ago at the Chengdu Auto Show, and now three days in, the reception and order take have been fantastic. Our SUV coupe combines great space with amazing dynamic driving attributes. It is positioned between Polestar 2 and the Polestar 3 in terms of size and price. Polestar 4 is on track to start production in November, with the first customer deliveries in China expected before year-end. Deliveries to the rest of the world are planned for early 2024. Moving on to our joint venture in China, which is taking steps to strengthen the development of our brand there, I believe that this innovative partnership with Xingji Meizu Group, an acknowledged mobile device company with excellent software competence, is the best way to succeed in this important and highly competitive EV market. Software and user experience will be key to that success. The latest steps on this important technology journey is autonomous driving. Last week, we announced a collaboration with Mobileye for the adoption of the autonomous driving solutions, making Polestar 4 the first production model to feature Mobileye's Chauffeur technology. When launched, Chauffeur is expected to offer eyes-off point-to-point autonomous driving on highways as well as eyes-on automated driving for other environments. As our lineup grows, we continue to develop our commercial footprint, shifting to permanent larger retail spaces to deliver a premium customer experience. We have recently opened spaces in Porto, Portugal; Chengdu, China; and Houston and Palm Beach in the United States. In the UK, we are opening three new test spaces in Glasgow and North London in the coming months. And in Canada, we are expanding with additional spaces in cities where we already have a presence like Vancouver, Toronto, and Montreal. Staying in North America, we have announced the adoption of Tesla's charging standard for all new Polestar sold in the US and Canada from 2025, making it even easier to own and charge your Polestar. Finally, before I hand over to Johan, I want to touch upon the outlook. Despite macroeconomic uncertainty, we continue to expect a stronger second half supported by the easing of supply chain disruptions and reducing raw material costs. As mentioned, we expect to deliver a 4% gross margin for the year. But this level of profitability is not enough. We have already taken steps to manage costs and are taking an even harder look at ways that will improve our margins. We continue to work closely with our two very supportive main shareholders on funding options. We will provide more detail on all our efforts and concrete actions in conjunction with the third-quarter results. Thank you for listening in, and I look forward to taking your questions after Johan's remarks.

Thank you, Thomas. Hello, everyone, and thank you for joining us today. In the first six months of 2023, we have delivered 27,841 cars globally, up 31% year-over-year, with strong volume growth in markets such as the UK, Canada, and Australia and with incremental sales in our newest markets of Italy and Spain. With an established global presence in 27 markets on four continents, we have opened 25 new Polestar spaces since June last year, bringing the total to $150 million. We're developing our retail sales footprint into larger permanent facilities that will better accommodate our growing lineup. Our customers continue to benefit from an extensive service point footprint that has increased by 200 in a year to about 1,130. As Thomas said, we are adopting Tesla's North American charging standard for all new Polestar sales in the US and Canada from 2025. Before moving on to the financial highlights and the 2023 outlook, I would like to echo the points Thomas raised on expecting a stronger second half of the year, reflecting the transition to the upgraded Polestar 2 model year '24 with higher anticipated both volume and margin. We also expect first deliveries of Polestar 4 in China. Looking forward to 2024, we will benefit from the rollout of the Polestar 4 to other markets as well as the commencement of Polestar 3 deliveries from Q2 2024. The cost-saving measures announced last quarter, which include taking out both existing headcount as well as roles that were planned for this year, are progressing well. In addition, as Thomas said, we continue to explore other areas where we can become leaner and more efficient to drive down costs and improve our competitiveness. We will give an update at our next earnings call. Moving to the financial highlights for the second quarter of 2023. Revenue increased 16% from $589 million to $685 million, driven by higher Polestar 2 deliveries and price increases implemented last year on model year '23, mitigated by sales channel mix, product mix, and higher discounts. Gross profit decreased from $61 million to a negative $1 million. Last year, the quarter benefited from two positive items: an inventory valuation and the release of accruals related to the 2020 recall. This year, three items adversely impacted the cost of sales: higher contract manufacturing costs of $52 million, supplier charges for semiconductors and batteries of nearly $18 million, and an inventory impairment of $10 million. These were partially offset by a positive foreign currency effect of $12 million. Selling, general, and administrative expenses were up $25 million to $260 million, reflecting primarily higher advertising, selling, and promotional activities. Research and development expenses were down $21 million due to lower amortization for the Polestar 2, in part offset by continued investment in future vehicles and technologies. As reported, operating loss decreased $353 million or 56% to $274 million. Excluding the one-time share-based listing charge of $372 million in Q2 2022, the operating loss increased by 8% or $19 million, predominantly impacted by the negative gross profit. Moving on to cash flow. Cash used for operating activities for the first six months of 2023 was $661 million, chiefly driven by operating loss, higher levels of inventory, and trade payable payments. Cash used for investing activities was $281 million, primarily due to Polestar 2, Polestar 3, and Polestar 4 intellectual property investments. Cash provided by financing activities was $1,064 million, reflecting short-term borrowings of $1,672 million, of which $750 million was drawn down from the Volvo Cars shareholder loan facility, and principal repayments of $608 million. At the end of the second quarter of 2023, cash and cash equivalents stood at $1,057 million. Before I hand over to the operator, let me wrap up with our 2023 outlook. We are reaffirming our previous guidance, expecting between 60,000 and 70,000 vehicle deliveries for the year, which represents annual growth of approximately 16% to 36%. We also expect a full-year gross margin of around 4% supported by an anticipated stronger second half. Regarding funding, during the first half of the year, we've tapped into various funding sources, where today we still have available capacity, such as continuing to access short-term working capital facilities. We have also upsized our trade finance facility to EUR600 million. We have utilized part of the $1.6 billion shareholder support package. Since the quarter-end, as part of our ongoing program to maximize liquidity, we sold our Chengdu plant that previously manufactured the Polestar 1 for $71 million. We are working on multiple options to address the broader funding need. These efforts are being driven hand-in-hand with our two main shareholders, who continue to be very supportive. Thank you again for joining. I will now hand it over to the operator for the live Q&A by the analysts, and then we will address the top questions from our shareholders.

Thank you. We will now take our first question from Alexander Potter from Piper Sandler. Please go ahead.

Great. Thanks, guys. So maybe first question is on the launch timing of Polestar 4 versus Polestar 3. It's great to see Polestar 4 still on track. You said you're going to start production here, I think, in November, start deliveries in China at the end of the year, and then deliveries for Polestar 3 are going to start in the middle of next year. I know those vehicles are built on different platforms, so that's partially impacting the difference in timing. But I think it would be helpful if you could just summarize exactly what those differences are between the platforms and why it's possible for you to remain on track for Polestar 4? And what sort of learnings you'll have going forward with future launches to ensure that future launches resemble the Polestar 4 launch more than the Polestar 3 launch?

Yes. Thomas here. Thanks for the question. Well, the difference, I'm very happy to point out the difference between the two SUVs because let's face it, yes, the label SUV is the same, but there is a significant difference between a Polestar 3, which very much brings to the customer what is a high seating position and that's what people associate with the traditional SUV, that you have that kind of superior feeling of having a great overview. While the Polestar 4 is a bit more of a different animal here, let me call it for that reason, the SUV coupe. It is on the lower side of the SUVs. For that reason, when you see the two cars together, and that's, of course, the great thing happening now, people can compare them and see the big differences, what they stand for, and what they deliver in customer experience. Positioning is well different. There is, of course, a price difference. The Polestar 4 is clearly positioned price-wise below the Polestar 3. So for that reason, there's a much, much bigger scope of customer segments that we can reach with these two cars in our hands than we could do with just one car. As for launch cadence, the Polestar 4 is now being on sale in China, launching there first, while the Polestar 3 will, of course, make its entrance first in Europe and in the US. So it's kind of the other way around. One car is very strong in China coming first now, and the other car will follow in Europe and the US. The Polestar 4 will then come into China second. From a technology perspective, the new platforms that Polestar 3 is built on is, of course, pinnacle technology with NVIDIA computing and the Lumina Lidar included. It is a very complex setup, not easy to handle, which I must commend our engineers for being on the job full-time doing it. But, of course, this complexity also contributes to the car only entering production in January 2024. I think the learning now is that software competence and handling software is, of course, core competence we have to focus on, taking all the learnings that we've made with this and emphasizing this competence within our company, but, of course, within the group as well. That's clearly where we have big learnings from these two all-new products.

Okay. Great. So second question, maybe on the macroeconomic situation and the mix or price sensitivity of your incoming orders. Just wondering if you noticed. Obviously, your revenue was growing slower than your deliveries, which implies a mix or more price sensitivity, lower price trends, particularly on very high-end packages. Do you think that is a function of sensitivity to the interest rates and the macro situation? Just anything you'd be willing to say on, I suppose, mix and price within your order book would be helpful.

Yes, Alex. Johan here. You touched upon the influencing factors. When we look at the average selling price, there is an impact of, in part, like you said, a negative mix effect attributable to both channel and product variant. There is also a component of higher discounts. And the third element is a negative translation effect. So all three weigh in. We saw that tendency also in Q1. If we look on a go-forward basis, regarding FX, at some point, the channel mix and the product mix will stabilize because we are comparing against last year's development. We do expect the discounts to decrease to the levels seen in Q2, for example, tied to the clearing out of the model year '23 inventory. That is also playing into our affirmation of the 4% gross margin guidance for the year.

Okay. Good. That's very helpful. Maybe last one, and then I'll turn it over. You mentioned a number of drivers regarding the expectation for higher deliveries in the second half versus the first half. Obviously, you’ve got the Polestar 2, you have some deliveries of Polestar 4. Would it be possible? I don't know how much visibility you have on specifics here, but how much additional tailwind could you have from potentially opening new markets? I think you mentioned Spain and some others, driving greater penetration maybe of regions that historically hadn't been able to order as many Polestar 2s. How big of a driver is that for your incremental growth versus just basically saying, look, we have more products, and I think our products are more compelling, and that's why we're going to get more orders.

While I tend to emphasize that we are seeing customer anticipation for the model year '24, with many customers intrigued by the improvements we have made, especially with the range and the rear-wheel drive single motor configuration, this is particularly strong in the markets where the Polestar 2 is already known. Therefore, I believe this will be a significant driver for a stronger second half of 2023. We indeed see the effect of investment that you do when opening a market; you need certain time to spend in the market before you see figures picking up, so there will be an effect of our investments going further down into Southern Europe. However, I think it is more an investment for 2024 and 2025 that we made there in these markets.

But I think you’re right. It will be weighted towards Q4, as you pointed out. Again, just like on the gross margins, we expect a gradual improvement.

I believe that our organization is very well trained for this Christmas push.

Thank you. We'll now take our next question. This is from the line of Steven Fox from Fox Advisors. Please go ahead.

Hi. Good morning. Good afternoon. Could you talk a little bit about the margin expectation for the second half? So you're roughly talking about a 520 basis points improvement in gross margins half over half. Can you talk maybe break down how much is coming from volume versus mix versus other changes in your cost structure? And then I had a follow-up.

Sure. The reaffirmation of the full-year guidance of 4% is based upon a couple of things. One driver is the improved profitability that comes with the Polestar 2 model year '24 sales. I mentioned the targeted sales campaigns to sell out the model year '23 inventory clearing out that stock. The third component is really the easing of the supply chain disruptions and the reduction of raw material costs. So those are the three drivers that lead us to the improved margins for the second half.

And just one other quick question on that. Should we assume just how back-end loaded that is Q4 versus Q3? Do you expect meaningful improvement in Q3, or do we have to wait for that mix to improve much more in Q4?

I think you should expect to see a gradual improvement.

Okay. That's helpful. And then just in terms of the liquidity situation. I might have missed this, but beyond the cash on the balance sheet, can you talk about other — what's the total dollars available of liquidity untapped to this point after all the changes in Q2? And just I know it's a tough time to be talking specifically about capital raises. But can you talk broadly speaking about capital raise versus further strategic actions in terms of maybe narrowing the band of focus on the sales and marketing in order to preserve cash versus shareholder dilution things like that? Thank you.

Okay. Let me provide some color, and then we'll see if you have any follow-on questions. In regard to funding and liquidity in general, first, let's start with the fact that we had about $1 billion of cash on the balance sheet at the quarter end. As mentioned in my opening remarks, we've tapped into various funding sources during the first half, continuing to access short-term working capital facilities. That's a very much ongoing exercise. We've upsized the trade financing facility to EUR600 million at quarter end, and I believe we utilized around EUR400 million of that facility. We utilized part of the $1.6 billion shareholder support package and around $1 billion of that support package used so far, with full draw on the $800 million shareholder loan from Volvo and around $200 million from the commitment from PSD. You also saw that at the beginning of Q3, we sold our Chengdu plant, the one that previously manufactured the Polestar 1 for $70 million. As for broader funding needs, we continue to work on multiple options, and that's an ongoing activity as well.

Great. That's helpful. So it sounds like roughly untapped liquidity is about EUR800 million still. And then on top of that, the cash is understated for the plant sale. Is that roughly correct?

That is correct.

Okay. And so it sounds like at this point, there wouldn't be any changes in sales and marketing strategy, manufacturing strategy, product rollouts in reaction to where your balance sheet stands. It sounds like you can continue with your strategy for the next couple of quarters at least.

Yes. There's no change in strategy. That being said, as both Thomas and I alluded to in our opening remarks, we are continuing to work on the overall cost structure, taking a hard look at not only OpEx but also the gross margins. We expect to come back in the next earnings call with some more concrete color around that, but it doesn't impact the overall strategy of the company now.

Thank you. We'll now take our next question. This is from the line of Andres Sheppard from Cantor Fitzgerald. Please go ahead.

Hi. Good morning. Good afternoon. Congratulations on the quarter and thank you for taking our questions. I want to maybe start off. Just curious if we can perhaps get a bit of an update on the Hertz partnership. Just curious if you're able to maybe give us a bit more detail on how that relationship is taking shape. And if we can maybe get a sense of how those deliveries are going currently. Thank you.

Yes. Thomas here. Happy to confirm on one hand, the relationship is a good one. We see that what we were aiming for with this is taking place, and that means Polestar 2 being available for people to experience the brand, the car, and getting to know something that they might not have done before and experienced an electric vehicle. We have this five-year contract with 65,000 volume around the Polestar 2, which kicked off already in 2022 with first deliveries. However, after this initial transition in '22, we have continued to deliver to Hertz this year and expect to gradually increase that as well, still within the 65,000 frame over '23, '24 to '25. With Polestar 3 and 4 joining, of course, we will be exploring how they could also become part of this relationship with Hertz.

Got it. Thank you, Thomas. That's very helpful. And maybe as a quick follow-up. In terms of your delivery guidance for this year, we know that Q4 tends to have the higher seasonality. It is safe to assume the higher number of volumes should take place in Q4, but how should we think about Q3 as it relates to maybe Q2 in terms of deliveries? Just trying to get a sense of how those deliveries will shape up for the second half of the year? Thank you.

Yes, the model year '24 is now in quarter three, the big new thing about delivery. This is when it's happening that the first customers will get that Polestar 2 with the new SmartZone and the new technical features, and therefore the volume growth will indeed peak in the fourth quarter, but the third quarter will be in continuous growth towards quarter four. So that's how quarter three is shaping up, of course, a very important quarter for us, and we are focusing on keeping that momentum going.

But I think you're right, it will be weighted towards Q4, as you pointed out, again a gradual improvement.

Our organization is very well prepared for this Christmas surge.

Thank you. We'll now take the next question. This is from the line of Tobias Beith from Redburn. Please go ahead.

Hi. Good afternoon. Thanks for taking my questions. I have three, if that's okay. I guess where I'd like to start is on the sequential gross margin bridge. I would just like a little bit more information here on, I guess, why it deteriorated so much. And then I've got two follow-ups. Thank you.

If I understand your question correctly, I wanted to give some more color on Q2. Q2 was slightly below expectations. It was impacted in part by a true-up of costs related to '22 for semiconductors. Fundamentally, though, the trend was impacted by the full-year run rate effect of higher raw material and freight costs compared to last year. There was also some impact from higher discounts, which may be considered a carryover from Q1. As I mentioned earlier, the true-up of supplier charges and inventory impairment are, I would say, probably the main deviating factors.

Okay. Understood. And then my second question relates to your balance sheet. It looks like potentially your backlog increased. If I look at your advanced payments from customers, it increased by about $10 million quarter-over-quarter. I was wondering if you could perhaps comment on order intake in the period and whether the driver of this increase is primarily from fleet or the consumer channel?

I would say that, yes, the number on the balance sheet, as you noted, does correlate to the order book. There is an FX impact to consider as well. However, I think when we look at the order book in general, we see stabilization at more normalized levels, which is where we still remain today.

Okay. Understood. And then I guess my last question relates to financing. In your subsequent event disclosure, it highlights that you raised an additional $800 million of debt at an effective interest rate of about 7%. I was wondering what the motivation was here rather than raising equity? And perhaps whether you have a timeline on repaying your working capital loans given the balance outstanding is now more than $2 billion?

Regarding the funding activities for the first six months and some subsequent activity, this is very much tied to the short-term working capital facilities that we have and have been working to refinance. There was also the drawdown of the shareholder loan from Volvo impacting these figures. These sources of funding have been made available to us. As we indicated in earlier calls, the intention was to draw down on those, which serves to fund our cash flow through 2023. We are, in parallel, seeking more diverse funding sources, including equity. In regards to working capital, there is an outstanding overdue related party balance to Volvo Cars. Our intention is to settle that during Q3 to a large extent.

Okay. Sorry, that is useful information, but I was more interested in your expectations on repaying the other loans that you have to credit institutions. It looks like that balance is now $2 billion.

Yes. Okay. That's part of the overall cap structure and very much tied into our overall funding plan. As we grow the business, there will be a need for additional capital, which can come in the form of debt or equity. The development of the capital structure and the balance sheet will be a function of that. We're currently working on and looking at different ways to fund ourselves going forward.

Thank you. We'll now take the next question. This is from the line of Erik Golrang from SEB. Please go ahead.

Yes, thank you. I have two questions. First, I think you said there was a $10 million impairment in the quarter. Was that just finished PS2 inventory, or what specifically was that?

Yeah, that's right. Erik, that's a quick answer: yes.

Thank you. Then the second question on the Polestar 4 production starting in November. I guess it's super early. But can you say anything about expected volumes here in Q4? Or if it's just insignificant sort of Q1 indications and general traction order intake, given that a lot of OEMs struggle a bit to get momentum for new models in China at the moment? And then the third question, coming back to the topic of cash and the balance sheet. If we think about underlying cash flow here, and the run rate you've had in Q1 and Q2, anything — any reason to expect that changing much in the second half, of course, taking into account higher volumes and a slightly better gross margin. But anything else that would make underlying cash flow here in H1 better or worse than it actually is? Thank you.

Thomas here. Let me start with the first part of your question about Polestar 4 and start of production and volumes. For us, it's important to have a secure start with high quality in the initial weeks. There's also a steep ramp-up curve in the plant. Q1 will be the first significant quarter for Polestar 4 volume. The launch of the vehicle now in Chengdu is under consideration, and I’d also like to emphasize the significance of the joint venture announced a couple of weeks ago. For Polestar 4, the software will be from the Polestar OS, which is a big commitment of our JV partner, a mobile phone company that has strong core competence in customer-facing software user experience. That linkage between the car and customer devices aims to provide a holistic experience. Despite a competitive market in China, we believe the JV is crucial for us to maintain a competitive position.

Then, just to come back to your second point, you're right. I would expect a similar cash flow profile for the second half as for the first half. However, I would note that we are focused on settling a large part of overdue related party payables to Volvo. So that is something to consider. Additionally, we are working to access further funds in the fall and we have two supportive shareholders backing us.

Okay. Thank you for taking my questions.

Thank you. We'll now take the next question. This is from the line of Dan Levy from Barclays. Please go ahead.

Hi. Thank you. Good afternoon to you. Thank you for taking the questions. I wanted to start with a question on the mix in the second quarter. There's some disclosure in the MD&A that fleet was 70% of your sales in the second quarter. I'm hoping you could unpack that figure, how much of that was to the car rental channel as opposed to corporate customers in Europe who will frequently purchase on fleet? And what is the go-forward expectation on the mix of fleets?

Yeah, Dan, okay. We don't necessarily discuss the specifics of the fleet mix within that channel. What we can see is that we have seen, as you've noted, a gradual shift in the channel mix toward a heavier focus on fleet. We are getting to the point where that is stabilizing in line with expectations.

To add here, I mean, the corporate company car market is very important for us in the premium segment, which contributes significantly to our fleet percentage. The UK, for instance, has been very successful for us, reflecting this strong market presence.

Right. Thank you. Just to clarify on the car rental mix within that. Are you clear now of the excess Polestar 2 inventory? So certainly, car rental was probably a piece of this. Are you past the need to rely more heavily on the rental channel?

Well, we have already discussed the model year change from model year '23 to '24. A model year going out has certain necessities compared to a new model year with new great features that customers are waiting for. Yes, we do see a change between the first half of this year and the second half connected to this model year transition in Polestar 2.

Okay. Thank you. And then my follow-up is a question on mix broadly. You're going to launch Polestar 4 later this year, Polestar 3 next year. Obviously, those come with premium ASPs versus where you're selling Polestar 2. Maybe you can give us a sense of the magnitude of uplift you'll get on mix from those vehicles.

Yes. It's correct as you point out, Dan, with those cars and their higher price points, there's a higher margin. We haven't guided on '24 at this point in time, but directionally, that's where we’re headed.

I would even dare to say that this is a crucial element for '24, not only in terms of volume with Polestar 3 and 4 coming into play, but also in terms of margins, given the price points of these cars. We see significant potential here.

Just a final comment. One of the primary drivers of margin improvement in our journey is product mix, and it's a fundamental driver of margin accretion.

We should move to the retail shareholder questions now because we only have 10 minutes left.

All right. Let me take that then, and I will read them out as well.

Yes, that will be great, Thomas. Thank you.

All right. Last minute then, on questions from retail. What's the strategy for recovering your stock is the first question? I understand why this is, of course, at the top of the list. Let's be clear; I believe that our shares are undervalued, especially since we report on great milestones and deliveries. We talked about technical limitations. Our funding position puts pressure on this, and on the other hand, the free float, something we aim to improve. It’s essential to recognize that we are in a macroeconomic environment characterized by high interest rates and general uncertainty, affecting not only us but the entire industry. In the coming year, the expectations surrounding Polestar 3 and 4 are crucial. We anticipate that the introduction of these two SUVs into 27 markets, where we have invested and prepared thoroughly, will change how investors view Polestar significantly. I think our brand possesses considerable sympathy amongst journalists and investors, and we expect to see a commercial success with the new model range. The second question is about Polestar's strategy for expanding its market presence and achieving sustainable growth, especially amidst the evolving electric vehicle landscape and increasing competition. We have invested an extensive market presence not only in Europe but in the US and Asia-Pacific across 27 markets. We are working diligently with our rapid model rollout – this will be unique with three cars in the pipeline, Polestar 3, 4, and 5, with production facilities ready to take these models across regions. We believe we are strategically placed to compete effectively. Regarding the production in South Carolina, we’ll start producing vehicles in the middle of '24 with the Polestar 3. Our ability to launch new models rapidly across different regions is significant. About keeping stock float – there is indeed buzz. Our US Polestar tour this spring in New York and LA attracted significant attention. 65% of our spaces in the US already feature Polestar 3. We’ve increased marketing spending in the US by 20% year-to-date. We conducted 15,000 test drives so far, and test drives for the model year '24 were started just this week in Denver. We anticipate positive reflections in tech and lifestyle media, similar to the enthusiasm we have received in Europe. All our US spaces will also host simultaneous consumer nights on the 21st of September, showcasing our commitment to promoting Polestar 2 and model year '24 and Polestar 3. Finally, we recognize our need to improve communication and have plans for a major event in the US towards the end of the year. The last question concerns how Polestar is positioning itself with advancements in autonomous driving technology and AI. We believe our setup positions us well for innovation and safety. Our model lineup includes the integration of Mobileye AD technology in Polestar 4. We have, on one hand, developed high-tech capabilities in Polestar 3 with Zenseact software supporting highway hands-free and eyes-off piloting, whereas Polestar 4 will have Mobileye ADAS features and prepare for hands-off or eyes-on driving. This will significantly contribute to the luxury premium segment over the next two to three years.

That's it.

That's it. Here we go.

Perfect. Thank you very much, everyone, for joining, and we shall speak soon in our next quarter results.

Thank you.

Thank you. Bye-bye.

Thank you. This does conclude the conference for today. Thank you for participating, and you may now disconnect.