Lotus Technology Q3 2024 Earnings Report

Lotus Technology EPS Results

• Actual EPS: -$0.30
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Lotus Technology Revenue Results

• Actual Revenue: N/A
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Lotus Technology Announcement Details

• Quarter: Q3 2024
• Date: 11/21/2024
• Time: Before Market Opens
• Conference Call Date: Thursday, November 21, 2024
• Conference Call Time: 7:00AM ET

Lotus Technology (NASDAQ:LOT) Inc. engages in the design, development, and sale of battery electric lifestyle vehicles worldwide. It also distributes sports cars. The company sells its products under the Lotus brand. Lotus Technology Inc. is based in Shanghai, China.

Lotus Technology Q3 2024 Earnings Call Transcript

Key Takeaways

• Lotus delivered 2,744 vehicles in Q3 (up 54% YoY) and over 7,600 units in the first nine months, driving total revenue of $653 million (up 105% YoY).
• Gross margin fell to 3% in Q3 (9% YTD) due to proactive inventory management amid trade protectionism and inflation, with a rebound expected in Q4.
• The ADAS business generated $11 million from external customers (up 450% YoY) and secured $130 million in new contracts, positioning autonomous driving as a high-margin growth stream.
• Europe accounted for 35% of volume (45% in Q3), China 25%, and the U.S. 22%, while new market entries in Japan and South Korea began deliveries in late 2024.
• Lotus unveiled a 900-volt hyper-hybrid EV technology with 1,000 km range and 10–80% flash charging in 10 minutes, and targets positive cash flow and 30,000 unit deliveries by 2026 under its Win 26 plan.

Presentation

[Operator]

Good day, and thank you for standing by. Welcome to Lotus Technology Inc Q3 2024 earnings conference call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. 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 Jiang. Please go ahead.

[Demi Jiang, Head of Investor Relations at Lotus Technology Inc]

Thank you, Amber Ling. Good morning, good afternoon, and good evening, everyone. Thank you for joining Lotus Tech's Q3 and 9M 2024 earnings call. This is Demi Jiang, 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'll start with 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 U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risk 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 U.S.

[Demi Jiang, Head of Investor Relations at Lotus Technology Inc]

Securities and Exchange Commission. The company takes 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-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.lotustechnology.com. With that, I'd like to turn the call over to our CFO, Alexious. Alexious, please go ahead.

[Demi Jiang, Head of Investor Relations at Lotus Technology Inc]

Alexious, you are live.

[Alexious Kuen-Long Lee, CFO at Lotus Technology Inc]

Thank you, Demi. Can you guys hear me?

[Demi Jiang, Head of Investor Relations at Lotus Technology Inc]

Yes.

[Alexious Kuen-Long Lee, CFO at Lotus Technology Inc]

Good morning, good afternoon, good evening to everyone for your attendance today. My name is Alexious Lee, and I'm the CFO of Lotus Technology. 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.

[Alexious Kuen-Long Lee, CFO at Lotus Technology Inc]

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 sharpened in the fourth quarter 2024. Gross margin of our service revenue was 55% in the first nine months versus 28% same period last year. Next slide, please.

[Alexious Kuen-Long Lee, CFO at Lotus Technology Inc]

To your left, you'll see that our EVs, which is mainly containing the luxury electric SUV model and partly the Emeya GT sedan model, jointly contribute more than 50% of total volume, while the Emira sports car model sales contribute the remaining. This pointed to accelerated delivery for the electric 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 U.K., is home base given our British heritage. Contributions to volume and revenue was 35% in the first nine months, pointing to nearly 45% in Q3. This is the fastest expansion quarter given new models entries.

[Alexious Kuen-Long Lee, CFO at Lotus Technology Inc]

Through our arrangements, more than 300,000 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 conglomerates for fleet purchase of luxury courtesy cars are growth potential opportunities for the company. China is a 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 robotic. The U.S. market remains as the key market for heritage performance sports car, contributing 22% of total volume deliveries. Given trade uncertainties, the company targets the ultra-luxury segment with limited editions and performance variant EV models for brand positioning.

[Alexious Kuen-Long Lee, CFO at Lotus Technology Inc]

Profitability and deliveries can begin as early as the end of this year. Lotus is well recognized in the 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 digitalization 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.

[Alexious Kuen-Long Lee, CFO at Lotus Technology Inc]

Gross margin for the first nine months was 9% versus 11% the same period last year, and gross margin of sales of goods was 7% versus 10% in the same period 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.

[Alexious Kuen-Long Lee, CFO at Lotus Technology Inc]

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 continued to deliver strong operational growth driven by both the sales of goods and the sales of service. On top of the delivery growth, we have also made significant progress in our intelligent driving business, 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 strength due to proactive management of the inventory and is likely to be shaped in the fourth quarter.

[Alexious Kuen-Long Lee, CFO at Lotus Technology Inc]

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 improvements 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 sports car model, and our latest addition to the family, Emira, the GT sedan model.

[Alexious Kuen-Long Lee, CFO at Lotus Technology Inc]

Despite faster than the segment and industry growth, we kept blended MSRP above $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 fill 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 revealed 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.

[Alexious Kuen-Long Lee, CFO at Lotus Technology Inc]

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 Business Awards, 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 are driving our future growth. Mr. Feng, please. Thank you.

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign language]

[Qingfeng Feng, CEO at Lotus Technology Inc]

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

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign language]

[Qingfeng Feng, CEO at Lotus Technology Inc]

For a luxury premium brand, it is very important to prioritize brand awareness, improvement, and also user experience. Meanwhile, we have to manage our cost.

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign langauge]

[Qingfeng Feng, CEO at Lotus Technology Inc]

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

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign language]

[Qingfeng Feng, CEO at Lotus Technology Inc]

In addition to that, we have also provided a 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 a bespoke vehicle will commence in quarter three this year.

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign langauge]

[Qingfeng Feng, CEO at Lotus Technology Inc]

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, the quota will be acquired by all of our customers.

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign language]

[Qingfeng Feng, CEO at Lotus Technology Inc]

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

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign langauge]

[Qingfeng Feng, CEO at Lotus Technology Inc]

For our growth driven by technology, in our Vision 80 strategy, electric transformation is the cornerstone for our sustainable growth.

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign langauge]

[Qingfeng Feng, CEO at Lotus Technology Inc]

In this Guangzhou auto show, we have released our 900-volts Hyper Hybrid EV technology.

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign language]

[Qingfeng Feng, CEO at Lotus Technology Inc]

I want to highlight the difference of the Hyper Hybrid EV technology with the 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.

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign language]

[Qingfeng Feng, CEO at Lotus Technology Inc]

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

[Qingfeng Feng, CEO at Lotus Technology Inc]

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.

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign language]

[Qingfeng Feng, CEO at Lotus Technology Inc]

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

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign language]

[Qingfeng Feng, CEO at Lotus Technology Inc]

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 1000 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.

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign langauge]

[Qingfeng Feng, CEO at Lotus Technology Inc]

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

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign language]

[Qingfeng Feng, CEO at Lotus Technology Inc]

As long as there are sufficient gasoline in the tank, it can offer a similar driving experience as the BEV vehicle instead of the pure ICE driving experience.

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign language]

[Qingfeng Feng, CEO at Lotus Technology Inc]

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

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign langauge]

[Qingfeng Feng, CEO at Lotus Technology Inc]

This technology will be put into our future product.

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign language]

[Qingfeng Feng, CEO at Lotus Technology Inc]

And our growth is also driven by ADAS. Lotus Robotics is a wholly owned subsidiary of the Lotus Technology. It provides intelligent driving solutions with global coverage for both Lotus brand intelligent vehicles and other global leading auto partners.

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign language]

[Qingfeng Feng, CEO at Lotus Technology Inc]

Our autonomous driving solution has already achieved end-to-end large model, and this is a one model approach, and such a solution has been put on a vehicle already.

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign language]

[Qingfeng Feng, CEO at Lotus Technology Inc]

For our autonomous driving solution, the biggest advantage is that the coverage is global coverage, that is to say, one solution can cover the globe. At this moment, neither OEMs nor the autonomous driving service providers can achieve global coverage. We have now successfully entered Europe, Asia, and also the GCC region, including North America and Oceania. Recently, our highway assistance function in Europe has already been launched through OTA.

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign language]

[Qingfeng Feng, CEO at Lotus Technology Inc]

Especially in Europe, our highway NOA is already ready, as long as the European regulations are passed, we will immediately become the first OEM to achieve highway NOA in Europe.

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign langauge]

[Qingfeng Feng, CEO at Lotus Technology Inc]

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 the Geely ecosystem. In addition to that, we've also built a partnership for external customers such as one OEM in Europe and also one top Tier 1 from Japan.

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign langauge]

[Qingfeng Feng, CEO at Lotus Technology Inc]

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

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign langauge]

[Qingfeng Feng, CEO at Lotus Technology Inc]

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

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign langauge]

[Qingfeng Feng, CEO at Lotus Technology Inc]

As of September, Lotus Robotics has already achieved $19 million revenue, year-over-year growth of 217%.

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign langauge]

[Qingfeng Feng, CEO at Lotus Technology Inc]

Revenues from other customers surged to $11 million, year-over-year growth of 450%.

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign langauge]

[Qingfeng Feng, CEO at Lotus Technology Inc]

In other words, external customers' revenue has achieved 58%.

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign language]

[Qingfeng Feng, CEO at Lotus Technology Inc]

If we break it down by region, currently China is contributing 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.

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign language]

[Qingfeng Feng, CEO at Lotus Technology Inc]

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

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign language]

[Qingfeng Feng, CEO at Lotus Technology Inc]

And some of our recent development progress, first is our delivery updates. We have already delivered a total of 8631 vehicles in the first 10 months of 2024. And in China, Lotus has already acquired 40% of ultra luxury vehicles, which means the vehicle is priced above $80,000.

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign language]

[Qingfeng Feng, CEO at Lotus Technology Inc]

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.

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign language]

[Qingfeng Feng, CEO at Lotus Technology Inc]

I'm bullish that by the end of this December, within the segment of $80,000 in China particularly, our market share can be above 50%.

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign language]

[Qingfeng Feng, CEO at Lotus Technology Inc]

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 the 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.

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign language]

[Qingfeng Feng, CEO at Lotus Technology Inc]

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

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign language]

[Qingfeng Feng, CEO at Lotus Technology Inc]

As usual, in next year March, we are going to celebrate our Lotus Day. On that particular event, we are planning to launch our model year 26 products, which will bring more impressive solutions. Lotus

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign language]

[Qingfeng Feng, CEO at Lotus Technology Inc]

The capital market day will also be held on December 4, 2024.

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign language]

[Qingfeng Feng, CEO at Lotus Technology Inc]

We are currently undergoing to implement our Win26 plan; in other words, in 2026, our operational cash will turn positive and EBITDA turn positive.

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign language]

[Qingfeng Feng, CEO at Lotus Technology Inc]

In 2026, we are planning to deliver our PHEV product globally. It will help us to boost the sales volume above 30,000 and our profit margin above 20%.

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign language]

[Qingfeng Feng, CEO at Lotus Technology Inc]

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

[Qingfeng Feng, CEO at Lotus Technology Inc]

On the contrary, we are trying to increase or maintain our average selling price to give us more profitability. Meanwhile, we are also launching more limited editions and bespoke editions.

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign language]

[Qingfeng Feng, CEO at Lotus Technology Inc]

For our ADAS services, currently we have already acquired a contract value of $130 million. In the future, we are trying to expand this business because it will give us a higher profit margin and also more revenue.

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign language]

[Qingfeng Feng, CEO at Lotus Technology Inc]

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

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign language]

[Qingfeng Feng, CEO at Lotus Technology Inc]

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

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign language]

[Qingfeng Feng, CEO at Lotus Technology Inc]

Thank you.

[Demi Jiang, Head of Investor Relations at Lotus Technology Inc]

Thank you, Mr. Feng, and thank you very much. Operator, we are ready for the Q&A. Thank you.

[Operator]

We will now begin the question and answer session. To ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. For the convenience of everyone on the call, if you wish to ask your questions in Chinese, please translate your questions to English right after. There may be a short pause while we compile the Q&A roster. We will now take our first question from the line of Laura Lee from Deutsche Bank. Please ask your question, Laura.

[Laura Lee, VP and Equity Research Analyst at Deutsche Bank]

Hey, 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?

[Laura Lee, VP and Equity Research Analyst at Deutsche Bank]

Will we receive the contract R&D or other payments before the launch of the model?

[Demi Jiang, Head of Investor Relations at Lotus Technology Inc]

Thank you, Laura, for your question. I will invite Mr. Feng to give answers to your question.

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign language]

[Qingfeng Feng, CEO at Lotus Technology Inc]

For the contract value of our ADAS solutions, it will be categorized by two groups. One is through NRE, and NRE, in other words, it will go based on the project's different milestones, for example, the kickoff stage of the project, all the way to the SOP stage of the project. When the vehicle is delivered to customers, at that moment, we will be able to receive the full NRE. The second approach is licensing, and then the revenue for it will be calculated based on per vehicle.

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign language]

[Qingfeng Feng, CEO at Lotus Technology Inc]

The first vehicle that is equipped with our ADAS solutions is a Lynk & Co Z10. This vehicle has already been launched.

[Qingfeng Feng, CEO at Lotus Technology Inc]

For highway NOA capabilities, we have already equipped this vehicle with this technology, and for urban NOA technologies, in recent months, the vehicle will also be available for this vehicle.

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign language]

[Qingfeng Feng, CEO at Lotus Technology Inc]

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

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign language]

[Qingfeng Feng, CEO at Lotus Technology Inc]

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

[Laura Lee, VP and Equity Research Analyst at Deutsche Bank]

Thank you, Mr. Feng. Okay, that's helpful. My second question is about, you mentioned the hybrid product to be delivered in 2026. So will that be one or more completely new models, or is it like a PHEV version of the current offerings?

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign language]

[Qingfeng Feng, CEO at Lotus Technology Inc]

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 an EV version and also a PHEV version.

[Qingfeng Feng, CEO at Lotus Technology Inc]

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

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign language]

[Qingfeng Feng, CEO at Lotus Technology Inc]

But please stay tuned to our future product launch events.

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign language]

[Qingfeng Feng, CEO at Lotus Technology Inc]

After our technological announcement, after we announce this technology, we have gained interest from both, China's OEMs and also Europe OEMs. And, for this particular technology and, vehicle models, there are a lot, we really would like to share, but not at this moment.

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign language]

[Qingfeng Feng, CEO at Lotus Technology Inc]

The reason that we want to keep it for now is 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 that, to do so.

[Laura Lee, VP and Equity Research Analyst at Deutsche Bank]

Okay, okay, appreciate the color. I have one more question about the margin, because I think the gross margin 3Q was about 40%.

[Laura Lee, VP and Equity Research Analyst at Deutsche Bank]

There is actually a material sequential decline, so my question is about what's the main driver of this, and also looking ahead how we think about the trajectory of the vehicle margin. Thank you.

[Demi Jiang, Head of Investor Relations at Lotus Technology Inc]

Thank you, Laura. I will also still invite Mr. Feng to give you an answer on that question. Mr. Feng, please.

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign language]

[Qingfeng Feng, CEO at Lotus Technology Inc]

For the question, I want to say that in China, quarter one next year, and also Europe and the rest of the world, quarter two next year, we are planning to launch our Model Year 26 product. But before that, we are trying to finish our de-stock, 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, well-delivering new products to our customers.

[Qingfeng Feng, CEO at Lotus Technology Inc]

Our focus is to reduce the stock to a healthy level for Europe region next quarter one.

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign language]

[Qingfeng Feng, CEO at Lotus Technology Inc]

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

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign language]

[Qingfeng Feng, CEO at Lotus Technology Inc]

And when we are planning to launch 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 new models. 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 immediately, the new model discounted by about 20%. And this is not a good outcome.

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign language]

[Qingfeng Feng, CEO at Lotus Technology Inc]

Thank you.

[Laura Lee, VP and Equity Research Analyst at Deutsche Bank]

Thank you so much.

[Demi Jiang, Head of Investor Relations at Lotus Technology Inc]

Thank you, Laura. Operator, we're ready for the next one.

[Operator]

Thank you. Next question comes from the line of Gavin Smith from Ethos Collective. Please ask your question, Gavin.

[Gavin Smith, Analyst at Ethos Collective]

Hi, good evening, and thank you, Lotus Management, for providing the informative updates to their quarter earnings. I have two questions here. I'm 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 negatives or drivers to help facilitate the further expense decline? Would it be via reduction of staff or by some other means?

[Demi Jiang, Head of Investor Relations at Lotus Technology Inc]

Thank you, Gavin. I'll invite Mr. Feng to give you an answer on that. Mr. Feng, please.

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign language]

[Qingfeng Feng, CEO at Lotus Technology Inc]

We have promoted a strategy called small and beautiful, because in the segment, the EV penetration rate is not very high, and we have to think about how to manage to reduce the cost.

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign language]

[Qingfeng Feng, CEO at Lotus Technology Inc]

For example, in marketing and sales aspect, we are trying to streamline our shop. The shop will be small but effective instead of a 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 the leading player in this industry instead of spending our R&D in all fields. In addition to that, we are also trying to leverage Geely's resources, for example, in the EE architecture.

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign language]

[Qingfeng Feng, CEO at Lotus Technology Inc]

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

[Qingfeng Feng, CEO at Lotus Technology Inc]

So our current focus is on cutting-edge technology developments and also the technologies that can bring us a 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.

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign language]

[Qingfeng Feng, CEO at Lotus Technology Inc]

In summary, our future expense will be in two directions. One is on the technology and the product development. The second direction is about brand awareness, establishment, and also market exploration.

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign language]

[Qingfeng Feng, CEO at Lotus Technology Inc]

In quarter three, we've already started to see some outcomes, and in quarter four, we believe it will be more pronounced.

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign language]

[Qingfeng Feng, CEO at Lotus Technology Inc]

And our synergy with Geely will also give us more benefits. In the future, the development of EE architecture will be led by Geely, and we can use this technology off the shelf.

[Alexious Kuen-Long Lee, CFO at Lotus Technology Inc]

And besides, the cost will be shared based on the volume, and for us, it won't be a huge cost to show them.

[Gavin Smith, Analyst at Ethos Collective]

Thank you.

[Demi Jiang, Head of Investor Relations at Lotus Technology Inc]

Thank you, Mr. Feng. Vincent, do you have another question?

[Operator]

Thank you. Our next question comes from the line of Vincent Yong.

[Demi Jiang, Head of Investor Relations at Lotus Technology Inc]

Operator. I think Gavin has another question. Gavin, was that you?

[Gavin Smith, Analyst at Ethos Collective]

Would I have the opportunity to ask one of the second questions here?

[Demi Jiang, Head of Investor Relations at Lotus Technology Inc]

Yeah, sure, please.

[Gavin Smith, Analyst at Ethos Collective]

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?

[Demi Jiang, Head of Investor Relations at Lotus Technology Inc]

Thank you. Thank you, Gavin, for your question. I will invite CFO Alexious to give you color to your question. Alexious, please. Alexious.

[Alexious Kuen-Long Lee, CFO at Lotus Technology Inc]

Hi, Gavin. Can you hear me?

[Gavin Smith, Analyst at Ethos Collective]

Yep.

[Alexious Kuen-Long Lee, CFO at Lotus Technology Inc]

Let me share with you a little bit about our disclosure process and also how. So first and foremost, we 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 an aim of 20% gross profit margin. Now, we are doing a monthly disclosure on our sales volume. So by about a tenth of every month, you will get the sales volume for the next quarter, for the last month, sorry. It is likely that before Chinese New Year, end of January, and also early February, we will be outlining with our rolling out our 2025 guidances. Yeah. So that is the time where we will probably finalize most of the things that's going on in the market.

[Alexious Kuen-Long Lee, CFO at Lotus Technology Inc]

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, yeah, in terms of outlook for 2025.

[Gavin Smith, Analyst at Ethos Collective]

Thank you.

[Alexious Kuen-Long Lee, CFO at Lotus Technology Inc]

Thank you, Gavin.

[Gavin Smith, Analyst at Ethos Collective]

Yeah.

[Operator]

Thank you. Our next question comes from the line of Vincent Yong from SC Asia. Please ask your question, Vincent.

[Vincent Yeo, Analyst at 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?

[Vincent Yeo, Analyst at SC Asia]

What are the drivers to boost the monthly delivery to 1,500 or 2,100 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 the first quarter of 2025 and the regional allocation? Thank you.

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign language]

[Qingfeng Feng, CEO at Lotus Technology Inc]

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 U.K., the delivery cadence and the progress is quite promising. Meanwhile, we are trying to drive our delivery speed in the EU. In addition to that, we have already started our deliveries in some new markets, for example, Japan and South Korea.

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign language

[Qingfeng Feng, CEO at Lotus Technology Inc]

For quarter one next year, the model year '26 products will commence delivery in China, and it will be another driven point for our sales volume.

[Qingfeng Feng, CEO at Lotus Technology Inc]

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

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign language]

[Qingfeng Feng, CEO at Lotus Technology Inc]

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

[Demi Jiang, Head of Investor Relations at Lotus Technology Inc]

Thank you.

[Vincent Yeo, Analyst at SC Asia]

Okay, thanks. I have another following question: how do you view the luxury EV demand in the Chinese market? Because I've seen that Lotus vehicle sales in China have dropped, actually, in the first nine months compared to last year. So what do you think the reason caused that sales decline, and what are the strategies to have in plan to boost sales in China besides you just mentioned launching new models? Thank you.

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign language]

[Qingfeng Feng, CEO at Lotus Technology Inc]

In China, in this particular luxury premium EV segment, which is the vehicles priced above $80,000, it is true that the penetration rate of the EV has dropped to 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% in this particular segment. In the future, our target is to improve our market share to 50% or even 60%. This is one of our approaches to demonstrate our competitiveness, and by boosting our competitiveness, it's another way to give our confidence to increase our sales volume。

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign language]

[Qingfeng Feng, CEO at Lotus Technology Inc]

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

[Qingfeng Feng, CEO at Lotus Technology Inc]

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.

[Vincent Yeo, Analyst at SC Asia]

Thank you.

[Vincent Yeo, Analyst at SC Asia]

Thank you very much.

[Demi Jiang, Head of Investor Relations at Lotus Technology Inc]

Thank you, Mr. Feng. We will take the last one more question due to the time constraints.

[Operator]

Thank you. Our last question comes from the line of Ling Zhou from UE Capital. Please ask your question, Ling.

[Ling Zhou, VP and Equity Research Analyst at UE Capital]

[Foreign language] 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.

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign language]

[Qingfeng Feng, CEO at Lotus Technology Inc]

For the first question, the ADAS autonomous technology requires constant investment. This is not a one-off, one-time investment.

[Qingfeng Feng, CEO at Lotus Technology Inc]

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

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign language]

[Qingfeng Feng, CEO at Lotus Technology Inc]

Currently, we will prioritize our intelligence investment into three areas: the intelligent chassis, intelligent smart cockpit, and also autonomous driving. Particularly for autonomous driving, it can keep us at the cutting edge end 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.

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign language]

[Qingfeng Feng, CEO at Lotus Technology Inc]

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

[Qingfeng Feng, CEO at Lotus Technology Inc]

[Foreign language]

[Qingfeng Feng, CEO at Lotus Technology Inc]

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

[Ling Zhou, VP and Equity Research Analyst at UE Capital]

Thank you very much. Thank you.

[Operator]

I am showing no further questions at this time. I'll turn the conference back to Ms. Demi Jiang for her closing comments.

[Demi Jiang, Head of Investor Relations at Lotus Technology Inc]

Thank you, Amber Ling. 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 constraints, this will conclude the call. And thank you again very, very much, and have a great day.

[Operator]

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

[Alexious Kuen-Long Lee, CFO at Lotus Technology Inc]

Thank you, everyone.

[Alexious Kuen-Long Lee, CFO at Lotus Technology Inc]

Bye.

[Alexious Kuen-Long Lee, CFO at Lotus Technology Inc]

Thank you.

Participants

Executives

• Alexious Kuen-Long Lee, CFO
• Qingfeng Feng, CEO
• Demi Jiang, Head of Investor Relations

Analysts

• Gavin Smith, Analyst at Ethos Collective
• Laura Lee, VP and Equity Research Analyst at Deutsche Bank
• Translator
• Ling Zhou, VP and Equity Research Analyst at UE Capital
• Vincent Yeo, Analyst at SC Asia