Good day, and thank you for standing by. Welcome to the Polestar First Half 2025 Results Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Anna Gavrilova, Head of Investor Relations. Please go ahead.

Thank you, operator. Hello, everyone. I'm Anna Gavrilova, Head of Investor Relations at Polestar. Thank you for joining this call covering Polestar's results for the first half of 2025. I'm joined by Michael Lohscheller, Polestar's CEO; and Jean-Francois Mady, Polestar's CFO, who will comment on the performance, and then we will open the floor to analysts' questions. Before we start, I would like to remind participants that many of our comments today will be considered forward-looking statements under the U.S. 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, near-term outlook and medium-term targets, fundraising and funding requirements, 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 factors contained in our SEC filings. In addition, management may make references to non-GAAP financial measures during the call. A discussion of why we use non-GAAP financial measures and a reconciliation to the most directly comparable GAAP measure can be found in the appendix of the press release and in the Form 6-K published today. Now I will hand over to Michael.

Hello, everyone, and thank you for joining us today. It's been 1 year since the announcement of my appointment as CEO of Polestar, and I'd like to spend a few moments reflecting on both my first 12 months here as well as our commercial and operational performance during the first 6 months of 2025. There were 2 main things that attracted me to Polestar that have become even more important and clearer during the last 12 months. First off, Polestar's strong brand with a clear focus on design, performance, and sustainability. The proof points for that are our unique, incredible cars. Secondly, Polestar's unwillingness to compromise is something that I see manifested almost every single day. As the world continues to throw more challenges at us, it will remain. First and foremost, we are invested in the future, not in the past. We are convinced that the future of mobility is emission-free. It is not hybrid technology or internal combustion engines; it is electric. That's why Polestar was founded and what we will continue with. Regulators and policymakers across the world spend years creating a framework for this transition, and now is not the time to backtrack simply because some legacy OEMs haven't been fast enough in their technology development or cost competitiveness. Customers want electrification; they want emission-free mobility. Demand is increasing across major markets, and our sales figures underline this. As Europe's first and only pure EV start-up, we continue to follow our mission, making the best performance EVs. We are very proud of our cars, which get great feedback and reviews from customers and industry experts. Polestar 4 recently won the prestigious Red Dot Best of the Best award. The Mille Miglia rally in Italy, as well as achieving a 5-star Euro NCAP safety rating, just like Polestar 2 and Polestar 3. Like its siblings, Polestar 4 benefits from regular over-the-air updates, improving the car and adding new features regularly. Polestar 3 recently set a Guinness World Record, traveling 935 kilometers on 1 charge around Southeast England, reaffirming our view that there is no reason for range anxiety. Polestar Charge now offers access to over 1 million charge points across Europe, making owning and driving a Polestar even easier. The next big thing is Polestar 5. This car is our brand shaper. It showcases what Polestar is all about, and we are very excited about the launch on September 8 at IAA in Munich. I can tell you that we have completed the first VIP media test drives in the past weeks. The reactions of the journalists speak for themselves. With this car, we can compete with legacy performance brands. Let me tell you, this car is amazing, a 4-seat Grand Tourer with incredible power, precise handling, and sustainable materials. For those of you coming to IAA, make sure to visit our booth so you can experience this incredible car for yourself. Looking slightly further ahead, we have recently announced that our next model, Polestar 7, will be manufactured in Kosice, Slovakia together with our manufacturing and development partner, Volvo Cars. More to come about this in the future, but for now, this is a very important milestone for us, being able to manufacture a car in Europe. This compact SUV targets the fastest-growing segment in our industry and is expected to launch in 2028. Looking back at the last few months, I am pleased with the operational improvements and developments that our team has delivered in a very challenging market. In light of these conditions, we have identified further actions to accelerate our strategic journey, finding additional efficiencies and improvements. The ambitions set out in the strategic plan announced in January rely on 3 main components: increasing our sales through a transformation of our commercial operations, enhancing our operating efficiency and cost discipline, and improving our cash position. Our active selling model is now implemented with existing and new partners across all major markets. Compared to the end of Q2 last year, we have grown our number of sales points, excluding China, by 40% to 169, and this number will continue to grow during the coming months into the next year. We still offer our cars online, which some customers prefer, but our growth ambitions would not be attainable without growing our network of dealers. In summary, despite the well-known geopolitical and market challenges, our financial results for the first half of the year show that we are on the right track and doing the right things. We grew our retail sales by 51%. Our revenue was up 56% to $1.4 billion. Our adjusted gross margin, excluding the announced impairment, is positive and has improved year-over-year. Our CO2 sales for 2025 are up and expected to be in line with our announced target. Thanks to commercial initiatives and lower material costs, including for batteries, we are seeing a reduction in production costs. Marketing spend has been optimized in line with planned activities, and workforce and organizational structure changes are being made. There is still a lot to do, but we are successfully implementing our plan and doing the right things. With that, I'll end my opening remarks and hand over to Jean-Francois.

Thank you, Michael. Good morning, good afternoon, everyone. Financial results for the first 6 months of '25 reflect strong commercial performance as we continue the transition to the active selling model at pace. However, significant external headwinds, notably tariffs and mounting pricing pressure, impacted profitability, particularly in the second quarter. Looking at the financial results for the first half of 2025, retail sales volume, as preannounced, grew by 51% to over 30,000 cars, ahead of our growth target of 30% to 35% for 2025 to 2027. Polestar 3 and Polestar 4 made up well over 50% of the volume. In the second half of the year, the comparison will be tougher as first sale in Q1 2024 were low. Second, sales increased during H2 2024 compared to H1 2024. And third, we face a very different industry environment compared to a year ago. Having said that, we expect to continue to grow year-on-year in line with our set growth targets. By geography, we saw particularly strong performances in Europe, with the U.K., Germany, Belgium, and the Nordic region and in APAC with South Korea. However, the situation in the U.S. is challenging due to tariffs and policy changes, and this market represents about 9% of our retail sales. We operate in 28 countries worldwide, and Europe is now our main regional market, with a presence in 17 countries, and I'm pleased to say that it is doing well, especially in terms of commercial footprint as mentioned by Michael. Polestar signed up 26 new retail partners, of which 20 are in Europe compared to just 10 partners for the whole of 2024. As part of our commercial geographic development in Europe, we launched in France in the first week of June with all 3 models available for purchase. In this context, our revenue grew by 56% to USD 1.4 billion in H1, driven by higher sales volume and a growing share of higher-priced Polestar 3 and Polestar 4 models. Carbon credit sales amounted to $90 million from almost no sales a year earlier under the new EU pooling agreement and sales in the U.S. of $90 million; $72 million is booked in revenue, and $80 million is booked in other operating income. Committed carbon credit sales are reasonably de-risked for the second half of the year. Clearly, we are on track to achieve a 3-digit $100 million amount in 2025 as we guided in January. Gross margin was negative at 49% in the first half of the year due to an impairment expense of $739 million for Polestar 3 assets booked in the second quarter. The key factors driving the impairments are an increase in production costs resulting from new tariffs on parts for cars to be assembled in the U.S. and mounting pressure on pricing. These factors significantly impact current and forecast volume and profitability of Polestar 3. Overall, the adjusted gross margin, which excludes the impairment expense, improved to a positive 1.4% in the first 6 months from a negative 2.6% a year ago. Despite higher tariffs year-on-year, a growing share of Polestar 3 and Polestar 4 in the geographical sales mix contributes to gross margin improvement. In addition, continuous product cost reduction delivered through commercial initiatives and the lower cost of material and batteries contributed to offsetting partially external headwinds. The carbon credit sale contributed positively to Polestar's profitability. Selling, general and administrative expenses, excluding the sale agency remuneration, decreased by $49 million year-on-year, reflecting mainly optimized marketing and advertising costs and reductions in administrative costs resulting from cost discipline and organizational restructuring with reduced headcount. Research and development costs were higher by $7 million year-on-year due to a lower capitalization rate in the period. For the first 6 months of 2025, net loss results primarily reflect the impairment expense. Adjusted EBITDA loss of $302 million narrowed by 30%, reflecting the improvement at the top line and adjusted gross margin, as well as enhanced operating efficiencies and cost discipline and higher other operating income, including positive FX impact. If we look at the result of the second quarter, the quarter-on-quarter development merits explanation when looking at the revenue and the adjusted gross margin. Retail sales grew by 47% compared to the first quarter. Revenue increased by 25%, driven mainly by higher volume, partially offset by mounting pressure on pricing and a different sales mix. The sales mix compared to the first quarter was affected by 2 factors: first, more Polestar 2 cars were sold reflecting demand; and second, the channel mix with more internal sale vehicles to promote Polestar 3 and Polestar 4 and to support the expansion of our retail network. Sales of carbon credits were $41 million in the second quarter and $31 million in the first one. Gross margin included impairment expense. Adjusted gross margin was a negative 5.7%, lower by 16 points quarter-on-quarter. First, we faced an intensifying competitive pricing environment. Second, we sold more Polestar 2 cars due to demand. Third, the cost of sales increased due to tariffs. Finally, there was a negative adjustment to inventory net realizable value. Net loss in the second quarter is primarily a result of the impairment expense. Adjusted EBITDA loss of $216 million increased compared to the result in the first quarter, mainly due to the negative evolution of the adjusted gross margin. Entering the second half of the year, we are focusing on the following measures: rebalancing the product and channel mix, leveraging the launch of Polestar 4 in North America, targeting further cost reduction, especially in product cost, and capitalizing on further sale of carbon credits. On the funding of our operation and liquidity, we are pleased to have raised $200 million of new equity from PSD Investments, an existing investor and an entity that is controlled by Mr. Li Shufu, Founder and Chairman of Geely Holding Group. In terms of loan facilities, we succeeded in securing about $1 billion worth of new 12-month term facilities and renewed about $1.1 billion of existing 12-month term facilities. These facilities allow for efficient funding of Polestar operating and investing activities. Our cash position at the end of June was $719 million. We continuously engage in constructive dialogue with our club lenders. Following ongoing discussion, Polestar agreed on amended covenants with club loan facility banks and quarterly and annual testing for the remainder of 2025. Regarding its debt level, Polestar remained compliant with its loan covenants. I will finally touch upon the cash burn rate for the first 6 months of 2025. We have made good progress on unwinding the new inventory from last year from 23,000 units to now 14,000 units, which had a positive impact on working capital. However, the increase in receivable at the end of June due to high retail sales volume, combined with a high level of payment to our related party distorted our normalized cash burn management performance. We will continue in the second half of the year to enhance our working capital management, still focusing on optimizing the inventory level and our CapEx spending while expecting an increase in cash used for investing activities during the second half of the year due to Polestar 5, the new model years, and our manufacturing activity in Busan, South Korea. To conclude, our priorities remain: first, driving growth through the active selling model and leveraging our attractive model lineup; second, improving processes, streamlining the organization and operation, looking for further synergies; third, extracting efficiencies and cutting costs; and last but not least, protecting cash and securing new equity funding. We are making progress, and Polestar is energetically transforming, but it is fair to recognize that the external environment is very different since Michael and I started with Polestar. But we will continue to focus on what is under our control and protect the company in the face of external headwinds. In terms of guidance, we will not be issuing any financial guidance at this time other than reiterating the target compound annual retail sales volume growth of 30% to 35% over 2025 and 2027. Now I will hand over back to the operator.

Your next question comes from the line of Winnie Dong from Deutsche Bank.

I was wondering if you can maybe comment on the demand environment quarter-to-date. You achieved some really good growth in Q2. Just curious on your commentary in terms of how that extends into Q3 and then the rest of the year? And then secondly, I was wondering if you can help us bridge from Q1 adjusted gross margin to the Q2 figure. What were some of the factors that drove the margin decline and maybe break down for what each component was possible?

Thank you, Winnie, this is Michael here. Let me take the first question on the demand and give you some color, and then I'm sure Jean-Francois will provide further color on the margin development. So what did we see in terms of demand? Overall, BEV markets are still growing despite what everybody is saying. But the growth is not as we expected a couple of years ago. We see growth in all key markets, especially here in Europe, which is obviously good news for us. However, we do see shifts in segments, with a clear trend toward lower-priced BEVs in particular in the European market. But overall, I think there is demand, and it is developing positively. Then of course, it varies, like in the U.S., where we see a lot of uncertainty. You all have seen that the tax credits are going away, leading to uncertainty. It's hard to predict. But overall, we still see growing BEV markets across Europe, and I think that’s positive for us. With that, maybe Jean-Francois, you take the second one.

Yes. Thanks, Michael. So just to give you some color regarding the evolution of the gross margin between Q2 and Q1. In Q2, despite the increase in volume, we saw a negative car line sale mix with more demand for the Polestar 2, which was detrimental to the mix of Polestar 4 and Polestar 3. In terms of channel mix, we had more internal sales to further promote Polestar 3 and Polestar 4 in phase with the development of our retail network. As part of this competitive environment, we are facing mounting pressure on prices. When we consolidate all those factors: pricing, the increase of cost of goods sold, we had to reconsider an assessment of the net realizable value of our inventory, which caused a negative impact. That said, we also had positive impacts related to the CO2 credit sale and the continuous decrease of the cost of our products due to significant improvements over the last 6 to 8 months. Looking ahead as we enter the second half of the year, while we want to comply with our volume guidance of 30% to 35% volume increase over '25 to '27, we want to monitor all actions that are within our control, including sales mix and channel mix, while continuing on cost reduction.

Your next question comes from the line of Tobias Beith from Rothschild & Co Redburn.

I have 2 questions, please. I'll ask them separately. If they're present today, I was wondering whether you could quantify how large potential reimbursements are to your contract manufacturing partners for lower-than-expected volumes today and over the next few years versus when these nameplates and presumably the supply contracts were conceived.

I can take that, Tobias. As you know, we have an asset-light business model, and you have the support from Geely and Volvo in terms of where we produce our cars. We have long-term agreements, and while there are changes as the industry evolves, we don’t have a specific figure to share today, but we are working through any possible changes with our partners.

All right. Second question, how does Polestar intend to establish brand independence from Geely and Volvo Cars over the next couple of years given the overlap, which will still exist between the respective product portfolios and the requirement for Polestar to establish a premier brand with similar products to generate its own profits?

Yes. Also, great question, Tobias. Let me address that. First of all, Polestar has really established a strong brand, perceived as a Swedish Scandinavian brand. On one hand, we utilize the Volvo service network, which is important because customers inquire about service options. We have separate showrooms, and most of our retailers have also shown a strong growth of retailers, including Volvo retailers, which is evident in our growing number of retailers globally. Polestar clearly represents design, performance, and sustainability with very little overlap between Volvo and Polestar. It’s actually incremental business for most of our dealers, which is why they appreciate it. As you’ve seen, we are now at 169 retailers and growing at about 5 to 6 new retailers each month. We're also focused on developing Polestar as a premium brand, which takes time. However, we are taking significant steps in terms of pricing and marketing activities and introducing products like the Polestar 5 at the IAA in Munich, further differentiating our brand effectively.

Your next question comes from the line of Andres Sheppard from Cantor Fitzgerald.

Jean-Francois, could you please provide an update on the company's total liquidity, expectations for cash burn in the second half, and your thoughts on capital needs and runway?

Thanks, Andres. First, I just would like to step back regarding the liquidity situation of Polestar, to mention that we have a constructive and positive dialogue with the lenders participating in our pool. To demonstrate this, as mentioned previously, we have secured a renewed plus USD 2.1 billion over the first 8 months of 2025. At the same time, we have renegotiated some of our covenants with our lenders. At the end of June, our cash stood at USD 719 million. Regarding our debt, the level is indeed high, but we are still compliant with our total debt covenant of USD 5.5 billion, with some headroom. It is crucial for us to reduce this debt level while continuing to finance our operations and investment activities, diversifying our sources of funding and raising new equity. Regarding cash burn, it is fair to say that we had a negative EBITDA of $300 million in H1, impacting our cash burn. However, we made significant progress on improving working capital by reducing inventory from 23,000 units at the end of December '24 to 14,000 units at the end of June '25. This contributed to improving working capital. Entering H2, while we do not have new financial guidance, it is expected that with increased sales volume and improved product mix, operating cash burn should improve as well, despite anticipated higher cash out for investing activities related to Polestar 5 and our factory in Busan. On a longer-term view towards 2026, our cash burn should improve with profitability improvements and reduced CapEx spending.

Wonderful. That's super helpful. I really appreciate all that color. Maybe as just a quick follow-up. With Polestar 5 now becoming available, curious how should we think about the ASPs, the blended ASPs and the gross margins for the rest of the year? What kind of demand might you expect from the Polestar 5? And how might that impact margins and ASPs for the second half of the year?

Yes. Thanks, Andres, Michael here. Let me take that. The Polestar 5 is a very unique sports car, high performance, featuring a lot of technology. It represents what the Polestar brand is all about. From a financial perspective, it’s not a volume model; it's a brand halo, a brand shaper. While we will sell it strongly, it’s important to understand that it’s not designed for high volume. The launch events will be unique and should reflect the value of this car. While we expect positive margins with this car, given limited volume, it won’t significantly change overall expectations. The focus remains on enhancing the Polestar brand experience. I don’t know, Jean-Francois, if you want to add anything.

Your next question comes from the line of Dan Levy from Barclays.

I wanted to start with a question on your U.S. presence. If you could just remind us, I know you said you're primarily European focused on the volumes at this point. But if you could just remind us what your U.S. exposure is and what the strategy will be after the EV tax credit goes away.

Thanks, Dan. Michael here. I can take this. If you look at Polestar H1, 77% of our sales are in Europe, while 8% are in the U.S. So we are clearly focused on Europe where we’ve seen strong growth numbers driven by good performance, particularly in the U.K. and the Nordics. Germany is also picking up nicely, and we're moving into new markets. However, the U.S. is also being prioritized. We have a solid setup with the Volvo plant in Charleston, South Carolina. It's important to find the right balance between volume and profitability. While tariffs burden our financials, and Jean-Francois addressed this well, we need to balance volume and profitability. Even after the disappearance of the tax credit, the U.S. will remain significant for us. I believe the market will eventually adjust prices for cost increases. However, we recognize that the current price environment is competitive but are still confident in our operational successes in the U.S. Jean-Francois, anything to add?

No, I would just like to add that Polestar being the only one with a car model sold into the U.S. is indeed now under significant pressure due to tariffs and the impending loss of tax incentives. However, we're optimistic about the Polestar 4, working with partners to relocalize components affected by tariffs, and we have seen a decrease of 8% in our products' average costs over the past 12 months, with battery costs alone coming down by 10%. All these measures are to help boost Polestar 3's profitability in the U.S.

Okay. Great. As a follow-up, I know you've withdrawn your guidance, but maybe you could just conceptually remind us of the items that you'll need to do to eventually get to EBITDA breakeven. If you could walk through what types of volumes we need to see? What has to happen on mix? And what are the mitigants now to what seems to be a tougher pricing environment, tariffs, and a challenging channel mix?

We are currently assessing all the external headwinds that Polestar is facing including tariffs, policy changes, and regulations. We're also focusing on what actions are under our control and exploring further synergies and cooperation. It’s too early to provide specifics, but we're working on a new business plan, and once everything is validated, we will return with a clear guidance.

There seems to be no further questions. I would like to hand back for closing remarks.

Thank you, operator, and thanks, everybody, for joining our call. I hope we gave you a very clear overview of our financial performance in the second quarter of this year as well as the first 6 months. As we stated in our opening remarks, we are doing the right things, but there are obviously several challenges beyond our control. Thank you for joining, and let’s stay connected. If you can make it to the IAA in Munich, you'll see the most beautiful car Polestar has ever built, the Polestar 5. With that, let’s stay in touch. Thanks again, and have a wonderful day.

This concludes today's conference call. Thank you for participating. You may now disconnect.