Lotus Technology Inc (LOT) 2024 Q2 法說會逐字稿

Good day and thank you for standing by.

Welcome to Lotus Technology Inc., first-half 2024 earnings conference call.

(Operator Instructions) Please be advised that today's conference is being recorded.

I would now like to hand the call over to our host today, Demi Zhang, from the company.

Thank you, Operator.

Good morning, good afternoon, and good evening, everyone.

Thank you for joining Lotus Tech's second quarter and the first half 2024 earnings call.

I'm Demi Zhang, the Head of IR at Lotus Tech.

I'm honored to introduce company management with us today, CEO, Qingfeng Feng; and CFO, Alexious Lee.

On today's call, we will start with prepared remarks from CFO, Alexious Lee, and CEO, Mr. Feng will join for Q&A.

Before we continue, please be reminded that today's discussion will contain forward-looking statements pursuant to the Safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995.

Forward-looking statements involve inherent risks and uncertainties.

As such, the company's actual results may be materially different from the views expressed today.

Further information regarding risks and uncertainties is included in relevant filings of Lotus Tech with the US Securities and Exchange Commission.

The company undertakes no obligation to update any forward-looking statement except as required under applicable law.

Please also be noted that our earnings press release and this conference call will include disclosure of unaudited GAAP financial information as well as unaudited non-GAAP financial measures.

Please refer to our press release, which contains a reconciliation of unaudited non-GAAP measures to comparable GAAP measures, which you can find at ir.group-lotus.com.

With that, I'd like to turn the call over to our CFO, Alexious.

Thank you, Demi.

Good morning, good afternoon, good evening to everyone for your attendance today.

My name is Alexious Lee, and I'm the CFO of Lotus Tech Inc.

I want to begin by saying the company delivered approximately 4,900 units of vehicles, and achieved total revenue of $398 million in the half, of which both are record first half year numbers in the 76 years of the Lotus history.

Just under 2,700 units were delivered in the second quarter, up 128% YoY and 22% QoQ.

Second-quarter sales revenue was $225 million, up 103% YoY and 30% QoQ.

Most notable is the new revenue stream from ADAS technology-related income, which is very high margin.

Besides Lotus models, other reputable brands of passenger and commercial vehicles will be rolling with our in-house developed ADAS across the world.

Gross profit margin was 13% in the first half, a step-up versus the 5% achieved in first half '23, but this number is lower than the 15% by the end of last year.

To quantify the decline, it was mainly due to the inflationary impact to the cost of Emira sportscar.

Notable growth comes from gross margin of service revenue, which was about 58% in the first half of this year versus 16% same period last year.

This is mainly contributed by ADAS revenue.

Next slide, to your left, you'll see that our EVs, which is mainly luxury SUV model and partly Emeya, a GT, sedan model, contributes approximately 50% of total volume, while the Emira sports car sales contributes the remaining.

Demand for Emira sports car in the US market is strong given a well-established sales network and brand recognition.

The chart in the middle and the right shows a very balanced vehicle delivery, and the retail network distribution across the world.

Europe, including UK, is home-base and remains the biggest contributors to volume and revenue given our British heritage.

China is new market to Lotus, and contribution expanded from 1% in 2018 to 25% of total vehicle delivery and retail stores after six years of continuous investments and efforts.

Contributions from the rest of the world is trending up from recent deliveries of electric SUV model in many new markets.

And new production orders for third quarter delivery is likely to further increase this weightage contribution.

In terms of global distribution, China is the only market operator under direct to customer model where the others operate through retailers and wholesalers, many with long-standing relationships with the company.

The US market remains as the key market for heritage sportscar.

Given the trade uncertainties, the company will target the ultra-luxury segment with limited editions and performance variants EV models for brand positioning and profitability.

Europe include UK is home-base, and through our arrangements, more than 300,000 charging stations are now assessable for Lotus drivers to charge their vehicles.

Given that Lotus is early mover is electrification, ESG-sensitive conglomerate for fleet purchase of luxury courtesy cars are potential growth opportunity for the company.

China is new market to Lotus, and the only market operator under direct-to-customer model.

Contributions in terms of volume and revenue exceeded 25% after six years of intense investments.

CapEx cycle already peak out and through strategic partnership with Nio, Lotus drivers can assess 23,000 chargers across China, of which some of them are fully robotics.

Lotus is well recognized in rest of the world regions for its F1 heritage and racing history, especially in the GCC region and other parts of Asia.

The market is fragmented and operates under the distribution model, which is asset-light with very fast-growing generation X customers for growth.

The market is also least impacted by trade uncertainties.

Coming to our financial highlights, total revenue for the first half was $398 million, a 206% YoY increase.

Sales of goods was $383 million, a 207% YoY increase.

Service revenue was $15 million, 194% YoY increase.

Gross margin for the first half was 13% versus 5% in the first half last year.

Gross margin of sales of goods was 11% versus 4% first half last year.

Gross margin of service revenues was 58% versus 16% in the same period last year.

Operating loss was $438 million for first half this year, 27% YoY increase.

Net loss was $460 million.

Excluding share-based compensation and expenses, adjusted net loss (non-GAAP) was $424 million, a 20% YoY increase.

Adjusted EBITDA loss (non-GAAP) was $382 million, 15% YoY increase.

To the right-hand side is the quarterly numbers.

Total deliveries was 2,679 units, 128% YoY increase.

Total revenue was $225 million, 103% YoY increase.

Gross margin was 9% versus 5% same period last year.

Net loss was $202 million, a 4% YoY increase.

Now excluding share-based compensation and expenses, adjusted net loss (non-GAAP) was $201 million.

Adjusted EBITDA loss (non-GAAP) was $177 million, a 1% YoY decline.

In the first six months of this year, Lotus is the fastest-growing British luxury heritage brand with deliveries just behind Bentley and ahead of Rolls-Royce, Aston Martin, and McLaren.

This is mainly driven by four models in delivery and include our Eletre luxury SUV model, our Emira sports car model, our Emeya, GT, sedan model, and Evija, Hypercar.

Despite faster than segment and industry growth, we kept ASP above USD100,000 per unit to protect our pricing integrity and brand equity value.

We not only launched the bespoke -- Chapman bespoke services, which offers personalization and customization services to our customers, but also began the production of the one-off Evija Fittipaldi model and the delivery of the Emeya Blossom limited edition model.

Both the Eletre SUV model and the Emeya GT, sedan model won the Red Dot Award for product design and other achievements to add to the model's desirability with our customers.

Business sustainability wise, the company was nominated as a finalist in the Reuters Sustainability Award 2024 in two categories: for business transformation, and for operations transformation.

Last but not least, our wholly owned subsidiary, Lotus robotics started to capitalize on years of investments by providing end-to-end intelligent driving solutions and R&D services to multiple leading OEMs.

Beside embracing on electrification, Lotus is also the pioneer among traditional luxury OEMs to spearhead into digitalization and smartification.

While we understand the fun in driving any past and present Lotus models, we also want to incept right level technologies to enhance roading safety for our drivers and our passengers, the riders.

As flagged previously, our customers can opt for level four ADAS hardware under new orders of electric SUV model, and the Emeya GT, sedan model.

With that they can subscribe to Highway NOA or the Urban NOA to enjoy the ride after a tedious day.

More importantly, program updates are done through OTA, and they are hassle-free.

As announced recently, our wholly owned subsidiary, the Lotus Robotics started to deliver end-to-end intelligent driving solutions and R&D services to leading OEMs for both the passenger vehicles and commercial vehicles segment, such as the heavy-duty trucks for interstate logistics and vans for intra-city dispatch services.

Sales revenue from these high-margin business was slightly more than USD10 million in the first half this year, and it's likely to fall between USD30 million to USD50 million for this year.

Future growth of our business will be driven by income from more paid subscription of our ADAS across the world.

Next slide.

We value our “For the Drivers” brand mission and put them into action.

We not only launched the Chapman bespoke in the first quarter, which offers personalization and customization services but also began the production of the pinkish Emeya Blossom limited edition model.

This collection features rare gradient painting and 42 natural sapphires on the instrument panel, which garnered significant attention from our customers.

We also began the production of the one-off Evija Fittipaldi model to celebrate race legend Emerson Fittipaldi's 50 years of achievement and hope to reconnect the F1 passion with tens of millions of fans across the world.

Coming to our guidance, we revised our FY24 full-year guidance that we target to 12,000 units to reflect the latest assessments of the market conditions and trade uncertainties posed by the new tariffs in the US and the EU region.

Our latest target pointed to more than 70% YoY growth, making Lotus potentially the fastest-growing heritage luxury car brand in the market.

We aim for 3,000 to 4,000 units of quarterly deliveries in the second half of this year, a step-up versus the 2,200 and the 2,700 units achieved for first quarter and second quarter, respectively.

This set, the company will keep price discipline to protect our brand equity value and desirability, more importantly, the resale value of our past and present models, and to ensure quality customer experiences.

We are also in the process of recalibrating our product strategy to explore ways for faster and easier go-to-market globally, which we will share more details later.

To your left, our recent updates on our model delivery.

Most notable is the upcoming delivery to the GCC region which used to be one of the most popular destination given our F1 heritage and racing DNA.

Our customers from key markets such as South Korea and Japan, should also receive their electric SUV model in the third quarter this year, while others can make reservations for the Emeya GT, sedan model.

Management team initiated on the Win26 plan, which targets positive operating cash flow and EBITDA in 2026.

The plan includes more than 30,000 units of annual deliveries in 2026 with more than 20% gross profit margin.

In order to achieve this target of better profitability and stronger balance sheet, the company will not only adopt price discipline, but also increased blended ASPs through a mix of more limited edition models and bespoke services.

Given the maturity of our ADAS, our AI, our SaaS business, our Lotus Robotics subsidiary will undertake more high-margin IP licensing and R&D services.

Given the number of OEMs we partner and their model launch plan, the number of cars equipped for ADAS are expected to more than double every year.

As the cars pools expands, the higher take-up rate of paid subscription for ADAS means potentially more income for the company.

Coming back to the operational side, streamlining for better efficiencies will support our cost measures, especially through waste reduction to generate profitability.

Achieving our Win26 is the base case for the company and the management to deliver our commitments such as dividend payouts to our shareholders and investors.

Coming back to our product pipeline, it is important to note that four models are currently available.

Two more models will be launched in 2025 and 2026, respectively.

These models will begin delivery in 2026 and 2027, respectively, from PRC to UK, EU, to rest of the world, then followed by the US.

The plan is to evolve our global retail network for customers to test drive after the launch and to make reservations for future deliveries.

To the right is the progressive volume expansion of which the yellow highlight marks 100% availability.

Both models of sports car, Evija and the Emira are available in 100% of the markets today.

Only 80% of the markets will be able to receive the Eletre SUV deliveries this year, while 50% of the markets will receive the Emeya GT, sedan deliveries this year.

This said, 100% of the markets will receive the Eletre SUV model by 2025 and 100% will receive Emeya GT, sedan model by 2026, instrumental to our achievements of our Win26 plan.

The two new models [may not significantly contribute to the FY26 revenue](corrected by company after the call), but they will be major contributors to the company's profitability and growth towards our 80th Anniversary in 2028.

Vision80 plan starts from 2018 till 2028.

And by then, management's view is for 4% market share in the luxury segment, which is price above USD80,000 per unit.

This is done through product lineup expansion from previously a niche sports car segment player to the full range of SUV, GT, sedan models.

Revenue profile will expand from just traditional car sales, new or used, options, and aftermarket to new high-margin revenue streams such as technology, IP licensing, ADAS subscriptions, Chapman bespoke customizations, charging services and potentially in-car purchases through our operating system.

The company aim for 30% gross margin and targets more than 10% EBITDA margin.

Management team is committed to the growth and plan to deliver cash and profits to our shareholders.

Thank you for staying with me, and we appreciate your attendance today.

We look forward to deliver our cars to Lotus drivers and dividends to our shareholders.

I'll pass it over to Demi to host the Q&A session.

Thank you.

Thank you, Alexious.

Operator, we are ready for Q&A.

Thank you, management.

(Operator Instructions)

Edison Yu, Deutsche Bank.

Hi.

Thank you for taking our questions.

Have quite a few.

Wanted to start on the guidance, the volume guidance.

How much would you say of the reduction is related to tariffs and how much is related to the other factors?

(interpreted)

Based on the original plan, the US itself is 100% related to the tariff hikes of the US market.

And for the EU market, about 30% of our sales is related to the tariff hikes.

Because of the tariff policies from the US market, it dramatically affects our sales forecast.

And we are now planning to have a repositioning of our products in the US market.

Next month in September, we are planning on launch of our Eletre in the US market.

And for such a launch in the product, will have a slight contribute to 2024 sales and more of the contribution will come in 2025.

After the launch event in September in the US, Eletre will enter the US market at of the end of this year or roughly at the end of December, and the products will contribute our 2025 performance mainly.

For Europe, we also contemplate to relaunch or reposition our product in Q4.

Specifically in Europe, we are thinking about to plan to launch different variants in this particular market.

Besides that, there were also other elements affecting luxury premium vehicle segment.

For example, in China, in the luxury vehicle segment, it has been affected by 50% downwards.

But for Lotus, we maintained our growth momentum.

However, it does not necessarily mean that it tallies our expectation.

So a follow-up to that.

I noticed in the press release, the company mentioned that the average selling price is still above $100,000.

But can you just remind us the sort of accounting behind that?

Because obviously, if you just take the automotive revenue and divide it by the units, it's not over $100,000. [Could you explain the calculation](corrected by company after the call) mechanics of the ASP again?

Thank you.

So this is on the accounting side because on the US side or the Emira is actually accounted for with our gross margin rather than a full ASP of the cars.

So as we said there, we want to make sure the market is clear, that the company is protecting the price integrity and not involve itself with discounting measures to the market that would be detrimental to the brand equity value and a broader resaleability of the market.

But from an accounting side, we treat it in a way whereby the US sales is only on the margin side rather than is the full car sales revenue.

The service revenue, I know it was a bit -- had gone down a bit sequentially quarter over quarter.

How do we think about the service revenue for the rest of this year.

And I think you had mentioned that longer term it should be $30 million to $50 million from ADAS?

(interpreted)

Because currently in the luxury premium EV segment, particularly, we are facing in-country headwinds.

So we have to find the second or the third channel to help us to boost our revenues.

For example, we have launched our Chapman Bespoke services under different models to the China market.

First, like in Emeya Blossom Enchantment and also our Evija Fittipaldi version.

There has been interests drawn from customers from China, APAC, and the US.

And currently, we are planning to cover those three market first.

During the Eletre launch event in the US we are currently planning, we will also in parallel launch our bespoke service there.

Although such models or variants, so a bespoke service [not expected](corrected by company after the call) to give us a huge boost in sales volume, it will give us a momentum when it comes to gross margin.

Another revenue stream I want to elaborate on is our ADAS or intelligent driving services.

As we all know that Lotus Engineering had a long experiences of offering services globally, and they have a great [know-how] in chassis tuning and lightweight

[technology](corrected by company after the call).

And currently, we are developing another revenue stream through intelligence driving solutions.

By the end of this year, we project to the revenue from this stream is roughly around RMB400 billion [under the most optimistic conditions](added by company after the call).

And it is a business that can give us a greater gross margin.

In China, we all know that in this particular area, there are fierce competition.

For Lotus, we are unique as we can offer this solution globally.

Our solution can not only cover China market, but also Europe, Middle East and APAC, and we have already gained a lot of interest from other OEMs.

Besides offering intelligence driving services internally within Geely Holding Group, such as a Farizon commercial vehicle, and also Lynk & Co Z10 vehicle, we are also offering services to non-Geely brands in EU, particularly.

Currently, we have already acquired [designation] of three models from one of renowned OEMs in Europe.

And there are four models by applying this intelligence driving solutions ongoing.

And I believe this is the unique edges for Lotus.

We can offer one intelligence driving solutions to cover global markets.

This year, again, as I previously mentioned, we project a RMB400 million revenue

[under the most optimistic conditions](added by company after the call).

Next year and the year after next year, we believe the revenue will keep growing.

And this is another important revenue channel that we are currently exploring.

And we will disclose more information regarding the [designation] or the collaboration with a particular OEM from Europe.

For our intelligence driving solutions, we believe we are very competitive in three markets, including the US, Europe and Japan, and those three markets will be our current focus.

And we will keep explore any potential opportunities with OEMs in those three markets.

At this moment, we are carrying out test driving and riding experiences of our intelligence driving solutions in Frankfurt.

A lot of OEMs actually have participated, including Hyundai, Mercedes Benz, Aston Martin, and Volvo.

More OEMs will join this 15-day test driving and test riding experiences.

So in summary, non-China market will give Lotus and its intelligence driving solutions edges.

And those two are extra revenue streams I'd like to share with you.

Thank you.

That's a great and very comprehensive overview.

A quick follow-up on that specific point.

How are we thinking about the economics?

Is it unit based?

Is it licensing?

How does the $400 million relate to the number of cars those customers would sell?

(interpreted)

In summary, it is expected to be roughly 50% for development payments and also 50% through per vehicle licensing cost.

Take a Z10 model from Lynk & Co as an example.

We have already started to collect the development costs, and we have already provided the support of intelligence driving solutions to highways in China.

And by the end of this year, we are going to cover more cities -- to about 100 cities and offer NOA capabilities on the vehicle.

So development payment and also licensing payment per vehicle would be our common proposal to all OEMs.

We are flexible with our strategies for the fee structure.

For example, Lynk&co Z10 is expected to be a lot of sales volume.

So when it comes to the income generated from upfront development, it is expected to be relatively less compared to the income from licensing fee we received on per vehicle basis.And for commercial vehicles, the development payment into the quotation is relatively higher compared with the license fee received from per vehicle basis.

Currently, within Geely Holding Group, besides Z10 that I previously mentioned, we have also acquired the designation for other three models and also one extra potential designation or collaborative opportunities under Geely Holding Group.

But for sure, we are not solely relying on Geely business, where our target is that by 2027, the revenue brought by intelligence driving outside of Geely accounted for 70%.

UE Capital.

(spoken in Chinese)

So the question is about for those intelligent driving solutions that we offered for Lotus and also other OEMs, are there any differences?

The software is actually the same.

It is based on the same model, the difference is on the hardware.

Intelligence driving hardware will be adaptive to different OEMs.

For example, for Lotus ourselves, we are leveraging two Orin chips and four LiDAR.

And for our solutions to Z10, they are using one Orin chip and one LiDAR.

So we have three different levels of solutions from high, medium, to low.

And based on those solutions, they can be adaptive to Orin X and Orin N.

And in addition to that, we have also come up with the solutions that can be adaptive to Qualcomm's solutions.

(spoken in Chinese)

The question is for Lotus owners or customers, what's the demand and how's the take rate for ADAS function or intelligence driving solutions.

(interpreted)

For our Lotus owners, they actually use this function quite a lot.

In our Lotus app, there is a dedicated session to show the take rate or the use frequency of this particular function.

And we have also received positive feedback from our customers.

And I can elaborate with a specific number.

For ADAS ranking currently on our Lotus app, you can categorize based on the range of ADAS and also based on the monthly data.

And currently, what I can see on this app is that there's a intelligence driving solutions used by one of our customers with no human interruptions for 533 kilometers.

In other words, you charge the vehicle once, and you don't have to interrupted under the vehicle run by itself of 533 kilometers.

I would just add a little translation that actually what Mr. Feng mentioned was that the maximum non-intervention mileage was 533 kilometers, for one Lotus customer.

And we believe that such a performance will be the benchmark, whether in China and other markets.

(spoken in Chinese)

Well, the question is from the previous presentation.

We know that the Lotus projection ADAS revenue, this is roughly RMB400 million [under the most optimistic conditions](added by company after the call).

What's the long-term envisioned for gross margin and its revenue?

(interpreted)

In the future, the gross margin is expected to be around 60%.

[Unidentified Participant 1].

Hi.

Thank you for taking my question and congrats on successful delivering this year.

And my question is about the stock trading.

I have noticed that the trading volume had been relatively low ever since company's listing.

And I was wondering if there's any actions going to be taken regarding this liquidity issue and what are the capital needs to fix this problem regarding this liquidity issue?

Yeah, that's my only question.

Thank you.

Okay, thank you.

This is the CFO, Alexious Lee.

I think you mentioned right, trading turnover or liquidity for the stock is actually very low.

Given that unlocking of the restricted shares actually happened on August 23, which is about just last week -- so after which investors, our other trading activities is broadening.

On one hand, there's on the timeline basis.

On the other hand, we have very rigid IR plan to go to market.

We also work with various institutions in terms of our coverage and also having more deployment into the retail market.

So I think those are fundamentally some of the actions that we are actually working on in terms of moving up the liquidity, broadening our coverage, and also assessing the capital markets with institutional investors -- and both retail and institutional investors.

[Unidentified Participant 2].

(spoken in Chinese)

The question is we can see that the gross margin for 2026 is relatively high and how Lotus are going to deliver this target?

(interpreted) For Lotus as a premium luxury brand, we will secure the price integrity.

For example, for Emira, currently, the demand is much bigger than the supply.

So we have a plan to increase the price.

In addition to that, we are also controlling the costs.

So the BOM cost of our Lotus this year is expected to reduce.

In addition to that, we are also managing other costs from other areas.

Besides, we have also proposed a Win26 plan.

In this plan, we project to deliver 30,000 vehicle sales in that year, and it will give us more revenue.

(spoken in Chinese)

The question is for this year and next year, what's the target of gross margin?

(interpreted)

And the answer is that this year we have been affected by many elements and we are going to deliver our target through product and also price increase.

And gradually, we will deliver a gross margin of above 20% in 2026.

[Unidentified Participant 3].

(spoken in Chinese)

In 2024, how Lotus improve its cost management and also its cost structure?

(interpreted) In 2023 and 2024, basically the cost have already peaked.

And we have already launched four models supported by the platform and technology that we have previously developed.

We will continue to invest in technological development, but the cost is relatively less.

In addition to that, in the plan as a Win26, we proposed an idea of a small but effective organization.

In other words, the company organizational structure would be streamlined, and people will be relatively less.

However, the most important thing is to deliver great-quality products and the provide excellent customer experiences so that we can secure the price integrity.

For our staff and employee, at this moment, it is relative balance status.

At current level, they can support when it comes to commercial R&D and other necessary departments.

So for a company, the most important thing is to explore more revenue streams, which I previously elaborated and another approach is to reduce the costs.

(interpreted) For Lotus, we are operating with an asset-light mode.

We don't own any factory, and on the commercial side, only China is operating with the D2C model.

For our non-China markets, they are operating with the dealers.

We have great experiences in the past.

For our company, the most important thing is how to keep streamline, how to keep lean and light structure, and how to leverage the existing talent to support our achievement and promise in 2026.

So the most important thing is reduce redundancy process.

The most important thing is how to establish a good team that can help us to deliver Win26 plan.

(spoken in Chinese)

Question is Mr. Feng's previous explanation about revenue acceleration and to save cost and Lotus has also mentioned about targeted to deliver 30,000 vehicles and to achieve positive EBITDA and how Lotus could deliver that target?

(interpreted)

We have a robust product plan besides the two revenue streams that I previously mentioned, bespoke service and also ADAS solutions.

In 2025, we are also planning to launch a new vehicle model, and this model will go into the market in Q1 2026.

And this model is going to be the major volume boost for us in 2026.

In 2026, we will have a strong and comprehensive retail channels unlike when we launched the first and second models years ago when we didn't have a mature retail channels.

So when we launch this new model in 2025 and 2026, it will give us immediate return.

Although this vehicle won't be launched until 2025, the technology of this vehicle will be released in the 4th quarter 2024.

So stay on tuned Guangzhou Auto Show.

Thank you for the questions.

With that, I would like to hand the call back to management for closing.

Well, thank you, everyone, for your questions and thank you, management.

Well, given the time constraint, we will conclude the call very soon.

If you have any further questions, please feel free to contact our IR team.

And this concludes the call.

Thank you, everyone, and have a great day.

Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call.

The interpreter was provided by the company sponsoring this event.