Lotus Technology Inc (LOT) 2024 Q3 法說會逐字稿

Good day, and thank you for standing by.

Welcome to Lotus Technology Inc., third-quarter 2024 earnings conference call.

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

It is now my pleasure to hand you over to the Head of Investor Relations, Ms. Demi Zhang.

Please go ahead.

Thank you, operator.

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

Thank you for joining Lotus Tech's third quarter and the nine months 2024 earnings call.

This is Demi Zhang, the Head of IR at Lotus Tech.

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

On today's call, we will start with the prepared remarks from CFO, Alexious, first, and then CEO, Mr. Feng, and then proceed to an open Q&A session.

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 statements, except as required under applicable law.

Please also note that our earnings press release and this conference call will include disclosure of non-audited GAAP financial information, as well as an audited 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.

Alexious, please go ahead.

Alexious, you are live.

Thank you, Demi.

Can you guys hear me?

Yes.

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.

I want to begin by saying the company delivered more than 7,600 units of vehicles and achieved total revenue of $653 million in the nine months ending September.

More than 2,700 units were delivered in the third quarter, up 54% year over year and 2% quarter over quarter.

Third-quarter sales revenue was $255 million, up 36% year over year and 13% quarter over quarter.

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

To actually quantify the contribution, revenue of our intelligent driving business from customers other than Lotus surged to $11 million in the first nine months, with a year-over-year growth of 450%.

Investors can find the details in our earnings release published before this evening.

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

Gross profit margin was just 9% in the first nine months, a step down versus the 11% achieved in the same time last year.

Third-quarter gross profit margin was just 3%, mainly due to proactive management of our inventory in response to trade protectionism, inflation impact, and macro uncertainties.

The margin impact is temporary and is likely to be shaped in the Q4 ‘24.

Gross margin of our service revenue was 55% in the first nine months versus 28% same period last year.

Next slide, please.

To your left, you'll see that our EVs, which is mainly containing the luxury Eletre SUV model and partly the Emeya GT Sedan model jointly contributes more than 50% of total volume, while the Emira sportscar model sales contributing the remaining.

This pointed to accelerated delivery for the Eletre SUV and the Emeya GT Sedan model in the third quarter.

This is mainly driven by ongoing new market entries, improving customer tractions and rising product and brand awareness.

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

Europe, inclusive of the UK is home based, given our British heritage.

Contributions to volume and revenue was 35% in the first nine months, pointing to nearly 45% in 3Q.

This is the fastest expansion quarter, given new model entries.

Through our arrangements, more than [320,000] (corrected by company after the call) charging stations are now available and accessible for Lotus drivers in Europe to charge their vehicles.

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

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

Contributions in terms of volume and revenue was 25% after six years of ongoing investment and expansion.

CapEx cycle already picked up, and forward-looking strategic partnerships will enable Lotus drivers to access more than 18,000 charging stations across China, of which some of them are fully robotics.

The US market remains as the key market for heritage performance sportscar, contributing 22% of total volume deliveries.

Given trade uncertainties, the company targets the ultra-luxury segment with limited editions and performance variants EV models for brand positioning, profitability, and deliveries can begin as early as end of this year.

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 very asset-light and fastest-growing, given that Generation X customers are seeking digitization and smartification.

The market is also least impacted by any trade uncertainties, and new production orders for the next two quarters delivery is likely to increase its overall weighting in terms of contributing to our overall sales.

Next slide, please.

Coming to our financial highlights.

Total revenue for the first nine months was $653 million, a 105% year-over-year increase.

Sales of goods was $624 million, a 104% year-over-year increase.

Service revenue was $29 million, a 129% year-over-year increase.

Gross margin for the first nine months was 9% versus 11% in the same period last year.

And gross margin of sales of goods was 7% versus 10% in the same period of last year.

Gross margin of service revenue was 55% versus 28% in the same period last year.

Operating loss was $598 million in the first nine months of the year, 18% year-over-year increase.

Net loss was $667 million.

Excluding the share-based compensation expenses, adjusted net loss (non-GAAP) was $633 million, a 20% year-over-year increase.

Adjusted EBITDA loss (non-GAAP) was $563 million, a 16% year-over-year increase.

Now to the right-hand side is the quarterly numbers.

Total deliveries was 2,744 units, 54% year-over-year increase.

Total revenue was $255 million, 36% year-over-year increase.

Gross margin was just 3% versus 15% same period last year, while net loss was $206 million, a 19% year-over-year increase.

Excluding share-based compensation expenses, adjusted net loss was $209 million and adjusted EBITDA loss (non-GAAP) was $182 million, an 18% year-over-year increase.

Next slide, please.

In the first nine months of 2024, we continue to deliver strong operational growth, driven by both the sales of goods and the sales of service.

On top of the growth in deliveries, we have also made significant progress in our intelligent driving business or better known as the ADAS, which is not booked under the service revenue.

Currently, revenue of the ADAS business from customers other than Lotus was $11 million, contributing to nearly 2% of total revenue of the company and is likely to expand in the future.

Secondly, gross margin shrank due to proactive management of the inventory.

We recently also announced securing of new $130 million worth of ADAS contract in 2024, and part of it will be converted to revenue in 2025, supportive of blended GPM, gross profit margin expansion.

Lastly, as part of our commitment to our Win26 strategy, we made continuous improvement to streamline our operation, drive efficiency, and resource optimization and achieve operating expenses reduction for four consecutive quarters.

Operating loss was $160 million for the quarter, narrowed by 22% quarter over quarter and 2% year over year.

Next slide, please.

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

This is driven by four models in delivery, including our Evija hypercar model, our electric SUV model, our Emira sportscar model, and our latest addition to the family, Emeya, the GT Sedan model.

Despite faster than the segment and industry growth, we kept blended MSRP above USD$100,000 per unit as part of our pricing integrity and brand equity value protection measures.

We have achieved $130 million contract value from intelligent driving ADAS business with multiple global auto conglomerates in this year.

We have continuously been making expansion into new markets and fuel them with more models availability, more technologies, and high-performance variants to cater to different market demands.

For example, we have revealed the Eletre Carbon model that is tailored for the North America market.

Technology innovation is at the heart of Lotus, and this is demonstrated in the newly reviewed Theory 1 Concept Car made with sustainable materials and all the next-generation automobility technologies that will redefine performance and luxury in the future.

Many of these components will be found in new models forthcoming.

Next slide, please.

Business sustainability is at the core of the company, and the company has been improving efficiencies through streamlining operations and has won multiple awards, including the Reuters Sustainability Awards, the EUCCC [Sustainable] (added by company after the call) Business Award and so on.

In all, the company is committed to continuously improve profitability, create long-term value, and deliver results to our stakeholders and shareholders.

I'll pass it over to Mr. Feng, our CEO, for more details on the pillars that is driving our future growth.

Mr. Feng, please?

Thank you.

(interpreted) I'd like to demonstrate our future growth from three aspects: brand, technology, and also autonomous driving.

For a luxury premium brand, it is very important to prioritize brand awareness improvement and also user experience.

Meanwhile, we have to manage our costs.

First, we have opened our Lotus Boutique store in Beijing and has been widely recognized by the industry and also our customers.

In addition to that, we have also provided Chapman Bespoke service to our customers.

This is the way to help us to increase our delivery value and also delivery price.

This service has been deployed in China already.

And in quarter four, it will be launched in North America.

The delivery of Bespoke vehicle has commence in quarter three this year.

Besides, we've also launched a Lotus Champion Driver initiative because Lotus is born from the track and also born from the British.

This is one of the reasons that we are trying to offer the track service to our customers.

Every series that we open this to our customers, within one hour, [it had been fully booked by] (corrected by company after the call) of our customers.

In other words, it demonstrates our users' passion to get involved in such track services.

And for our growth driven by technology, in our Vision80 strategy, electric transformation is the cornerstone for our sustainable growth.

In this Guangzhou Auto Show, we have released our 900-volt Hyper Hybrid EV technology.

I want to highlight the difference of the Hyper Hybrid EV technology with a commonly understood hybrid technology.

Usually, it was driven by engine and supplemented by electric motor.

But for the Hyper Hybrid EV technology, it will offer electric vehicles driving experiences along with engine-driven technologies.

And such technology will satisfy Lotus users' pursuit of driving joy and the passion of driving.

And in addition to that, I also want to highlight that this technology is different from extended range because in some circumstances, the extended range could not offer extreme or ultimate performance to our customers.

For example, when the battery capacity is very low, the vehicle could not accelerate fast enough.

And for our Lotus users, what we are trying to do is to provide a technology that can deliver the performance of Lotus at all scenarios.

And we will be the first one globally to launch this 900-voltage Hyper Hybrid EV technology.

And I also would like to share some of the parameters regarding this particular technology.

First, the total range of this technology can give you more than 1,000 kilometers.

In addition to that, it can offer dual flash or hyper charging experience.

When the vehicle is plugged in, it can charge from 10% to 80% within 10 minutes.

And when the vehicle is on the drive, the engine can also offer a flash charge experience to our customers.

Another feature of this technology is that when the vehicle is on the drive, the charge speed is five times that of discharge.

So as long as there are sufficient gasoline in the tank, it can offer a similar driving experience as the BEV.

In some certain scenarios such as in the highway, the vehicle or the vehicle equipped with technology can be purely driven by engine because in such a scenario, engine has the higher energy efficiency compared with the electric.

This technology will be put into our future products.

And our growth is also driven by ADAS.

Lotus Robotics, this is a wholly owned subsidiary of the Lotus Company.

It provides intelligent driving solutions with global coverage for both Lotus-brand intelligent vehicles and other global leading auto partners.

Our solution can be achieved through end to end, and this is a one model approach and such a solution has been put on a vehicle already.

For our solution, the best advantages of it is that it can cover global markets.

At this moment, OEMs or the

。suppliers of ADAS technology could not say that they can cover all global markets.

However, we have already deployed this solution to Europe, Asia, GCC region, North America, Oceania.

In addition to that, we have also upgraded highway assist functions through OTA in Europe.

Especially in the Europe, we are ready to offer highway NOA capabilities as long as the regulation is passed.

Once it's passed, we will be the first brand to offer highway NOA capabilities in Europe.

For our ADAS technology, we will not only be able to supply it within Lotus but also to other OEMs.

For example, we have already cooperated with OEMs under Geely ecosystem.

In addition to that, we're also building partnership with external customers such as one OEM in Europe and also one top tier from Japan.

In the next two to three years, there will be more brands covering more than 10 models, including commercial vehicles, to adopt Lotus ADAS solutions.

ADAS in the future will be our second revenue path for Lotus, it can give us great profit and also profit margin.

As of September, Lotus Robotics has already achieved USD19 million revenue, a year-on-year growth of 217%.

Revenues from other customers surged to USD11 million, a year-on-year growth of 450%.

In other words, revenue from non-Lotus customers has reached 58%.

If we break it down by region, currently, China has contributed 70% of the revenue.

And for non-China region, they are accounted for about 30%.

In the future, we believe it will be another way around.

Our revenues in the future will come more from US, Europe, and also Japan.

And some of our recent development progress -- first is our delivery updates.

We have delivered a total of 8,631 vehicles in the first 10 months of 2024.

And in China, Lotus has already acquired 40% [sales volume] of ultra-luxury vehicles, which means the vehicle is priced above USD80,000.

Even though we are in a rather niche but luxury premium market and the size of this market is not that huge, what we are trying to do is to increase our market share in this particular segment.

I'm bullish that by the end of this December within the segment of USD80,000 in China, particularly our market share(sales volume) can be above 50%.

Besides the end-to-end solutions, we are also working on urban NOA solutions.

In some key cities in China, we've been doing our beta testing.

And in the future, it will be pushed to our users through OTA.

So this OTA will be based on a one model solutions.

And in the future, once the Europe region passed the regulations, our highway NOA will also be delivered to our customers through OTA.

In addition to that, in more regions such as GCC, India, Oceania, Japan, South Korea, and Southeast Asia countries, our Emeya will also be opened for order soon.

As usual, in next year, March, we're going to celebrate our Lotus Day.

On that particular event, we are planning to launch our model year 2026 products, which will bring more impressive solutions.

And Lotus Capital Markets Day will also be held on December 4, 2024.

We are currently undergoing to implement our Win26 plan.

In other words, in 2026, our operational cashflow will turn positive and EBITDA will turn positive.

In 2026, we are planning to deliver our PHEV products globally.

It will help us to boost the sales volume [to] 30,000 and our profit margin above 20%.

For Lotus, we are not going to participate in the pricing competition.

On the contrary, we are trying to increase or maintain our average selling price to give us more profitability.

And meanwhile, we are also launching more limited editions and bespoke edition.

For our ADAS services, currently, we have already acquired a contract value of USD$130 million.

In the future, we are trying to expand this business because it will give us higher profit margin and also more revenue.

In addition to that, we will keep optimizing our autonomous experience and also intelligence experience to increase the intake rate of our software subscription.

To increase our profitability, besides expanding our revenue streams, we're also trying to manage our costs through BOM reduction and also streamlining our operation.

Thank you.

Operator, we are ready for the Q&A.

Thank you.

We will now begin the question-and-answer session.

(Operator Instructions) Laura Li, Deutsche Bank.

Thank you for taking my question.

And my first question is about -- you mentioned the $130 million contract value of intelligent driving solutions.

Could you give more color on the cadence of revenue generation?

Like when exactly will those models be launched?

And will we like receive the contract R&D or other payments before the launch?

Thank you.

Thank you, Laura, for your question.

I will invite Mr. Feng to give answers to your question.

(interpreted) For the contract value of our ADAS solutions, this will be categorized by two groups.

One is through NRE.

And NRE in other words, it will base on the project different milestones, for example, the kickoff stage of the projects, all the way to the SOP stage of the projects.

And when the vehicle is delivered to customers, at that moment, we will be able to receive the full NRE income.

And the second approach is the licensing.

And then the revenue for it will be calculated based on per vehicle.

The first vehicle that's equipped with our ADAS solutions is Lynk&Co Z10.

This vehicle has already been launched.

For highway NOA capabilities, we have already equipped this vehicle with this technology.

And for urban NOA technologies in recent months, it will be also available for this vehicle.

In the future, there will be four more models from Lynk&Co to be equipped with our solution.

And for commercial vehicle next year, there will be one more model we put out with our solutions.

Okay.

That's helpful.

My second question is about -- you mentioned the hybrid product to be delivered in 2026.

So will that be like one or more like completely new models or it's like a PHEV version of the current offerings?

(interpreted) For the PHEV technology, it will cover all our models in the future.

In other words, all of our models in the future will have BEV version and also PHEV version.

As for the specific model that we are trying to launch in 2026, I think at this moment, I won't comment on it.

But please stay tuned to our future product launch event.

After we announced this technology, we have gained interest from both China's OEMs and also Europe OEMs.

And for this particular technology and vehicle models, we really would like to share but not at this moment.

The reason that we want to keep it for now because when we are ready to launch this product to the market, we want to be the first one to launch this technology and also the first luxury premium brand to do so.

Okay, appreciate the color.

I have one more question about the margin.

I think the gross margin in 3Q was about 3%.

There is actually a material sequential decline.

So my question is like what's the main driver of this?

And also looking ahead, how we think about, like the trajectory of the vehicle margin?

Thank you.

Thank you, Laura.

I will still invite Mr. Feng to give you answer on that question.

Sir, please?

(interpreted) For the question, I want to say that in China, quarter one next year and also Europe and rest of the world quarter two next year, we are planning to launch our model year 2026 products.

But before that, we are trying to finish our destock, particularly in Europe because an unhealthy stock level is not going to help us to launch our new models.

Currently, in the China market, the stock level is at a relatively healthy, while delivering new products to our customers.

So our focus is that to reduce the stock to a healthy level for Europe region next year in the first quarter.

And once the stock level return to a healthy level, the gross margin will also be benefited from that.

And when we are planning to launch the new models to the market, we have to precisely plan the cadence because if the old models still have a relatively large inventory in the market, it won't be conducive to selling a new model.

A good example is that one particular OEM, when they are switching from old models to new models, they didn't plan it well.

So the old model had a 40% discount.

And when they launched the new models, the new model discounted by about 20% immediately.

And this is not a good outcome.

Thank you, Laura.

Operator, we are ready for the next.

[Gavin Smith, Ethos Collective].

Hi, good evening.

And thank you, Lotus management, for providing the informative updates to third-quarter earnings.

I have two questions here, hoping to get color on.

My first question is management mentioned earlier that operating expenses have declined for four quarters -- consecutive quarters so far.

Will we continue to see a decline in quarter four this year?

And what is the expectation for 2025?

And what do you see as the major mitigants or drivers to help facilitate the further expense decline?

Would it be the reduction of staff or by some other means?

Thank you, Gavin.

I will invite Mr. Feng to give an answer on that.

Mr. Feng, please?

(interpreted) We have promoted a strategy called Lean & Efficent For example, in marketing and sales aspect, we are trying to streamline our shop.

The shop will be small but effective instead of large shop.

And for large shops, it requires a higher cost and more people to run it.

And for R&D side, our focus is on technologies that will bring Lotus as a leading player in this industry instead of spending our R&D in all fields.

In addition to that, we're also trying to leverage Geely's resources, for example, in the Electrical/Electronic architecture.

In the future, we believe in the EV industry that intelligent features will be the must-have features for our customers.

So our current focus is on cutting-edge technology development and also the technologies that can bring us the high profit margin such as ADAS solutions.

In addition to that, Lotus is also working on its traditionally well-known field, which is chassis.

We are currently working on intelligent chassis, and those are the other aspects that we are currently focused.

In summary, our future expense will be in two directions.

One is on the technology and product development.

The second direction is about brand awareness establishment and also market exploration.

In quarter three, we've already started to see some outcomes.

And in quarter four, we believe it will be more pronounced.

And our synergy with Geely will also give us more benefits.

In the future, the development of the Electrical/Electronic architecture will be led by Geely, and we can use this technology off the shelf.

And besides, the costs will be shared based on the volume.

And then for us, it won't be a huge cost.

Operator, I think Gavin has another question.

Gavin, was that you?

Would I have the opportunity to ask my second question here?

Yeah, sure.

Please.

Thank you.

So my follow-up question is what does Lotus management expect the full-year total loss to be for 2024?

And generally, what will be the expectation for the next year, 2025?

Thank you, Gavin, for your question.

I will invite the CFO, Alexious, to give you more detail on your question.

Alexious, please?

Alexious?

Hi, Gavin, can you hear me?

Yeah.

Let me share with you a little bit of our disclosure process and also how.

So first and foremost, we've kept our 2024 guidance, and we have a Win26 strategy as what Mr. Feng has mentioned.

So our objective is 30,000 units of sales volume driven by one new model that's forthcoming and aim of 20% gross profit margin.

Now we are doing a monthly disclosure on our sales volume.

So by about 10th of every month, you will get the sales volume for the last month.

It is likely that before Chinese New Year, end of January and also early February, we'll be rolling out our 2025 guidances.

Yeah.

So that is the time where we will probably finalize most of the things that's going on into the market.

Now, of course, I will say that 2025 is likely in the midpoint or just below the midpoint versus the 2024 guidance and also the Win26.

But the most important thing is that because we have a new model that's forthcoming in 2026.

Now that's all probably I can share right now in terms of outlook for 2025.

[Vincent Yeung, SC Asia].

Hi, good evening.

Thank you for having me.

I have two questions.

The first one is the company has delivered about 8,600 vehicles in the first 10 months.

Is the management confident to achieve annual sales target of 12,000 units?

What are the drivers to boost the monthly delivery to 1,500 or 2,000 in November and December, considering the holiday season are coming in Europe, which is your major market?

So please, could you give the guidance on deliveries in first quarter of 2025 and the regional allocation?

Thank you.

(interpreted) Well, first of all, I want to say that the 12,000 target is definitely challenging.

However, we are confident to deliver this target.

In China and particularly the UK, the delivery cadence and the progress is quite promising.

Meanwhile, we are trying to drive our delivery speed in EU.

And in addition to that, we have already started our deliveries in some new markets, for example, Japan and South Korea.

And for quarter one next year, the model year 2026 products will commence delivery in China, and it will be another driven point for our sales volume.

And in quarter two, our delivery will also commence in Europe and also the rest of the world.

In the next quarter one, as we are launching our model year 2026 products, we believe it will stimulate our growth in sales for sure.

Okay, thanks.

I have another following question is that, how do you view the luxury EV demand in Chinese market?

Because I've seen that Lotus vehicle sales in China has dropped actually in the first nine months compared to last year.

So what do you think the reason caused the sales decline?

And what are the strategies you have in plan to boost the sales in China besides you just mentioned the launching new models?

Thank you.

(interpreted) In China, in this particular luxury premium EV segment, which is the vehicle priced above USD $80,000, the penetration rate of the EV has dropped roughly around 50%.

However, Lotus is keeping growing.

And for our strategy, we are trying to gain our market share in this particular segment.

Like I previously shared with you, in October in China, we have already acquired 40% of the sales volume in this particular segment.

In the future, our target is to improve our market share in sales volume to 50% or even 60%.

This is one of our approach to demonstrate our competitiveness.

And by boosting our competitiveness, it's another way to give our confidence to increase our sales volume.

In this particular segment, our expectation is to improve the penetration rate.

However, if the penetration rate could not be improved, then our target is to increase our market share to become the absolute leading player in this particular segment.

We will take the last -- one more last question due to the time.

[UE Capital].

I will repeat my question in English.

My first question is how much has been invested in the R&D of Lotus Robotics so far?

And how much do you expect to invest going forward?

And my second question is does the company have any plan to capitalize on the intelligent driving business?

Thank you.

(interpreted) For the first question, the ADAS autonomous technology requires constant investment.

This is not a one-off, one-time investment.

As our user base is growing, the data is growing, it requires more and constant investment.

Currently, we will prioritize our intelligence investment into three areas: the intelligent chassis, intelligent smart cabin, and also autonomous driving.

Particularly for autonomous driving, it can keep us at the cutting edge in the industry, and it will be our very important second revenue stream.

So we will continue to invest in this particular area.

And currently, we do not have a plan for capitalization.

In the luxury premium segment, Lotus undoubtedly is the global leading player when it comes to intelligent solutions, and we will be far beyond compared with other players in the same luxury premium segment.

And such an advantage of Lotus is not only limited to China but also other global markets.

Thank you.

I'm showing no further questions at this time.

I'll turn the conference back to Ms. Demi Zhang for her closing comments.

Thank you, Operator, and thank you, everyone, for joining us today.

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

And given the time constraint, this will conclude the call.

And thank you again very, very much, and have a great day.

This concludes today's conference call.

Thank you for participating.

You may now disconnect.

Thank you, everyone.

Bye.

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.