Q2 2023 Polestar Automotive Holding Uk PLC Earnings Call

Good day, and thank you for standing by and welcome to the Polestar Q2, 2023 results conference.

At this time all participants are in a 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 have an automated message advising Johann just raised to withdraw your question. Please press star one on one again.

Please be advised today's conference is being recorded.

But now I'd like to hand, the conference I put your speaker today for you on a French. Please go ahead.

Thank you operator, Hello, everyone. My name is Brian of claimed from Pollstar Investor Relations. Thank you for joining call Q2, 'twenty two 'twenty three results call.

Before handing over to Thomas Eagan lots of CEO , and yes, Mam Crystal CFO for their opening remarks, I will cover some housekeeping points.

I would like to remind participants that many of our comments today will be considered forward looking statements on the U S Federal Securities laws.

And are subject to numerous risks and uncertainties that may cause post us actual results could differ materially from what has been communicated.

These forward looking statements include but are not limited to statements regarding.

The future financial performance of the company production and delivery volumes financial and operating results outlook and guidance macroeconomic and industry trends company initiatives and other future events.

Okay.

Forward looking statements made today are effective only as of today and post the auto takes no obligation to update any of its forward looking statements.

For a discussion of some of the factors that could cause our actual results to differ. Please review the risk factors sections of our annual report on form 20-F filed with the FCC.

In addition management will make references to non-GAAP financial measures during the call.

Discussion of why we use non-GAAP financial measures and information regarding reconciliation of all non-GAAP financial measures.

The most directly comparable GAAP measures in the Investor presentation, you should have here today.

With that I'd like to turn the call over to Thomas. Please go ahead.

Thank you Bob.

Let me reflect on some of the key operational and business highlights and outlook for 2023.

It was a record second quarter for us.

6% growth in deliveries versus last year.

Combined with the first quarter, we did live up around 28000 vehicles in the first six months of this year with particularly strong growth in many of our established markets and solid growth in some of our newest markets.

We increased revenue by 18% to $1 $2 billion for the first six months of 2023.

And with continued strong momentum into the second half of the year we.

We expect to deliver between 60000 70000 vehicles and the gross margin of 4% for 2023.

Coming to recent business developments.

Last quarter I talked about the first customer deliveries of our upgraded post the two.

And these have now started to ramp up.

Taking us passed another milestone having.

750000 cost manufactured in just over three years.

The upgraded constitute the best version to date.

Improved software longer range of up to 650 kilometers and fast charging.

Effect of up to 205 kilowatts.

All while reducing trade escape carbon emissions by three tons per car and introducing the new smartphone face identity from post the three on the two.

It is a fantastic car.

J D powers Tech experience index placed pulse of three in the top three and there are a number of and suggest stick independent reviews across motoring magazines and on Youtube.

Yeah.

Just a few weeks ago, we were at the Goodwood Festival of speed in the U K.

But post the three and post a five.

Debbie is making.

Making the traditional hill climb in front of crowds.

Seeing these two costs and what they are capable of in terms of performance and driving experience is a testament to our outstanding engineering teams.

I'm delighted that poster free it's now available for customers to experience in many of our retail spaces around the world.

And post a five shows what the next steps of our brand reflected in its design handling and top level spot premium positioning.

We have started formally taking orders for poster for our <unk>.

<unk> Coupe.

Less than a week ago at the Chengdu Auto show.

And now a free dayson reception and order take have been fantastic.

As a reminder, our SUV copay combines the great space with an amazing dynamic driving attributes. It is positioned between posted two and plus a three in terms of size and price.

First of all is on track to start production in November .

First customer deliveries in China expected before year end deliver.

<unk> delivers to the rest of the world are planned for early 2024.

Now moving onto our joint venture in China, which is taking steps to strengthen the development of our brands now.

I believe that this innovative partnership with <unk> major group and acknowledged mobile device company with excellent software competence.

Best way to succeed in this important and highly competitive <unk> market.

Software and user experience will be the key to the success.

The latest steps on the important technology journey is autonomous driving.

Last week, we announced a collaboration with mobile eye for adoption of the autonomous driving solutions banking posted for the first production cut to feature mobile is true for our technology.

When launched so far is expected to offer ice of point to point autonomous driving on highways.

Well as ice on automated driving for other environments.

Our lineup growth, we continued to develop our commercial footprint.

<unk> thing to permanent larger retail spaces to deliver a premium customer experience.

We have recently open spaces in par to Portugal, Chengdu China.

Houston in Palm Beach in the United States.

In the U K, we are opening new retail spaces in Glasgow in North London in the coming months, and then Canada will be expanding with additional spaces in cities, where we already have a presence like Vancouver, Toronto and Montreal.

Staying in North America.

We have announced the adoption of Tesla charging standard for all new postal sold in the U S and Canada from 2025.

Making it even easier to own and charts you postop.

Finally, before I hand over to Jan I want to touch upon the outlook.

Despite macroeconomic uncertainty.

Continue to expect a stronger second half supported by the easing of supply chain disruptions and reducing raw material costs.

As mentioned, we expect to deliver 4% gross margin for the year.

But this level of profitability is not enough.

We have already taken steps to manage costs.

<unk> taken an even harder look at ways that will improve our margins.

We continue to work closely with our two very support of main shareholders on funding options.

We will provide more detail on all of our efforts and concrete actions in conjunction with a third quarter results.

Thank you for listening in.

And I look forward to taking your questions after Johan <unk> remarks.

Thank you Tomas Hello, everyone and thank you for joining us today.

And the first six months of 2023, we have delivered 27841 cars globally up 31% year over year.

With strong volume growth in markets, such as the U K, Canada, and Australia, and what incremental sales in our newest markets of Italy and Spain.

With an established global presence in 27 markets on four continents. We have opened 25, new polestar spaces since June last year, bringing the total to 150.

We're developing a retail sales footprint into larger permanent facilities that will better accommodate our growing lineup.

Our customers continue to benefit from an extensive service point footprint up 200, and the year to about 1130.

And as Thomas said, we're adopting the teslas North American charging standard for all new Polestar sales in the U S and Canada from 2025.

Before moving onto the financial highlights on the 2023 outlook I would like to Echo the point Thomas Ray for unexpected a stronger second half of the year.

Reflecting the transition to the upgraded polestar two model year, 'twenty, four with higher anticipated book volume and margin.

Also expect first deliveries of Pollstar for in China.

As a reminder, and looking further ahead to 2024, we will benefit from the rollout of the Pollstar for to other markets as well as the commencement of posts are three deliveries from Q2 2024.

Okay.

The cost saving measures announced last quarter, which include taking out both existing head count as well as roles that were planned for this year are progressing well.

In addition, as Thomas said, we continue to explore other areas, where we can become leaner and more efficient to take down costs further and improve our competitiveness.

And here, we will give an update at our next earnings call.

Moving to the financial highlights for the second quarter of 2023.

Revenue increased 16% from 589 million to $685 million driven by higher polestar, two deliveries and price increases implemented last year on model year 'twenty three.

In part offset by sales channel mix product mix and higher discounts.

Gross profit decreased from $61 million to a negative $1 million.

Last year the quarter benefited from two positive items and inventory valuation and the release of accruals related to the 2020 recall.

This year there are three items that adversely impacted cost of sales in the quarter.

A higher contract manufacturing costs of $52 million supplier charges for semiconductors in batteries of nearly $18 million.

And an inventory impairment of $10 million.

These were partially offset by positive foreign currency effect of $12 million.

Selling general and administrative expenses were up 25 million to $260 million, reflecting primarily higher advertising selling and promotional activities.

Research and development expenses were down $21 million due to lower amortization for the polestar two in part offset by continued investment in future vehicles and technologies.

As reported operating loss decreased $353 million or 56% to $274 million.

Excluding the onetime share based lifting charge.

$372 million in Q2, 2022, operating loss increased 8% or $19 million predominantly impacted by the negative gross profit.

Moving onto cash flow.

Cash used for operating activities for the first six months of 2023 or $661 million.

Mainly driven by operating loss higher levels of inventory and trade payable payments.

Cash used for investing activities was $281 million, primarily as a result, the polestar two poster three and postal for intellectual property investments.

Cash provided by financing activities was $1 billion $64 million, reflecting short term borrowings of $1 billion $672 million of which $750 million, what's drawn down from the Volvo cars shareholder loan facility and principal repayments of $608 million.

At the end of the second quarter of 2023 cash and cash equivalents stood at $1.057 billion.

Before I hand over to the operator, let me wrap up with our 2023 outlook.

We are reaffirming our previous guidance expecting between 60, and 70000 vehicle deliveries for the year, which represents annual growth of approximately 16% to 36%.

We also expect a full year gross margin of around 4% on the back of an anticipated stronger second half.

In regards to funding during the first half of the year, we've tapped into various funding sources, where today, we still have available capacity.

Such as continuing to access short term working capital facilities.

We are also Upsized, our trade finance facility to 600 million euros.

And we have utilized part of the one $6 billion shareholders' support package.

Also since quarter end as part of our ongoing program to maximize liquidity.

Sold our Shanghai plant that previously manufactured the polestar, one $471 million.

We are working on multiple options to address the broader funding need.

These efforts have driven hand in hand, with our two main shareholders, who continue to be very supportive. Thank.

Thank you again for joining and over to the operator for the live Q&A by the analysts and then we will answer top questions from our shareholders.

Thank you.

I would like to ask a question you will need to press star one and one on your telephone and wait for your name to be announced to ensure your question. Please press star one and one again.

Thank you.

We will now take our first question.

The first question comes from the line of Alexander Potter from Piper Sandler. Please go ahead.

Great. Thanks, guys.

So.

Maybe first question.

<unk> is on the launch timing of Pollstar for versus Pollstar III. So.

It's great that people start bar Bell on track.

Our production here I think in November start deliveries in China into the year.

And then deliveries for pull through you're going to start at the middle of next year I know those vehicles are built on on different platforms. So that.

Impacting the difference in timing, but I think it would be helpful. If you could just summarize it.

What those differences are between the platforms and why.

It's possible for you to remain on track for Costar for and what sort of learnings you'll have going forward with future launches.

Sure that future launches more resemble the pollstar for launch versus the ballpark relaunch.

Yes.

Thomas Thanks for the question.

Yeah.

Well the difference I am very happy to point out the difference between the two Suvs because let's face it yes, the labor SUV.

Both the same but there is a significant difference between opposed to free.

Very much bringing to the customer what is a high seating position and that's what people associate with traditional SUV that you have that kind of superior feeling of having a great overview, while the puzzle for us.

Bit more of a different animal here.

<unk>.

And we call it for that reason the SUV coupe. So it is.

<unk>.

On the lower side of the Suvs.

For that reason if you when you see the two cost together and Thats of course, the great thing happening now people can compare it and see what big difference since stands and what it does and delivery of customer experience.

Positioning is different obviously, there is a price difference parts of thoughts clearly positioned pricewise below the posted a three.

So for that reason there is a much much bigger.

Scope of.

Customer segment that we can reach with these two costs in our hands and we could do with just one comp.

And as well about launch cadence I mean, obviously the post a four now being on sale.

In China already and launching that in being in the market first line as opposed to free will of course make the entrance first in Europe and in the U S. So it's kind of the other way round one car.

And very strong in China first for some time now.

The other car in Europe , and U S and then.

Vice versa coming then in this in the second Phase then too.

U S and Europe , the postal and parcel <unk> to China, So that's kind of the the.

A couple that are coming to the market in 2003 search for.

Now technology wise as well make sure that people understand this.

Deep all new platform that that poster three is built on is of course technology buys as well the pinnacle base.

Nvidia <unk>.

Computing in the the Illumina lighter included in the technology very complex not easy to handle I have two.

If that's the engineers being there full time on the job doing it.

But of course this is.

Spell.

Sure.

<unk> two.

The car coming only in.

And into production in January and in the beginning of 2024, So I think our software is built.

Turning his software and competence and handling software is of course, the core competence to have high focus on take all the learnings that we've made with this and of course.

Emphasize.

Competence within our company, but Michelle.

Of course as well.

The group, that's clearly where we.

We.

<unk> big learnings from.

These two all new products.

Okay great.

So second question, maybe on the macroeconomic situation.

Maybe mix or price sensitivity of your incoming orders.

Just wondering if you noticed.

So your revenue was growing slower than your deliveries which implies.

Mix or more price sensitivity in lower price trends.

Not that very high end packages do you think that that is.

Is that a function of.

Sensitivity to sensitivity to interest rates that the macro situation just anything you'd be willing to say on.

I suppose mix and price.

Within your order book would be helpful.

Yes, Alex.

Hi, Johan here I mean, you've touched upon the influencing factors here.

When we look at that.

Our average selling price there is an impact of in part like you said a negative.

Mix effect attributable to both challenge channel and product variant.

There is also a component of higher discounts and then the third element is a negative translation effect. So all those three weigh in.

We saw that tendency also in Q1.

And.

If we look at on.

On a go forward basis.

Yeah.

Of course say before FX.

At some point the channel mix and the product mix will settle down.

Here, we're comparing in regards to the development from last year.

And then we do expect the discounts also to level off.

There was in Q2 for example.

Part tied to the selling off the model year 'twenty.

Three.

And clearing out that inventory.

So we should see an impact of that and that's also playing into our affirmation of the 4% gross margin guidance for the year.

Okay, Great that's very helpful.

Maybe last one then I'll turn it over you mentioned a number of drivers regarding the expectation for higher deliveries.

In the second half versus the first half.

Obviously, you've got upgraded polestar two you have some deliveries of pulse therefore.

Would it be possible I don't know how much visibility you have on.

Specifics here, but how much.

Additional tailwind could you have.

Potentially opening new markets I think you mentioned, Spain and some others.

Driving greater penetration, maybe a region that historically haven't been able to order as many polestar two is how big of a driver of that of your incremental growth versus just basically saying look we have more product I think our products are more compelling and that's why we're going to get more orders.

Okay.

Well I tend to.

Emphasize you rather the customer.

Waiting for the for the model year 'twenty four we see that.

A lot of people have been intrigued by the.

Improvements that we have made with range.

Our Ria will driven single mode.

Definitely that elsewhere.

Especially in the markets, where the poster two is known where people.

We're looking forward to this model and.

And for that reason that will be the strong effect on.

A stronger second half of 2023.

We indeed see of course, the effect that investment that you do in opening a market.

You definitely need a certain.

Time to spend in the market before youll see figures picking up so indeed, there will be an effect of our investment going now further down in the south of Europe that will pay off bit by bit.

Can we expect 2023 second half already showing much of that.

It's more of an investment for 'twenty four 'twenty five that we made there in these markets.

Okay very helpful. Thanks.

Thank you.

Thank you well now take our next question.

This is from the line of Steven Fox from Fox Advisors. Please go ahead.

Hi, Good morning, Good afternoon could you talk a little bit about the.

Margin expectation for the second half so you've roughly you are talking about 520 basis points improvement in gross margins half over half can you talk maybe break down how much is coming from volume versus mix versus other.

<unk> in your cost structure, and then I had a follow up.

Sure.

I mean, the reaffirmation of the full year guidance of 4%.

Upon.

A couple of things one.

Drivers of the improved profitability that comes with the Polestar two model year 2000 and for sales.

I mentioned the targeted sales that the targeted campaigns to sell out the model year 'twenty three falling away as we're clearing out that inventory.

And then the third component part is really.

With the easing of the supply chain disruptions.

<unk> seen lower raw material costs are coming through so those are the three drivers.

Lead us to the improved margins for the second half.

And just one other quick question on that how much how should.

Should we assume how much back end loaded that is Q4 versus Q3 do you expect meaningful improvement in Q3 or do we have to wait for that mix to improve much more in Q4.

I think you should expect to see a gradual improvement.

Okay. That's helpful. And then just in terms of liquidity situation.

I might have missed this but beyond the cash on the balance sheet can you talk about.

What's the total number of total.

Dollars available of liquidity untapped at this point after all the changes in Q2 and just.

I know, it's a tough time to decent talking specifically about capital raises but can you talk broadly speaking about.

Capital raise versus further strategic actions.

In terms of maybe.

Narrowing the band to focus on that on the sales and marketing in order to preserve cash versus shareholder dilution and things like that thank you.

Okay.

Let me provide some color down and you'll see if you have any follow on questions, but okay in regards to funding and liquidity in general.

First let's start with the fact that we had about a $1 billion of cash on the balance sheet at quarter end and then as I mentioned in my opening remarks, we've tapped into various funding sources during the course of the first half.

Continuing to access short term working capital facilities, that's very much of an ongoing exercise we've.

We've upsized to trade financing facility to 600 million euros.

At quarter end, I believe we utilized around $400 million of that facility.

I mentioned, the fact that we utilize part of the $1 6 billion shareholder support package.

And there we've utilized around 1 billion of that support package.

There are as we've disclosed now fully drawn on the 800 shareholder alone from Volvo and used to love utilized around $200 million of the commitment from PSD.

You also saw that at the beginning of Q3 here, we sold our Shanghai plant.

The one that previously mined uses polestar one for $70 million.

And then I think just from a broader perspective than we are continuing to work on multiple options.

To address the broader funding and.

And that's of course, an ongoing activity as well.

Great. That's helpful. So it sounds like roughly untapped liquidity is about 800.800 billion euros still and then on top of that the cash is understated for the branch sale is that roughly correct.

What was the last question or comment sorry.

The sale of the plant in China came after the quarter ended so the case.

But it did it $70 million correct right, so theres about 800 million.

Untapped euro liquidity available on top of the cash on the balance sheet.

Correct.

And so it sounds like at this point.

There wouldn't be any changes in sales and marketing strategy manufacturing strategy.

<unk> Rollouts.

In reaction to where your balance sheet stands it sounds like you can continue with your strategy for the next couple of quarters at least.

There is no strange change in the strategy with that being said as we both to us and I alluded to in our in our opening remarks, we are continuing to work on the overall cost structure, taking a hard look at not only the opex, but also the gross margins and there we expect to be able to come back in the next earnings call with some more concrete.

Color around that.

But it doesn't impact the overall strategy of the company now.

Great. That's all very helpful I'll get back in the queue. Thank you.

Thank you, we'll now take our next question.

Yes.

This is Andrew Schaeffer from Cantor Fitzgerald. Please go ahead.

Hi, Good morning, good afternoon, congratulations on the quarter and thank you for taking our questions.

I want to maybe start off just curious if we can perhaps get a bit of an update on the hertz.

Partnerships, just curious if you're able to.

Maybe give us a bit more details on how that relationship is it is.

Is taking shape.

And if we can maybe get a sense of how those deliveries are going currently thank you.

Yes, Thomas here happy to.

Confirm on one hand.

The relationship being one which I think for both sides of.

It's a good one happy one b.

See that but we were aiming for with this.

It's taking place and that means post tooth being available for people to experience the brand to call and getting to know them.

Something.

That they might have not done before.

Experienced an electric car.

And we.

We have.

This five year <unk>.

Contract with 65000.

Volume.

Around the poster tube kicked off already in 2022 with first.

Liveries, but of course.

After this initial tranche.

<unk> and 'twenty two we have.

Now in the first quarter.

Continue to deliver to.

Hertz and this will.

Gradually continues slightly goes well, but of course within the 65000 frame.

Over 'twenty three 'twenty four 'twenty five so that we have.

For the past two this journey ahead, having said that we're supposed to free and for joining of course, we will be exploring.

How they could become part of.

This relationship with my thoughts as well.

Got it. Thank you Thomas that's very helpful.

Maybe as a quick follow up.

In terms of your delivery guidance for this year you know.

We know that Q4 tends to have the higher seasonality.

Seasonality and so I think safe to assume the higher number of volumes should take place in Q4, but how should we think about Q3 as it relates to maybe Q2 in terms of deliveries.

Trying to get a sense of how those deliveries will shape up for the second half of the year. Thank you.

Yes.

Model year 'twenty four.

Now in quarter three.

The big New thing about delivery so.

This is.

But when it's happening that the first customers will get that poster.

Two with the new.

Smartphone.

The new technical features and the volume growth indeed towards.

The peak in the fourth quarter, but the third quarter.

Will will be continuous growth to us in quarter four so.

That's how quarter three of course is a very important.

Quarter for Us, where we have a high focus now too.

Keep that momentum going.

But I think you're right.

Will be weighted towards Q4 as you pointed out again, just like on the gross margins a gradual improvement.

And thank God, our organization is very well trained for this Christmas hype.

[laughter].

Just one last one if I could.

I know we've asked.

Already about.

The capital needs.

Just curious in terms of your thought process here.

Whether you are live.

We are leaning more towards some sort of equity raise or fixed income race or perhaps.

Strategic private placement of source.

Just how you are thinking.

Thinking about the upcoming capital raise requirement and whether youre, a leading maybe more one way then another way. Thank you.

Yes, no. It's a good good question of course has a lot of considerations to it I think we're very conscious of the fact that we have a low free float so.

Getting accurate in the company and issuing more shares of course would help address that.

With that being said, we also recognize that the dilution impact given where the share prices and then also just the overall.

Macro perspective, where the markets are.

It's not only you have to take into account. So we are looking into both trucks, both equity and debt recognizing that it's going to require a combination of both of those.

In order to address our overall broader funding plan.

And this is again as I mentioned before we're working very hand in hand with our owners.

On these to drive these efforts.

Understood. Thank you very much congratulations on the quarter again I'll pass it on thank you. Thank you. Thanks.

Thank you, we'll now take the next question.

This is from the line of Tobias <unk> from <unk>. Please go ahead.

Hi, good afternoon. Thanks for taking my questions I have three if that's okay, and I guess, where I'd like to start is on the sequential gross margin bridge and actually I would just like a little bit more information here on I guess why it deteriorated so much.

And then I've got two follow ups. Thank you.

Uh huh.

So.

If I understand your question, but I just wanted some more color on Q2.

Q2 was slightly below expectation it was and that's in part due to there were some true up of costs related to <unk> 22 for semiconductors, but so that's one part fundamentally though I mean, it's.

Just as the trend was in Q1.

Impacted by then the full year run rate effect of the higher raw material and freight costs.

<unk> to last year and as I mentioned also.

The impact of higher discounts.

So I think it was a carryover from from Q1 and.

And something that we had guided on.

Before anticipating a low gross margin for the first half of the year. So to some extent in line with that again I think the.

The true up of the supplier charges on the impairment inventory impairment.

I would say that probably the main deviating factors.

Okay understood.

And then my second question relates to your balance sheet and it looks like potential.

Potentially or backlog increase.

If I have a look your advance payments from customers to increase about $10 million quarter over quarter and I was wondering if you could perhaps comment on order intake in the period and whether the driver of this increase is primarily from fleet or the consumer channel.

I would say that you know I mean.

Hey.

The the number on the balance sheet as you said, yes of course, there is a correlation to the order book there recently.

FX impact as well there to take into consideration, but I think when we look at the order book in General I think that the same comment applies that's what we said in Q1 that we've seen that now kind of stabilized to call at more normalized levels.

And that's where.

Why are we still are today.

Okay.

Understood and then.

And I guess my my last question.

Relates to financing.

And your subsequent.

Events disclosure it highlights that you raised an additional $800 million debt at an effective interest rate of about 7%.

I was wondering what the motivation was hey, rather than raising equity and perhaps whether you have a timeline on paying down your working capital loans given the balance outstanding is now more than $2 billion.

Yeah.

Uh huh.

Okay. So.

If we look at the funding activities for the first six months and some subsequent.

Subsequent activity, that's very much tied to the short term working capital facilities that we have that we have been working to refinance.

We have also the drawdown of the shareholder loan from Volvo.

When you're in there and I think those.

Those are sources of funding that have been made available to us.

And.

As we indicated in earlier calls the intention wants them to draw down on those and productive materializes as a means to fund those here through 2023. So that's there were simply executing on that plan as we in parallel and look for alternative or more diverse funding sources, including <unk>.

Sorry to ask what was the last part of your question.

Well it.

The outstanding balance of one Oh, sorry, Okay, sorry, yes, so thank you.

In regards to working capital there is.

And an outstanding overdue related party balance to Volvo cars.

And there our intention is to settle that during the course of Q3 to a large extent.

Okay.

Sorry, sorry.

That is useful information, but I was more interested in in Europe .

Your expectation from repaying the Asa.

<unk>.

So you have to credit institutions. It looks like that balance is now $2 billion.

Yeah, Okay. I mean, that's part of the overall cap structure and that's very much tied into our overall funding plan here. So.

You know.

As we grow the business.

There's of course a need for.

To take an additional capital and there we can do that in the form of debt or equity. So the development of the capital structure on the balance sheet will be a function of that like I said, we're working on.

And looking at different ways to done fund us going forward.

Okay understood. This has been very helpful. Thank you both.

Thank you.

Well now take the next question.

Please standby.

This is from the line of Erik <unk> from Seb. Please go ahead.

Yeah. Thank you I have two questions.

First of all on that.

A $10 million impairment in the quarter.

Finished psus inventory or what specifically was that.

Yes.

Eric Let's say a quick quick answer yes.

Thank you.

And then the second question on the Pollstar for production starting in November I guess it.

Too early but can you say anything about expected volumes here in Q4 or is it just insignificant Q.

Q1 indications and just general traction sort of order intake given that a lot.

The Oems struggle a bit to get momentum.

At the moment.

And then the third question coming back to the two people.

Cash on the balance sheet.

Think about underlying.

Yes, Phil here and the run rate you had in Q1 and Q2.

Anything any reason to expect that.

Changing much in the in all four.

Taking into account higher volume center slightly better gross margin anything else yet.

Would make.

Free cash flow year in H one.

Your worst and it actually it thank you.

Thomas Let me start with the first part of your question about plus the floor and start of production in volumes.

Now for US that's of course important to have now.

A good secured starts with high quality in the.

The first weeks, having said that des.

<unk>.

Good ramp up curve.

Plant, which.

Nevertheless of course will have its effect in quarter, one and quarter. One is of course the first.

Strong quarter for.

That has.

Post a four.

Volume significantly then I'm kicking in.

Sure.

Deliveries.

Launch of the car now in Chengdu with.

Okay couple of diamonds and understand.

Well and I would love to.

Take a little moment here for highlighting what the JV that we announced.

A couple of weeks ago does that for US you know that.

In Chengdu smell it was then.

<unk>.

Part of the presentation of the post of all that the.

Software that goes into pasta for will be from start.

The post our S which is.

The big contribution.

Of our <unk>.

<unk> partner.

Mobile phone company that obviously has a very strong core competence in.

Customer facing software user experience.

That minutes break links fuel devices that the car and the phone and brings to that one holistic experience.

And.

Indeed, we see that this is.

Big game changer.

Strong strong assets that we that we got here, which will make the poster for a very very hot topic and it is and people are very interested curious and excited about it and.

Flemming article which is underlying.

Base start for this poster O S.

Gets gets very very good credits and rating in terms of.

He was a experience and great connectivity, so that's where despite the fact that we see of course, an incredible competitive market there.

In China, but we believe that this was.

Very very crucial step for us too.

We have a highly competitive.

<unk>.

And in this market. So we're looking very much forward to.

The development of this JV in China.

And then just to come back to your second.

Point there.

Youre right I would expect.

We expect a similar cash flow profile for the second half for the first half.

I would add one consideration is what I touched upon before.

Our attention then to settle a large part of the overdue related party payables to Volvo.

So I would I would make consideration for that.

And then just a final comment around that question off I mean in addition to the available capacity on the cash on the balance sheet that we discussed earlier there are of course its ongoing work to access additional funds here during the fall and don't forget we have two very supportive shareholders.

Supporting us as well.

Yeah.

Okay. Thank you for taking my questions.

Yeah.

Thank you.

We will now take the next question.

Yeah.

This is from the line of Dan Levy from Barclays. Please go ahead.

Hi.

Thank you good afternoon. Thank you for taking the questions.

Wanted to start with a question on the mix in the second quarter. There's some disclosure in the MD&A that fleet was 70% of your sales in the second quarter. So.

And I'm, hoping if you could just unpack that figure.

How much did that with the car rental channel as opposed to.

To corporate customers in Europe , who will frequently purchased on fleet and what is the go forward expectation on the mix of fleet.

Yes, okay.

Yeah.

We don't necessarily discuss the specifics of the fleet the mix within the channel. What we can see is that where you have seen us unless you've noted a.

A gradual down shift in the channel mix to more fleet those.

Of course, now we're getting to a point, where that's starting to settle down so to speak in line with what you would expect.

And here I mean.

The culprit.

Company comp market is of course very important for us in the premium segment that makes a high percentage of where you work and our Europe mix as.

You know that one of the strongest then successful market is U K and that contributes of course was a very high percentage to this.

Fleet.

<unk> so.

For that reason.

It is indeed.

<unk>.

And at a level now where we see as well.

And we definitely don't want to exceed this.

But on the other hand, it's S.

Almost natural and this.

Of course to.

To a certain degree of healthy level because we.

Mr U K success.

It brings this percentage visit.

Right. Thank you so just to clarify on the car rental mix within that.

Are you are you cleared now with sort of the excess polestar two inventory and so you know certainly car rental was probably a piece of it.

Our U pack.

<unk>.

Sort of the need to rely more heavily on.

The car rental channel.

Yeah.

Well.

Elaborate it a little already on the model year change for model year, 'twenty three to 'twenty, four and obviously and.

The model year.

Going going out.

Has certain other necessities than.

New model year with.

New features customers waiting for that so yes, indeed, we of course see as well.

Change.

Between the first half of this year in the second half connected to the model year change one poster too.

Okay. Thank you and then my follow up is a question on mix broadly you're.

Youre going to launch Pollstar for later this year, Paul SAR three next year.

Obviously that comes with those couple of premium Asps versus.

Were you selling polestar two maybe you can give us a sense of the magnitude of uplift you'll get a mix from those vehicles.

Yes, I mean, it's correct as you pointed out.

With the those cars in the higher price points.

And higher margins there will be margin accretion next year, we haven't guided on 24 at.

At this point in time, but I mean, Directionally that's of course, where we're heading.

Yeah.

I would even dare to say that of course this is a.

Very crucial element for <unk>.

24.

A year, where we not only in the volume was positive reinforced coming into it but as well when it comes to margins with this.

Price points of these costs, we of course see a great potential business and it is just a final comment I mean, it is one of the primary drivers in the margin.

Our journey to improve gross margins of course is the product mix. So it is a fundamental driver to margin accretion.

Great. Thank you yep. Thank you.

Yeah.

We should move to the retail shareholder questions now because we only have 10 minutes left alright.

Let me take that then I read them, all just well yeah that would be great. Thank you.

Alright last minutes then on.

Yeah.

Questions from from from retail.

What's your strategy for recovering your stocks the first question and.

Hi.

Okay I understand why this is of course on top of the list.

And let's be clear I mean, I believe definitely that our shares are undervalued and especially since you know we report on great ticking the boxes of our milestones and delivering so.

We talked as well about.

Two technical limitations in that I mean, our.

Our funding position we have on this address it before already of course is putting pressure on it and on the other hand, the free float, which again is of course going ahead one of our.

Aims to to heal that and increase the free float.

<unk>.

Now having said that.

We should well of course, I mentioned that it's at some macroeconomic environment.

Interest rates in general uncertainty that is of course, not only impacting us, but the whole industry.

Yeah.

Very clearly the yes for the year ahead.

But what is going to happen with pasta three and four I mean imagine I mean, we have to Suvs joining our.

Our program all of our spaces.

And then lending in 27 markets that we invest into patent that are ready to.

Work with these costs of course, we expect that the.

Picture of what.

People look how investors look upon pollstar will dramatically change with.

With.

This happening in the months to come.

We have.

I think a brand that has an incredible sympathy amongst the journalist people investors syncrisis.

Commercial success that we expect with the model range coming into the markets I think that should be a great great mixture to indeed recover stocks.

Yeah.

Next question was number two could you please provide insight into our strategy for expanding its market presence.

And achieving sustainable growth, especially in the light of evolving electric vehicle landscape and increasing competition.

Yes, again the market presence.

We have invested into that.

Not only in Europe , but in the U S and Asia Pacific.

In 27 markets out there.

We have been working on that and very very.

Excessively.

The rapid model rollout.

Again something that is.

Thank you.

Very unique.

<unk> costs in the pipeline plus the three four and five prototypes.

Very very far developed.

And production.

Facilities.

Ready to take these costs not only in one.

Region, but with Charleston.

Ready to produce a plus three in 2024.

Of course, we think that that is a very favorable position to fight the competition.

Yeah.

Number three is when will South Carolina facility begin producing behaviors now.

Answer that just now middle of 'twenty for the production and Carolina will ramp.

Ramp up and start the poster frame.

Just you know.

Mentioning here that this again is something very unique.

We can already now opened that's manufacturing in a different region that quickly after having started production at all.

Now the cash number for how do you plan to keep stock float why is absolutely no bus about you're a great vehicles.

First part of it how do you plan to keep stocks slowed I think answer to question before the second part.

S bus.

We have.

And now a concentrate a bit on the U S. Because obviously this question is very much tend to from a U S background, we have.

The U S pulse ought to be headed in spring in New York and L. A.

We.

Half.

In.

65% of our space in the U S has now posted three on display and each and every space is.

Locally, making the bus and events.

Events.

Inviting custom.

Customers into the space to experience a car.

The <unk>.

Marketing spend.

In the U S.

It's up 20%.

Year to date versus 22, 15000 test drives have been conducted so far.

And.

Off the model year 'twenty four posted to the <unk>.

Test drives.

This week started in Denver, and I think you will see in <unk>.

The check out and lifestyle media reflections of of this test drive and I'm pretty sure that they will be essence, suggesting and positive first may have seen the tea in Europe .

Yeah last but not least.

All of the spaces in the U S and the 21st of September will hosta simultaneous consumer night. So you can see that a lot a lot of actions now happening around post two and one near 24 and plus three and on top of that.

Of course nowhere spell that we have to improve and book with communication.

Generally and we are planning to come to the U S has slowed towards the end of the year and make a big event in November in the U S.

So that says a heads up for what's coming.

I can come back to the last question, which is given the rapid advancement in autonomous driving tech and the increasing integration of <unk>.

AI in the automotive sector could you share how process positioning itself to capitalize on those developments and sure Heiko remain at the forefront of innovation and safety.

Yes.

Right.

The.

Beauty of our.

Model, how far we are set up building on various platforms I think we are.

Highlights at with the press release recently about the integration of mobile I, a deep technology in the pasta for how this is nicely playing out we have on one hand and.

Tech plus our free.

Since Act software.

Preparing for the.

Highway hence free.

And as of.

Piloting.

<unk>.

A car that is prepared for redundancy.

On one hand on the other hand in the poster for with the mobile I.

Adas equipment, and then switching in the future too as well.

Hence off and then ice on.

<unk> eyes off depending on the timing obviously the sofa.

Functionality that mobile is preparing going into post a four.

As a.

Well first so.

We.

<unk> in both products I think very well prepared for us participating in the.

Very exciting and I think it will be a very big thing for the automotive sector when really indeed now in the coming two to three years.

Finally assay.

Economists drive functionality for the.

Private driver becomes reality and become something that's.

Definitely it will be part of the premium luxury segment. So that's where we I think have very very good position with two strong partners, providing technology and developing that together with us into customer products.

That's it that's it and here we go.

Perfect well. Thank you every much for joining and we shall speak soon in our next quarter results.

Thank you. Thank you bye bye.

Thank you. This does conclude the conference for today. Thank you for participating and you may now disconnect.

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