Earnings Call Transcript - PSNY Q1 2024

Operator, Operator

Good day and thank you for standing by. Welcome to the Polestar Q1 2024 Results Conference Call. At this time all participants are in listen-only mode. After the speakers’ presentation there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Bojana Flint. Please go ahead.

Bojana Flint, Investor Relations

Thank you, operator. Hello everyone, Bojana Flint here from Polestar Investor Relations. Thank you for joining our results call today, covering both our Full Year 2023 and Q1 2024 Preliminary Results. Per Ansgar, our CFO, will start with the financial update, followed by Thomas Ingenlath, Polestar’s CEO. We will then open for analysts and retail investor questions. But before we start, I will cover some of the housekeeping points as usual. I would like to remind participants that many of our comments today will be considered forward-looking statements under 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 published today. With that I would like to turn the call over to Per. Please go ahead.

Per Ansgar, CFO

Thank you, Bojana. I would like to welcome you all to this earnings call. Welcome everyone. Before getting into our Q1 2024 figures, I want to start by giving my view on the full year 2023 preliminary results, which we published last week. First of all it was important to report our figures and to take away some uncertainty that has been out there. We are working closely with our auditors and are looking to file the 20-F in the coming weeks. In the meantime, we are pleased to publish unaudited full year 2023 figures. Why did we need some additional time? Firstly, this is our first year of full Sarbanes-Oxley compliance, a significant undertaking for a young company I have to say. Secondly, correction of certain errors that largely precede our NASDAQ listing and the resulting restatement. I can confirm that they have been corrected and as guided with an impact on our net loss of less than 5% positively in 2021 and 5% negatively in 2022. So not really a big impact but still took a considerable amount of work to complete. Lastly, as you see we booked a non-cash impairment charge of approximately $450 million and I will come back to this. Okay, let's now move over to some of the key figures from 2023. Starting with the income statement, we saw global vehicle sales up 6% in 2023 to 54,600 cars. However, revenue was down 3% with channel mix and higher discounts. Gross result was down at negative $415 million but that included the non-cash impairment charges of $450 million. If we exclude these charges for 2023, we would have been around breakeven for gross profit margin, which is in line with the previous guidance. SG&A costs were up 14%. This we addressed already in 2023, as we initiated two rounds of strategic cost and headcount reductions in mid-2023 and then followed up with another one in early 2024. We are starting to see the benefit come through now, which I will cover shortly. Other operating income benefited from foreign exchange effects on working capital and the gain on disposal of assets held for sale. In summary the operating loss increased in large part due to non-cash impairment. And now moving on to cash flow highlights. Operating cash outflow was around $1.9 billion and that was impacted by working capital of about $800 million negative, driven by higher inventory and settlement of trade payables. It is fair to say that we ended 2023 with inventory higher than we wanted or anticipated but we took actions and have seen an improvement already in the first quarter of 2024. On financing, out of the just over $2 billion, approximately $1.4 billion come from the longer-term shareholders, loans from Volvo Cars and Geely. We ended the year with $770 million in cash and cash equivalents. This leads me on to impairment charges, principally comprised of two parts. First is the inventory impairment, and the second one is asset impairment. Starting with inventory impairment of about $120 million for the year up from around $40 million after nine months. This chart takes into account the value of the inventory at year end and also forward-looking view into Q1 and Q2 2024 where sales and price trends have been reflected to current fair value. Now over to the impairment of assets at $330 million. All companies have to assess on an annual basis the value of its assets in relation to its future earnings capability. During the later part of 2023, we concluded that it is more appropriate to do this assessment separately on different car lines or cash generating units because of the growth in the business with each of those car lines consuming separate assets and generating separate cash flows. The analysis showed that it’s reasonable to adjust down the recoverable assets value of some of the Polestar 2 assets and that is primarily due to the following, Polestar 2 generated less margins because of the introduction of tariffs in the US a few years ago and on top of that our weak performance in China. Having said this, we will continue to produce and sell Polestar 2, as it is an important car line now and into the future. And again worth reminding, this impairment has no impact on our cash position. And now, let's move over to 2024, which is a very exciting year for us. We have guided earlier this year that we expect 2024 to be quite different at the end of the year compared to the beginning of the year. First half of the year, we focused on selling Polestar 2 and preparing our network for the product ramp up. This included implementing new retail distribution model and successful launching activities and campaigns for Polestar 3 and Polestar 4. You can clearly see this in our performance in the first half of 2024. We had a tough start of the year, but then with a strong improvement in the second quarter. Later, you will hear Thomas giving more color on the actions we have taken. And now moving on to financial figures for the first quarter 2024. Revenue was down about $200 million. This was due to lower volumes, higher discounts to manage inventory, and with revenue recognition complexities on sales of cars to our China JV. Gross profit margin was negative with around 9%, basically reflecting the lower revenue, as well as movement of R&D amortization into COGS. SG&A expenses were down 1% despite marketing for Polestar 3 and Polestar 4. We are pleased to see the underlying cost efficiency starting to kick in from the strategic programs implemented, including headcount reductions. In terms of our cash flow, operating cash outflow of $230 million is mainly explained by the EBITDA and early improvements on inventory offset by payables. As you see from our Q2 sales, we expect to see more working capital improvements in the second quarter and going forward. Investing cash flow outflow was about $190 million in-line with plans as we continue to invest in Polestar 3, 4 and 5. Financing cash inflow was a net increase of around $460 million. We have fully utilized the $950 million club loan that we secured in the first quarter. However, we have also made some repayments of other loans and trade financing facilities. Remember, we have a EUR470 million term finance facility which remains largely undrawn. Let me finish with the outlook for the rest of the year and into 2025. Sales momentum seen in the second quarter has had a positive impact on inventory levels and cash flow. We remain confident of an even stronger deliveries through the second half of the year driven by the two premium SUVs. Though the business has increasing momentum, we see short-term uncertainties from the introduction of import duties alongside continued pricing pressure in global EV markets, including China. In light of these factors, and while continuing to target cash flow break-even in 2025, we are adapting our business plan, including additional mitigation, and we expect to provide updated guidance later this year. Thank you, everyone. And with this, I will let Thomas cover the recent business developments.

Thomas Ingenlath, CEO

Good morning, and good afternoon everyone. Thank you for joining us at this conference call. First, I would like to reflect on the Q2 delivery figures. Start of this year was very slow, but we took immediate action. We activated our sales organization and we accelerated our retail efforts, which I'm pleased to report resulted in deliveries of 13,000 cars in the second quarter with strong performance in the US, in Sweden and Norway and Germany, including very strong development in our retail order intake, up 169% year-on-year. This has really energized our teams, as well as our retail partners. And it has created great momentum as we introduced our two new SUVs with test drive weeks and first handovers to customers. The global media test drive in Spain for Polestar 3 and 4 was a great success, and the global reviews are spectacular. I think it is fair to say that we have created here real winners. Let me just share two of my favorite headlines. First drive says Polestar 3 has a stunning look at that filthy unique bridge between premium EVs and premium internal combustion engine SUVs. I think that describes an important quality of the Polestar 3 being able to attract customers from both worlds. And another one, Auto EV, not only the best Polestar to-date, but the best in its class by a country mile. It is sensational. When it comes to Polestar 4 reviews, they only came out yesterday, embargo lifted yesterday. And again, really positive headlines, fantastic reviews. One of them driving UK, saying no real window, but a clear vision, taking on the Porsche Macan. So this summer, it is happening. We are turning from a one car company to a three car product portfolio. To harvest this to the full extent, we are adjusting our retail and sales model to drive commercial performance and reach a wider customer base. This work we have accelerated in the last quarter as we have announced the first shift to a non-genuine agency model in Europe, starting in Sweden and in Norway. With this shift, we activate our space partners in the commercial process going from being a distribution to a real sales channel, contributing actively in conversion and the order intake and making it easier for customers to actually purchase a car directly in the space. We will also jointly increase significantly our retail footprint in all key markets, including the US. We will also be targeting several new market launches in 2025. France, Czech Republic, Slovakia, Hungary and Poland and Thailand and Brazil. Connected to our sales operations, we have made management appointments in key markets during the beginning of the summer. And I'm really pleased that we have brought in senior automotive sales experience to our company. One of the challenges that we face right now are the announced import duties. Also, all their full impacts are still unclear. What we do know is that we took steps quite some time ago to derisk and diversify our business. And that's why we made the decision to manufacture Polestar 3 for North America and Europe, in South Carolina, and this is on track to start during the end of the summer. Polestar 4 production initially for the North American market will start in South Korea during the second half of 2025. As Per mentioned in the outlook statement, our ambition of achieving cash flow breakeven in 2025 remains and we are reviewing our plans to protect this goal in light of these challenges, and we will provide updated guidance later this year. Polestar is the only European pure EV brand, and that is thanks to Håkan Samuelsson’s vision and ambition. On behalf of everyone in the business here, I want to thank him for his work and commitment to us as a Chairman as he enters retirement. At the same time, I'm very happy to welcome Winfried Vahland, as our new Chairman, following the upcoming AGM. Winfried has significant experience from the car industry, both executive and at Board level, and it will benefit Polestar greatly as we move forward into the next phase of our development. Carla De Geyseleer has also chosen to not stand for re-election at the upcoming AGM in order to focus on her full-time executive role. We wish Carla the best in her future career and thanks a lot to you, Carla. Subject to approval at the upcoming AGM, we also welcome two new Board Directors. Laura Shen, who brings significant automotive experience from China and Christine Gorjanc, who brings significant finance and accounting experience and who will Chair our Audit Committee in the future. As I look with confidence ahead based on my belief in our cars, our brand, our strong shareholders and the resilient position that we have built for our business setup. The world around us has changed significantly since we launched our brand, not least in the last few months with very basic things like global free trade being questioned, but we are prepared for this. We are one of the only EV start-ups with a diversified manufacturing footprint, planning to include Europe as well in the next step. We have strong momentum, as we enter the second half of this year. Our two new SUVs have received stellar reviews and test drive slots are booked out. Our retail model shift is in execution, and we have strengthened our sales management team significantly. We expect strong revenue improvement in the second quarter, and we are confident about our business performance in the latter part of the year. Looking further ahead, our model expansion and increased market presence with seven new market launches to come in '25 will be key growth drivers for us. So operator, please let's move now to the analyst Q&A. Thank you.

Operator, Operator

Thank you. We will now take the first question coming from the line of Tobias Beith from Redburn Atlantic. Please go ahead.

Tobias Beith, Analyst

Good afternoon, Thomas, Per and Bojana. Lovely to chat again. My first question relates to the second quarter volumes. I must admit it's quite surprising. I was wondering whether you could disclose how many Polestar 4s were sold in the period to your Chinese joint venture like you did in the fourth quarter and the first quarter of this year.

Per Ansgar, CFO

Thank you, Toby. And this is Per. Thanks for your question. We sold quite some Polestar 4s in the last part of the 2023. And we also sold quite some in the first quarter. In the second quarter, there were very few, I would say, around 200 or so. So basically all sales, except some deliveries of Polestar 3, are related to Polestar 2, which we are very happy to see. On top of that one, now we only talk about our deliveries. On top of that, we have a very strong order trend on all car lines, but also including Polestar 2. So when we move into the third quarter, we are expecting to see continued growth in our sales.

Tobias Beith, Analyst

All right. Understood. And proportionately, the volume of Polestar 4 was twice impactful in the first quarter than it was in the fourth quarter of last year. But the gross margin before impairments seems to have remained negative. Are you able to discuss this for me and outline how it turns profitable?

Per Ansgar, CFO

Yes, the Polestar 4 is a highly profitable car, and you will notice this as we progress, especially since larger vehicles typically have better gross profit margins. In the first quarter, we faced a complicated situation with revenue recognition tied to our joint venture in China. We delivered cars in the first quarter but couldn't recognize full revenue for them. We anticipate this situation will balance out over the year, so it would be premature to draw any conclusions about the Polestar 4's gross margins based on first quarter sales. We will revisit this topic and provide more insights when we see sales increasing in the third quarter with higher volumes globally.

Tobias Beith, Analyst

All right. And just a final one for me. I noticed that in certain key countries, the estimated delivery date for a new Polestar 3 or Polestar 4 is before year-end, and that also a cheaper single motor variant has already been released in Europe. Are you able to comment on demand versus order supply for these models, please?

Bojana Flint, Investor Relations

The order book of Polestar 3, Polestar 4.

Thomas Ingenlath, CEO

Hi, Toby. Sorry, I don't quite understand the question. I just want to tell you what the journey ahead is with Polestar 3 because you know we started now the very first deliveries by the end of this month, June. And we will, in quarter three now ramp up the deliveries to customers. And of course, we are serving in these months to start with the order book that we have for this car. The rightfully, the single-motor version, we only released now. And of course, this will kick in much later in terms of deliveries. We took the deliberate decision of offering this car already now because we want to give options to customers that are maybe very, very tempted for this car, but see that the car has a single-motor version and with a price tag attached which is more suitable to their purchasing power. So that is not directly related to now for the first six months of deliveries. This is, of course, mainly the dual motor and the order bank that we have to work down now. And one thing I think I should mention as well, we will of course, now in the first month of July, especially still be very careful and not pushing out too many cars at once because we just simply want to really quality issue. Those deliveries make sure that customers have with the software that we deliver the right experience and will ramp up then according to that, August, September, and that will then be, of course, much more getting into the normal flow of what we expect to be able to get out of the months. So slightly careful ramp-up now. But of course, it is a very, very strong test drive program that we have because all-in-all, 40,000 hand raisers that we have waiting for quite some time now to get into the car. This is now one of the biggest activities that we have to give the hand raises the opportunity to get into the car and experience this. And of course, we expect quite a good rate of conversion from these hand raises.

Tobias Beith, Analyst

All right. Understood. Thanks, Thomas. Just in case helpful clarification. The point that I was trying to make is in key markets that you're not sold out for this year, i.e., the order book doesn't extend through to year-end, but presumably, you've purchased vehicles that your purchasing quantity spans through to probably sometime next year. So I just wanted to understand that dynamic, but your answer was very helpful. So I'll pass on the line. Thank you all.

Per Ansgar, CFO

Welcome.

Operator, Operator

Thank you. We will now take the next question from the line of Andres Sheppard from Cantor Fitzgerald. Please go ahead.

Andres Sheppard, Analyst

Hi, good morning. Good afternoon everyone. Thank you for taking our questions. I wanted to start by asking if Thomas or Per could help us understand and quantify the impacts of the announced tariffs. I'm curious about how this has affected you and how the situation will change once the facility in the Carolinas is operational. Thank you.

Thomas Ingenlath, CEO

Yes, the 100% tariff that has been announced some weeks ago for the US. In a way it almost, and I stress almost perfectly with us actually introducing the production in South Carolina for Polestar 3. Because, of course, on one hand, this is serving the purpose of having, I call it now a normal tax situation with Polestar 3, not having 100% import tariffs on the Polestar 3. And therefore of course, our acceleration in the US market and everything is catered, of course, around the strong belief that the Polestar 3 is a perfect product for the US and having the production in South Carolina up and running. On top of that of course, exporting the Europe volume from US in order to actually have then the pool for Polestar 4 import into the US. So that goes hand in hand. And the effect in the mid and long term of this increase in tariff should be basically completely mitigated by this production in South Carolina. Almost it is about a couple of weeks where indeed these tariffs kick in already, whilst the production is not yet up and running. So indeed, we had to work around how many cars we could still import from the initial production in Chengdu into the US before we had to stop this import and the South Carolina production is up and running.

Per Ansgar, CFO

I would add to this, and this is Per here. That is also important to understand that there is a mechanism which we call duty drawback where we can match incoming tariffs versus outgoing tariff. So the Polestar 3 production in Charleston is very important because we plan to use that for export out to US, and then we can also have some benefit from that one from a duty perspective. So with the actions we have already taken since long, we are quite well hedged on these topics.

Andres Sheppard, Analyst

Got it. That’s very helpful. Appreciate all the color. And maybe as a quick follow-up, one for you, Per is can you just remind us with slightly less than $800 million in liquidity, what do the capital needs look like for this year? And how are you thinking about that in this environment? Thank you.

Per Ansgar, CFO

Thank you for the question. I enjoy working with cash flow, and it is very important. We are putting considerable effort into improving our cash flow situation, and there are many opportunities to make progress. You will see our efforts in the second quarter as we focus on working capital to enhance our cash flow. This is a positive direction for us. Additionally, we have not utilized our trade financing facility of EUR470 million, which means we have over 90% of that available. We can use this moving forward. Given the current situation with tariff fluctuations and price changes, we will need to adapt our business plan and projects accordingly. As Thomas mentioned, we are working on mitigating various activities, and we will provide more specific updates on our future needs later this year. Importantly, our ultimate owner Geely Holding has shown strong support for our business, and we are in constant communication with them, Volvo Cars, and others about our funding position. I feel confident about the path ahead.

Andres Sheppard, Analyst

Understood. Thank you very much. I’ll pass it on. Thank you.

Per Ansgar, CFO

Thanks.

Bojana Flint, Investor Relations

Thanks.

Operator, Operator

Thank you. We will now take the next question from the line of Daniel Roeska from Bernstein. Please go ahead.

Daniel Roeska, Analyst

Good afternoon and good morning everybody. And thanks for making time and taking the questions. I apologize for the slight background noise here. You just mentioned your relationship with Geely, may I ask for an update on your negotiations on the revenue covenants where you stand on that? Thanks.

Per Ansgar, CFO

No. Thank you very much. Of course on our club loan banks, we have several covenants, not only revenue, we have CapEx covenants and we have the covenants. We follow them very closely. We have a quite rigid process internally in the company with a credit compliance committee. So we go through this on a monthly basis. So we are following that one as you understand. From a revenue perspective, which is one of the covenants. We were, as you can understand, a little bit disappointed with the first quarter revenue. We are now seeing that the second quarter revenue is definitely in-line with our expectations. Moving into the third quarter now as I said before, our order book is building up. So we expect continued increase in our sales performance into the third quarter and into the fourth quarter. This revenue covenant is done on a yearly basis. So too early to really judge on it. Having said all of that, we are, of course, in dialogue with our banks on different topics, as you can understand here.

Daniel Roeska, Analyst

Yes. Thanks for that. And I mean if you extrapolate the trends you just mentioned and the kind of the higher sales you are expecting for Q3 and Q4, would you today say from today's perspective that you are on track to hitting the revenue covenant in '24.

Per Ansgar, CFO

The second quarter was on track and already, yes. And the third and the fourth quarter, we are looking good.

Daniel Roeska, Analyst

Okay. That's great. That's very encouraging. You and Thomas also mentioned kind of the actions you're taking to mitigate the tariff impact. Overall, how has that influenced your view on when achieving cash flow breakeven might be possible? Do you think it's – you are able to mitigate kind of the entire impact and kind of still reach cash flow breakeven next year? Or has the tariff situation, kind of the re-shifting of global production delayed that by a couple of months?

Per Ansgar, CFO

We have said here that we should reach cash flow breakeven sometime during 2025, probably rather more towards the end of 2025. And that is very important for us. And as I said, I'm very much focused on cash flow because I think that is of course, very important for us and for all companies, by the way. Having said that, though of course, we are then trying now to make sure that we adapt our plans in a way that we can reach cash flow breakeven. So we are making all the adjustments we need to do there. So our clear objective is to get to cash flow breakeven by the later part of 2025.

Thomas Ingenlath, CEO

Since the middle of 2023, we have made significant strides in cost reductions, including concluding our headcount reduction program. A substantial portion of this work has been completed. Despite facing ongoing challenges, we remain focused on being efficient and achieving profitability, which is our primary goal for 2025, and we are committed to this objective. This entails intensifying our efforts as there is still much to accomplish. We will provide updates in the second half of this year.

Daniel Roeska, Analyst

I have one last broader question for both of you. Thomas, you mentioned the fantastic reception the cars have received, and I believe everyone is eager to get them into customers' hands. Looking ahead, we expect to reach cash flow breakeven by the end of next year if everything goes as planned. The current liquidity should be sufficient, hopefully. What do you require from the markets in the next 12 months? Specifically, how can your non-Geely shareholders assist you in your journey over the next few quarters?

Thomas Ingenlath, CEO

No, I think what we've been quite clear for quite some time was that when we launched our business plan late last year, we talked about a need for more funding, partially by loans and partially by equity injections. So obviously, we are seeking to get external equity into the company because as you can see on our balance sheet, it would help with more equity into the company.

Daniel Roeska, Analyst

And Per, thanks, I mean you hit the nail on the head of course, perfectly. Could you give us some color on your thinking there? Because external equity comes in many shapes and forms, right? How have kind of discussions with strategic shareholders been going or any signs kind of where you say, look this is giving you confidence for the upcoming months that the plan you have in mind will come to fruition.

Per Ansgar, CFO

Yes, I think we are exploring different avenues regarding this. We already have a few strategic shareholders involved, and they are expressing further interest. Additionally, we have some new prospects approaching us. There are quite a few individuals who believe it is an opportune moment to invest in Polestar.

Thomas Ingenlath, CEO

And I think it is fair to say as well that the position that we are in attracting and talking to potential strategic investors is of course, I call it changing with the minute that big delivery date of us getting from that one car company to becoming a company with three cars with the two SUVs in our lineup and really portraying, as well as the commercial success of these cars. And I think that's a very important qualifier for us now to get into that stage. So I think that will definitely open doors.

Daniel Roeska, Analyst

Excellent, thank you both very much for the comments.

Per Ansgar, CFO

Thank you.

Operator, Operator

Thank you. We will now take the next question from the line of Dan Levy from Barclays. Please go ahead.

Dan Levy, Analyst

Hi, good morning. And apologies for the background noise. I wanted to start with just a question on volume trajectory. And I recognize you are just working on the immediate term now, but this path to cash flow breakeven, you said was contingent on reaching or was based upon reaching 155,000 units of volume next year, you did 20,000 in the first half. Maybe you can just conceptually bridge for us the key drivers of how we get to this much larger run rate that's implied in the full year path. We recognize there is going to be ramping on the localized facilities and ramping on three and four, but maybe you can just give us a sense of just sort of the conceptual bridge to getting the volume to where you need to be without using discount. Thank you.

Thomas Ingenlath, CEO

I think we talked about it last time already, the key time to look at is quarter four this year when we have all three cars and full delivery swing when we have as well the revenue stream from all three cars. And that combination of what we can achieve in revenue and volume in this quarter four will be, I think, for you the key identifier of where full year 2025 comes then to. And it is again for us, the main goal to achieve cash flow breakeven. We are not chasing now the volumes and the number per se. We really are about that profitable business and becoming a profitable company in 2025. That's what our main goal is just to make sure that you understand what is key for us here. This 13,000 that we did now in Q2 with Polestar 2, again, this is Polestar 2 delivering on these numbers. It's a completely different situation with three cars in the lineup and having on top of GT that we have now as well two SUVs with production in Charleston up and running. So I think that is clearly to be seen then in the second half of how this reflects on our business.

Per Ansgar, CFO

I would also add to that one. We talk very much about Polestar 3, 4 and also the upcoming Polestar 5, which is of course, very fun because it's very nice cars to look at and to drive. But also, we are doing a lot of activities in our distribution network. We have announced that we are going to add more markets. Most of them are imported markets, which will give us volumes without a lot of effort from our side. So that is very positive from that perspective. We are changing our sales model and moving over to what we call non-genuine agent model, which basically means that we will be able to have more interaction and more work directly through the dealers or the investors to drive our sales, and we are expanding our point of sales. Just as an example in Sweden, we are going from like 3.5 points or 4 points maybe to 10 or 14 points, which is a very good thing that we will increase our volumes in a very simple and cost-efficient way. So it's not only about the cars. It's about how we go to market from a distribution network. And also, as we have announced, we are making quite a lot of changes in our different sales units with different management, making sure that we can drive sales in a completely different way going forward.

Thomas Ingenlath, CEO

That's a very good additional point. I would love to revisit that. On one hand, we are entering new markets, but even more crucial is activating the markets where we are already present. Our new model involves engaging our space investors, as we previously referred to them, and they are becoming significantly more involved in generating orders, transitioning from mere interest to confirmed orders. The order intake from January to June has increased remarkably, especially in retail, with a 169% rise in retail order intake compared to the previous year. This certainly indicates a powerful opportunity for commercial success within our organization. For example, in Sweden, we plan to grow our sales points from about 40 to 60 this year. The momentum and energy that these dealers have, especially following the sales success of Polestar 2 in Q2, are driving optimism as they prepare for Polestar 3 in their showrooms. Additionally, as Per mentioned, the introduction of more car models contributes to a strong sense of the business potential with the Polestar brand, which is injecting new energy into our sales organization.

Dan Levy, Analyst

Thank you. And then maybe just as a follow-up, you talked about expanding into other markets, expanding within your current markets I know some of these are import markets where you said there's not a lot of sort of resource required. But maybe you can just unpack the plans to expand your volume. What is the cost of this to enter these new markets, how much incremental cost are you taking on? And then maybe you could just remind us, beyond 3 and 4, how much resources you are allocating toward next-gen products for Polestar 5 or beyond. Just wondering what actions you are taking to mitigate maybe some of the near-term pressure on the cost side in that regard.

Thomas Ingenlath, CEO

That's a great point. For instance, among the new markets we've identified, only France will be developed as a wholly operated market by us. To operate in France, we will need a headcount of about 30 people to activate the entire market. We will collaborate with our space investors for the network in France, which means our costs for the Polestar side will be quite limited as we enter this significant new market. The costs will even be lower compared to importer markets. Our goal is to maintain flat expenses, having already significantly reduced operational expenses and managing the planned expansion to keep our costs stable. This has been a major achievement for the second half of 2023, and we aim to continue this trend into 2024.

Per Ansgar, CFO

On the investment side, I think you mentioned also that one. Obviously, now we have started to produce Polestar 3 and Polestar 4, we are going to start it in Charleston, here's a big portion of those investments has already been taken. There are some more payments going into that one. So now our focus for the balance of this year is very much on our Polestar 5, where we have some of the R&D by ourselves here. So that goes into capitalized engineering. When we go into next year, we will see that our investment levels are going down. Obviously, then we need to start to think about what is the next generation of, for example, Polestar 2, which we are planning to replace with a car that should be produced in Europe because that's really a car for Europe that would also help our global footprint in a very good way. And we are also having upgrades of the existing cars. But we are doing that now in very good collaboration with our partners Geely and Volvo Cars to really understand how we can limit the investment needs and the payments for that one. So we are really having a strong focus on that one for the next two years or so, I would say.

Dan Levy, Analyst

Okay, thank you.

Operator, Operator

Thank you. We will now take the next question from the line of Tobias Beith from Redburn Atlantic. Please go ahead.

Tobias Beith, Analyst

Hi. Thanks two more of my questions. I was wondering if you could discuss the financial impact of shifting to a non-genuine agency model in Europe, specifically its impact on vehicle gross margins, operating margins and working capital.

Per Ansgar, CFO

Yes. When we discuss with the dealers, we are giving them a little bit more of margin on the car sales, but it is also very much performance driven. So all in all, our view is that net, we will actually gain from this, obviously because we think it's a good performance driver for this one here. And we are also putting in metrics. So we basically say that what is good for the dealer investor should also be good for us, for example, if they sell a more highly specced car, it should gain both of us. So I think with this mechanism, I don't think there will be any impact on our gross margin from a negative perspective rather than the positive perspective.

Tobias Beith, Analyst

Okay. And then on operating margin and working capital, does it alleviate Polestar in any way from marketing expenses and on a working capital perspective, does it offload inventory to your dealers?

Per Ansgar, CFO

Sorry, if I get the question right, do you say that we offload some of our costs to the dealers? Yes. We do that because we are running some of our Polestar Spaces at our own expenses or in our own regime. Some of them we will actually then have a discussion with some of the other investors to have them take it over. So that would offload some of the costs, not significant, all in all here. From a working capital perspective, it is still so that this model is a model where even though the dealer takes a larger responsibility for the sales, it's still Polestar who actually triggers the invoice. So the working capital improvement from that specific sale will not necessarily be so much better. Having said that, with this setup there will be channels to sell more demo cars, more used cars, etc. So all-in-all, there will be improvements in our working capital handling here. And with this, we will also have a much clearer demand-driven and more active selling. So my view is that we should be able to reduce our net working capital from this model.

Tobias Beith, Analyst

Okay, understood, thanks again.

Operator, Operator

Thank you. I would now like to turn the conference back to Bojana for questions received from retail investors.

Bojana Flint, Investor Relations

Thank you, Sandra. We will now address three top questions from our retail shareholders that were submitted through the SAY technology platform. These are the most voted questions. The first question is regarding the plan to help recover Polestar's stock price over the next 12 to 24 months. Thomas, would you like to respond to this one?

Thomas Ingenlath, CEO

We share your disappointment with the current share price development and agree that it seems unjust. We firmly believe that our present stock price does not accurately reflect our company's true value, both now and in the future. We are selling significantly more cars globally, with nearly 170 models on the road, and we have strong foundations for future growth. Our unique position, compared to our peers, includes a presence in 35 markets, a diverse cost structure in our portfolio, and the Polestar 5 set to launch next year. We have also invested in a diversified manufacturing footprint that is about to come online. All these factors provide numerous reasons for our share price to recover and increase within the next 12 to 24 months. Our goal is to become a profitable company during this timeframe, and we believe our attractive car portfolio and compelling brand will lead to strong financial results. We have every reason to expect that our share price will be significantly higher in one to two years.

Bojana Flint, Investor Relations

Great. Thank you, Thomas. The second question we received is any news on the share buyback that was mentioned on the last call, the share price has taken a beating.

Thomas Ingenlath, CEO

Yes. There must be some confusion. And to make that clear, we did not talk about a share buyback on the last call. There has not been a share buyback announced and there has been no buyback in the planning or expected. Yes, we did approve a share buyback at the '23 AGM as one of the resolutions. This is pure technically needed and the normal regular AGM resolution for all UK PLCs. It's an option but not an announcement of a share buyback. And maybe important as well to stress here the following how strongly our interests are linked here to put the share price performance on the management level. I own lots of shares. 300,035 of the Polestar PSNY, and a big part of our executive management team's remuneration is, as well reinvested into PSNY shares. Our new Chair Winfried Vahland, will reinvest this entire remuneration, 100% of it in shares because we very strongly believe in the potential of our shares. The Board remuneration is also heavily weighted towards reinvestment into shares. And even our employees, they have their incentive pay fully in shares this year. So you can see that from each and every employee all the way up to the Board, we are heavily involved and believe in this company and in the opportunity that there is with our shares.

Bojana Flint, Investor Relations

Great. Thank you. And we will take the third and final question and then move on to closing remarks. Third question is, are you confident in bringing up sales numbers?

Thomas Ingenlath, CEO

Absolutely. As I mentioned earlier, I am confident about our future. I believe in the vehicles we are producing and the strong foundation we have established for our shareholders. The world is continually changing, presenting challenges that we navigate effectively. We have set the company up well with a diversified manufacturing footprint, and we are also planning to expand production into Europe with upcoming projects. The 80% increase in deliveries in our second quarter compared to the first is another reason to feel optimistic about our business performance later this year, especially with the positive reviews expected for the Polestar 3 and 4, which will contribute to sales performance as well. Test drives have commenced, and we have 40,000 interested customers eager to get behind the wheel. All slots for the next week are fully booked, and we will be working to provide more opportunities for people to experience our cars. With our strong market activities, we see enhanced potential with our sales team, and we are very confident about increasing our sales numbers.

Bojana Flint, Investor Relations

That's great, Thomas. Thank you. And I would also like to thank all our retail shareholders for taking the time to ask these questions. We had a platform open for a good few months, and we had some very good questions come through. And with that, Thomas, I would like to take us to closing remarks because we are coming to the end of the call.

Thomas Ingenlath, CEO

Thank you, Bojana. As I conclude, I want to express that Polestar has made significant progress in a short time. We have transitioned from a startup to a global car company. The strong momentum and energy within the business, along with our three vehicles on the road and robust international sales network, give us confidence that we have implemented the right improvements to our operations. We are excited about the future, and I hope you all share that excitement. Thank you for joining us today, for your questions, and for your time on the call. I wish you all a wonderful summer and encourage you to book a test drive for the Polestar 3 and 4 in the coming weeks. Good luck securing a spot for that. Thank you.

Bojana Flint, Investor Relations

Thank you. Thanks, everyone.

Operator, Operator

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