Lotus Technology delivers mixed Q3 results with 35% drop in vehicle deliveries but improved gross margin, focusing on hybrid models for future growth.

Good day and thank you for standing by. Welcome to Lotus Technology Inc. Third quarter 2025 earnings conference call. At this time, all participants are in 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 one and one on your telephone. You will then hear an automated message advising. Your hand is raised to withdraw your question. Please press star one and one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Ms. Michelle Ma, head of Investor Relations. Please go ahead.

Thank you. Amber. Welcome to Lotus Tech third quarter 2025 earnings call. My name is Michelle Ma, the Head of Investor Relations here at Lotus Tech. With me today are CEO Mr. Qin Fengfeng and CFO Dr. Daxiel Wang. Our conference call materials were issued today and are available on our investor relations website. We are also broadcasting this call via webcast. 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 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 U.S. securities and Exchange Commission. The Company undertakes no obligation to update any forward looking statement except as required under applicable law. Please also note 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. You can also find a reconciliation of these figures in the press release available on our Investor Relations website at ir.lotustech.com. with that, I'm delighted to turn the call over to our CFO Dr. Wang, please.

Good morning, good afternoon and good evening honored shareholders, analysts and friends from the media. Thank you for joining US for Lotus Q3 2025 earnings release. I'm Daxiel Wang, Chief Financial Officer for Lotus Technology and it's my privilege once again to present the Company's unaudited financial Results. In the third quarter, the company delivered nearly 1,800 vehicles distributors, which represents a 35% decrease year on year, but a 28% increase quarter on quarter. As a result, total delivery of the first nine months of the year reached 4612 units, down 40% compared to the same period last year. These figures reflect a transitional period characterized by the impact of tariffs, gradual destocking activities under the phased commencement of Upgraded module Deliveries revenue for the third quarter was $137 million, down 46% year on year, but up 10% sequentially. Revenues for the first nine months totaled $356 million, down 45% year on year. Gross margin improved to 8% in the third quarter, up 3 percentage points from the previous quarter and 5 percentage points from the same period last year. This improvement was driven by a favorable shift in our sales mix towards upgraded models, reflecting healthy inventory dynamics and our continued recovery in our underlying profitability. The gross margin for the first nine months remained stable compared to the same period in 2024, safely in a positive territory. Now allow me to break down our sales by category and regions by category. Lifestyle vehicles accounted for 77% of the total deliveries in Q3, down from 83% in Q2. Consequently, they contributed 72% of the total deliveries for the first nine months of the year. And in terms of regions, deliveries in the US sports car market began a gradual recovery in the third quarter. This improvement came after the initial US UK tariff disruptions were resolved with UK vehicles ultimately securing a favorable tariff rate of 10%. Overall deliveries in the first nine months of 2025 were primarily driven by China and Europe. It's worth noting that our delivery growth in China for the first nine months outpaced the broader premium auto segment in the country. This underscores the competitive strength of our product portfolio in an increasingly challenging environment. Now let me turn to the key financials as I have already covered deliveries, revenue and gross margin, I proceed to other financial metrics. The cost of revenue decreased by 35% year on year to $126 million in Q3 and a total of $327 million for the first nine months of 2025. This resulted in a gross profit of 11 million for the quarter and $29 million for the first nine months. We reported our operating loss of 95 million in the third quarter, a 41% improvement year on year. The net loss for the quarter was $65 million, 68 improvements year on year. For the first nine months the operating loss was $357 million, narrowing by 40% year on year, while the net loss narrowed to $378 billion, down 43 point percent year on year. And for your reference, on non GAAP adjusted basis, the net loss for the first nine months was $2 million lower, primarily due to the impact of the share-based compensation and adjusted EBITDA under the non GAAP for the same period narrowed by 48% year on year to $294 million. Beyond these numbers, I would like to reiterate that we have now reduced operating expenses for eight consecutive quarters through value added measures. This underscores our strong commitment to enhancing operational efficiency. Our efforts in cost discipline and inventory optimization are reflected in the significantly measured loss for both quarter and the year to date. We remain focused on prudent resource allocation and margin enhancement while also preparing for a more dynamic operating environment in the quarters ahead. During the third quarter, we achieved several key milestones amid challenges posed by the fierce market competition. We will be awaiting our new PHEV model in the coming months to further expand our electrification product roadmap and address consumer demand in diversified powertrain segments. Our CEO, Ms. Feng will elaborate further on these developments. With that, I will now turn the floor over to Ms. Feng. Thank you.

Good morning Good afternoon everyone. I'm Feng Qingfeng, CEO of Lotus Tech. Thank you for joining the Lotus Tech Q3 2025 earnings call. Now I'd like to walk you through the company's latest progress across four key areas. Recent highlights Market strategy, Product portfolio and the acquisition of Lotus UK.

Eletre.

For lotus with a 77 year track DNA, it is important to keep enhancing its global image. On September 5, Lotus made a strong appearance at IAA Mobility 2025 in Germany showcasing the concept Eletre, Emira, and Evija and Mirror, demonstrating a seamless blend of brand legacy, cutting edge technology and electric strategy. To carry over Lotus Racing Track DNA. The 2025 Lotus Cup 1 make racing series kicks off in June featuring an international lineup of drivers. The third round concluded successfully in Chengdu with a season finale set to take place in Sepang International Circuit in Malaysia this month. On September 14 during the London Design Festival, Lotus served as the official automotive partner and opened an immersive exhibition at our Mayfair showroom exploring the design DNA of the brand and received positive feedback from the public. On November 16, driver Liu Wen Long and Liu Kai Shen piloted the Mirror GT4 to claim the first and third place in the Macau Grand Prix Greater Bay Area GT Cup. This marks back to back podiums for the Mira GT4 following its first and second place finish in the same event in 2023. The Macau Circuit is known for its long straights and tight twisting corners is regarded one of the most challenging street circuits. This double podium not only highlights the driver exceptional skill, but also underscores the outstanding performance and reliability of the Mira GT4. It strengthens customers trust and enthusiasm for our sports car, and it also carries over Lotus Racing Track DNA. For market strategy. Lotus continues to optimize our global presence and enhance retail efficiency. As of the end of September, we had 213 retail stores worldwide with a well balanced distribution across four key regions. Europe we had 70 shops, China 54, North America 49 and other markets 40. Those covers roughly 45 markets globally. Besides the retail channel efficiency improvement, we've also explored other measures to reduce our cost and improve our efficiency. For example, we've implemented prudent cost control measures and optimized our store portfolio. This includes relocating high cost stores, closing underperforming locations and expanding high efficiency outlets. It helped boost our conversion rates while reducing operating costs. In addition to that, we've also relocated our European headquarters from the Netherlands back to the uk, cutting operational expenses and allowing us to focus resources on key markets. Returning to Lotus birthplace also help us better tell the brand story and strengthen our reach across Europe and beyond. Such measures further improve our overall efficiency. We are also preparing to enter new markets starting with Brazil. Brazil is the seventh automotive in 2024. The total sales is roughly around 2 million with a new energy vehicle penetration rate around 8% and in the first nine months of this year the total sales reached 1.44 million units with the penetration rate of new energy vehicle increased to 10.1%. As for our product portfolio two years ago, we have already planned on that. Actually, we've already launched our hybrid technology and we believe that all of you will be soon seeing the fruits and for Lotus, we currently offer two models globally including Mira, Electron and MEA, all of which were updated in 2025. The new version have all been well received with their share of total sales continuing to grow. JI. We plan to introduce two additional hybrid models based on our new architecture. The first hybrid model is set to launch in China in quarter one next year with a dedicated technology preview event in January. A European release will follow. The new hybrid also carried over and heritage Lotus DNA in the following areas. The first is its ultimate handling thanks to Lotus Tuning Engineering. It also equipped with the dual chamber air suspension and a standard 48 volt active stabilizer. It can be capable of a long range and also high performance. It is enabled by the latest light detector delivering over 1,000 kilometers of range and 952 horsepower. It also inherited the Inspire design featuring the sensational width to height proportion of our Hyperkiva. Staying true to Lotus Design DNA Charge.

Opened on the Tui True.

The introduction of hybrid models offers more choice for luxury vehicle buyers and will help us to expand into broader markets including regions with slower EV adoption such as Italy and Spain and Saudi Arabia. It will also help us to attract new customer segments. And for the acquisition of Lotus UK, we are now making steady progress on the merger or the acquisition of Lotus UK, which we expect to complete in 2020. After the acquisition, we are going to operate on our one Lotus strategy. We plan to maintain a consistent global identity as a high performance premium luxury brand to strengthen worldwide recognition and maximizing our heritage. We are also streamlining reporting lines and to enable faster, clearer decision making. A globally aligned governance model Global standards with regional adaptation it will improve oversight and support medium to long term strategy execution. For our business integration, we are driving synergy across the key areas. On R and D, we consolidate global engineering under one team to improve efficiency, share technology and accelerate new vehicle developments. On purchasing we leverage shared sourcing to reduce costs across lifestyle vehicles and sports cars and on logistics we will optimise warehousing and parts distribution to further lower costs. We've also aligned the channels and a system globally to eliminate to duplication and boost brand value and operational effectiveness. Thank you. We will now open the line for your questions.

Thank you. We will now begin the question and answer session. As a reminder 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 one one 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 away. We will now take our first question from Laura Lee from Deutsche Bank. Please go ahead. Laura.

Hey, thank you for taking the question. Could you elaborate a little bit more about like the key highlights of the upcoming plug-in hybrid electric vehicle (PHEV) models and maybe talk more about the strategic rationale behind those products.

Thank you for your question. First allow me to elaborate on the highlights or the features of our hybrid model. It features three key aspects. First it has the best energy efficient engine and also the two best performance hybrid system and also the highest power motor. Those three features demonstrate the Lotus DNA from both the handling and also performance perspective. As for the details about how to further enhance its handling and performance as well as the details of our hybrid architecture. Please stay tuned to our tech preview event in January. And also we would like to elaborate on the strategic rationale behind our hybrid model. But first I'd like to start with the market for China Market. The premier vehicle market in China including plug in hybrids and extended ranges make up a large and rapidly growing segment among new energy vehicles priced about 400,000 RMB, about 70% are plug in or extended range models and their growth is a major driver of the broader new energy vehicle expansion. The penetration rate of new energy vehicle in this price bracket has also risen quickly reaching over 40% from January to September. Within that, plug in under extended ranges accounted for more than 30%. The competition in China's premium E segment hybrid SUV is still relatively underdeveloped. The premium E segment hybrid SUV means the tide is over 500,000 RMB and the development is relatively under development compared to the battery electric E segment SUV space and most current models also lean heavily toward business or off road use. This creates a clear opening for Lotus to introduce our hybrid models. In Europe. Hybrid models represent a large, faster growing share of the auto market, but as emissions standards tighten, new energy vehicle adoption is accelerating in Europe just as it is in China. From January to September this year, NEVs including a battery electric vehicle, plug in electric vehicle and hybrid electric models reached 59 or 60% of the total market and among those NEVs, PHEV and HEV together accounted for about 73%. And notably plug in hybrids of the PHAB cells have surged in Europe. As of September this year, PHEV cells have grown year over year for seven consecutive months with UU wide sales up 65% in September. In the premium hybrid segment, Lotus will be the first one to introduce such model in the eu. Last week I visited EU and I heard the positive feedback from our dealers when they know about this hybrid model and in the successive phase we are going to invite dealers and also medias to have an in depth test of our new models.

Thank you. Appreciate the caller. Yeah, looking forward to the launch.

Thank you. Our next question comes from Dan Lin Ren from cicc. Please go ahead Dan Lin.

And hello, this is Dan Lin from CICC Auto Team. Thanks for taking my call and congratulations on your sequential improvements. And I have one question about your gross margin. Do you have any guidance on your gross margin for this year and next year?

Hi Danny, thank you so much for your question. With the recovery of the vehicle gross margin in the second half of the year or gross margin for the full year is expected to may remain at a high single digit range. They're looking ahead. Our gross margin is projected to further improve primarily due to the following factors. First, the launch of the PHEV products which is based on our Lotus architecture will further reduce the pre unit vehicle costs and achieve higher gross margins and second, as battery electric vehicle (BEV) facelifted products penetrate global load markets, their sales are expected to increase, thereby boosting the gross margins. And third, the implementation of the put option with Lotus EOK will further enhance efficiency. For instance, the manufacturing segment's gross profit will be consolidated into the listed companies and the economies of scale resulting from the integration of the supply chain and research and development will contribute to higher gross margins. So I think for the next year, we have the confidence it will be higher than this year. Thank you so much.

Thank you. That's all from me. Thank you.

Thank you. I am showing no further questions at this time. And with that, I'll now turn the conference back to Ms. Michelle Ma for her closing comments.

Thank you all again for joining us today. We will conclude the call soon. Investor Relations Team remains available to answer any further query you have. Please feel free to contact us through the contact information on our website. Have a great day. Thank you.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect your lines.