Q3 2023 Polestar Automotive Holding Uk PLC Earnings Call

Hello, and welcome to post our Q3, 'twenty twenty-three Bluebell results conference call.

At this time all participants are in a listen only mode.

After the Speakers' presentation, there would be a question and answer session.

To ask a question. During this session you will need to press star one on your telephone.

You would then her automated message advising yohan just raced to withdraw your question. Please press star one again.

I would now like to hand, the conference over to Brianna you may begin.

Thank you operator, Hello, everyone, but honestly in here from Costar Investor Relations.

Thank you for joining our Q3 2023 results call.

It's almost thinking last I'll see you in your home office Associates I will start with their opening remarks.

All of our unlisted retail investor questions.

Before then I'll cover some housekeeping points.

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

And are subject to numerous risks and uncertainties that may cause post those actual results to differ materially from what we communicated.

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

The future financial performance of the company production and delivery volumes.

All in operating results near term outlook and medium term targets.

Fundraising and funding requirements macroeconomic and industry trends company initiatives and other future events.

Forward looking statements made today are effective only as of today and poster undertakes 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 contained in our SEC filings.

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

Question of why we use non-GAAP financial measures and information regarding reconciliation of non-GAAP financial measures with the most directly comparable GAAP measures you Didnt Investor update presentation, you showed earlier today.

With that I would like to turn the call over to Thomas <unk>. Please go ahead.

Thank you Brian.

And thank you to everyone for joining us today at a slightly different time than we normally would hold our call.

The reason for this as you probably know.

We are hosting posted a loss.

In Los Angeles Tomorrow morning.

We will have a number of technology partners, including mobile I Lumina MTB com, joining us to deep dive into the technology sets will form the future of our costs.

It's shaping up to be a fantastic events and for those of you that aren't able to join us.

We will be publishing a recording of the keynote presentations and highlights from the exhibition area on our website afterwards.

Starting with the results.

The third quarter saw record deliveries of 13976, a growth of 51% compared to last year.

We saw a positive impact from channel market and product variant mix.

The start of poster two model year 'twenty for deliveries.

In total during the first nine months of the year, we delivered 41817 comps.

Growth of 37% compared to the same period last year.

And do you want to take you through the financial results in more detail in a moment.

Turning to the operational highlights of the last quarter.

Staffing was supposed to end to significantly upgraded model year 'twenty four.

Deliveries of this higher price model continue to ramp up and it is receiving great reviews.

Autotrader ranks at $4 five out of five stars.

Highest possible rating.

Safety power and features category.

Similar high Scotland headlines continue to be published across pretty much all of our key markets.

This is call it up until now.

Our brand couple of actual commercial operations and supply chain.

This one call.

When you consider this.

See that significant opportunity that we now have with two new models luxury performance Suvs coming to the market.

Let's stop as opposed to three.

Preparations for start of production first in China early next year, and then in the U S and the sum of 24.

Progressing well.

Plus the three successfully completed hotbeds of testing in the UAE in September.

And the last phase of testing will be completed by the end of this year.

The new electric performance SUV created a bus when it arrived and our postal spaces over the summer and it is attracting new postpaid customers to come in and experience it firsthand.

I spent a few days myself.

The three test vehicles last months and even for me. It wasn't I opened up the experience how much of a shift to cloud represents swaps.

Right.

Handling and of course, the luxury space.

Turning to post a four hour SUV coupe.

Last time, we met I talked about the positive reception of this car hats at the Chengdu Auto show.

About two weeks ago, we held the first media test drives on nimble race track where.

<unk> journalistic pushed the cut to the limits.

The resulting reviews are very positive, especially with regards to its performance handling and passenger comfort.

Start of production of postal and Hangzhou Bay begins next week with customer deliveries in China, starting before the end of the year and then the rest of the world planned for mid 2024.

Post as the leading partner of Google and posted two was the first column the market to feature Google's, Android automotive glass and it launched in 2019.

Since then we've seamlessly integrates with the number of apps into our cost most recently prime video, which we announced in September.

Several other manufacturers have now followed the pulse of our successful cooperation with Google.

No as I alluded to earlier, we will deep dive into a number of exciting innovations tomorrow at post spin.

The lineup of cost, but also be onshore in the U S for the first time, and we're giving visitors the chance to experience. The first dynamic experience as opposed to the three and four on the road here in Los Angeles is our test engineers conducting ride alongs.

I've talked before about the value of this unique position and platform that we have created.

Strong and established market presence with a wide sales and service network that extends far beyond most pure EV start ups and matches, but most traditional Oems.

Over the last few months, we took the necessary steps to rework our business plan.

We are reducing costs.

And improving efficiency.

Eight a more resilient and profitable pollstar.

And reducing of our funding needs at the same time.

Achieving cash flow breakeven already in 2025 will show the strength of our asset light business model.

Margin of our volume.

Our way forward.

Supported by a gorgeous lineup of exclusive performance costs.

Our strategic direction is clear we are safeguarding the premium position of the postal brand.

This plan.

It reduces our expected cash outflow from the end of September this year 2025 around one 3 billion U S dollars.

Following additional support announced to date from <unk> to challenge us.

In 2025 targeting total annual deliveries of around 155000 to 165000.

In addition to the value derived from our growing lineup of pasta three four and five.

We are taking several actions to improve margins and reduce opex.

Johan will cover in a bit more detail the contribution of this actions.

I will give you some further color where we have to introduce more significant changes to our operations.

And steps taken to further improve our margins.

Introducing more flexible pecs.

Our model lineup growth into most luxurious segments also needs of our customers ability for greater customization generating more revenue across our card lineup.

Taking a more focused approach to our market presence.

In Europe, we have a number of markets that are both performing well and show continued scope for further profitable growth.

We are going to shift investments into these from markets, which are either smaller or less profitable.

Thought about leaving the market, but about directing our resources to where they give us the best impact.

In some cases.

Also move to an important moment.

As you know since the start of the summer our operations in China are part of a JV with major providing.

Providing a stronger foundation for us to succeed.

Improving the profitability of our U S business.

Part of this turnaround will be driven by the introduction of pulse to three car that will be much better positioned for the U S consumer and especially once production in South Carolina stops.

That said, we are taking further steps to adjust and target our brand building and marketing spend and we are making sure that we have the most efficient retail partner setup.

Identified product cost reduction opportunities both by working closely with R&D and purchasing we have ambitious but realistic cost reduction opportunities identified to reduce bill of material.

We are also reducing our operation expenditure across the business, which Johan will go into more detail in a minute.

2025 is an important milestone, but not the end state. Our ambition is of course to continue to develop the poster brand of <unk>.

Volumes and profitability in the long term.

We have a significantly stronger foundation from which to build on and many of us we.

We have strong and unique brand and strong and supportive shareholders.

And with that I'll hand over to Johan for more on the Q3 results 2023 outlook and some details behind our strength business plan.

And of course, the funding update.

Thank you for listening in and I look forward to taking your questions. After eight months remarks.

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

Thomas said, we are in Los Angeles getting ready for the post date Tomorrow, where we are going to be joined by hundreds of customers media investors and analysts.

Before moving into the quarterly highlights key business actions from our strengthened business plan and the 2023 outlook I would like to revisit points Thomas and I raised in our Q2 results call in late August.

Firstly.

We said, we expected a stronger second half of the year in terms of margin and volume, reflecting the ramp up of the upgraded and higher priced priced polestar two model year 'twenty four.

And we still expect that with Q4 being our strongest volume quarter. This year.

We saw improvement in the core business margins during Q3 on the back of a positive mix and as we continue to rollout polestar two model year 'twenty four alongside reduction in raw material costs, we expect margin progression to strengthen for the remainder of the year.

Secondly.

We've said that looking ahead into 2024, we will benefit from the rapid product rollout.

In 2024 is just around the corner and poster for starting production in a matter of days with first customer deliveries commencing in China next month, followed by other markets in mid 2024.

I'll start three start of production is also on track with first customer deliveries expected in Q2 2024.

Thirdly, we said that the cost savings measures announced with our Q1 2023.

Salt, which would include taking out both existing head count as well as rolls that are planned for this year. We're progressing well we are now at a point that we would have 300 fewer employees by the end of the year.

Lastly, we said we would continue to explore other areas, where we can become leaner and more efficient to take down costs further and improve our competitiveness.

Thomas is taking you through the business drivers of our strengthened business plan and I will pick up on those briefly after I cover our quarterly results in 2023 output.

Starting with some operational highlights first with.

With established presence in 27 markets. We are now focused on improving the profitability in each of these.

We will drive sales and service through our Pollstar spaces and service points as our model lineup growth to three cars in the next six months.

As you know we benefit from access to an existing scalable state of the art manufacturing footprint of our experienced partners <unk> and Gili.

At the production plant in <unk>, we continue efforts to reduce both costs and overall <unk> impact of our polestar two.

In Hangzhou Bay, where post our forest manufactured the first cars will start to come off the line next week.

We will soon announce another production site outside of China.

And plan to start producing post our forest there in mid 2025.

Like I said post our three production in Chengdu is on track and preparations at the South Carolina factory are also progressing well.

Moving now to the financial highlights for the third quarter of 2023.

We delivered 13976 cars this quarter versus 9239 last year a growth of 51%.

Revenue increased 41% to $613 million driven.

Driven by volume growth as well as price increases implemented last year and the model year 'twenty for ramp up offset by various sales support actions, including discounts.

In regards to channel mix this quarter has reverted to a more normal level of around 60% fleet sales.

40% retail.

And that has benefited revenue through product variant mix.

Our strategic partnership with Hertz is progressing well and at the end of Q3, we have delivered about 15% of the 65000 commitment.

We continue to be excited about this partnership and there is a strong collaboration and helping to develop what is currently a challenging UV markets.

As a broader point fleet is and will remain an important part of our business.

Putting aside the Hertz partnership a very high percentage of our remaining fleet book is corporate car schemes, which attract margins that are more closely aligned with our retail business and provide access to an important pool of target customers for our upcoming product lineup.

Turning to gross profit for Q3 2023, it was approximately $4 million.

Corresponding to a margin of almost 1% broadly in line with last year.

Although the core business benefited from a positive channel market and product mix gross profit in the quarter was impacted by a large inventory impairment charge of $28 million.

Demand in certain markets and particularly in the U S was weaker than we anticipated, which led to fewer cars being sold and an inventory buildup.

Due to the margin profile in the U S with high import duties. Consequently, there was a need to write down the value of the inventory.

We also had any impact from secondhand cars, which have started to come in targeting inventory in a more meaningful way.

Recognizing the impact on the profitability of our business, we have taken mitigating actions to temporarily cut production volumes in order to improve the inventory balances.

With regards to selling general and administrative expenses they were up 58 million.

236.

Reflecting primarily higher advertising selling and promotional activities ahead of the pulse archery and poster for delivery.

Research and development expenses were up $30 million, reflecting continued investment in future vehicles and technology.

Operating loss was $261 million compared to $196 million last year.

Moving onto cash flow for the first nine months of 2023.

Cash used for operating activities was $1 3 billion, mainly driven by operating loss higher levels of inventory and trade payable payments.

As previously guided we repaid related party payables in the quarter via new short term working capital facilities.

This reflects a more natural funding solution as we continue to develop our longer term capital structure.

Cash used for investing activities was $189 million, primarily as a result of polestar 243, and postal for intellectual property investments.

Partially offset by the divestment of the Shang do plant while the postal one was previously produced.

Cash provided by financing activities was $1 5 billion, reflecting short term borrowings of $3 4 billion of which $800 million, what's drawn down from the Volvo cars shareholder loan facility.

And principle repayments of $1 9 billion.

At the end of the third quarter of 2023 cash and cash equivalents stood at 951 million.

Before shifting topic to a strengthened business plan and funding update let me address the 2023 outlook.

We now expect to deliver about 60000 vehicles for this year as we maintain a disciplined approach to our premium brand positioning against the background of a weakening global consumer demand, particularly affecting the rate of adoption.

Flowing from lower deliveries for the year and the financial performance to date in particular inventory impairment charges. We now expect a full year gross margin of around 2%.

Turning to our strategic direction, which remains unchanged and in line with our premium brand positioning.

Our strengthened business plan targets and accelerated margin improvement and a reduction of our total funding need to the point of anticipated cash flow breakeven in 2025.

By 2025, we are targeting our four car models to generate total deliveries of around 155000 to 165000.

We have taken a thorough look at all aspects of our business with a keen focus on measures to enhance the gross margin.

In 2025, with an improved product mix.

And the following business measures, we are targeting gross margins in the high teens.

We expect more than half of this progression to come from our model range rollout with more luxurious and exclusive cars cars that would naturally carry a gross profit margin of over 20%.

We have reviewed the structure of our product offering recognizing a high degree of options could lead to improved margins.

Therefore, we will be introducing as Thomas said more flexible option package for our customers, hence generating more revenue.

We will have a more focused approach to market presence.

In Europe, we will be directing sales and investments towards markets that have the greatest potential for profitable growth in China, recognizing the competitive landscape, we have taken a different approach and formed an innovative joint venture.

We are very excited about the prospects firstly in selling more cars and secondly through the technology that our partner will bring to our cars.

Which could be deployed internationally in addition to China.

In the U S. Our objective is to improve the profitability of that market given the current China centric manufacturing footprint, which leads to high levels of tariffs into the U S.

This will in part be addressed by the production of pulse or three in Charleston, and even further from mid 2025 with a new manufacturing plant for posters four outside of China, which we will announce soon.

Location also enjoys more favorable trade agreement terms with the U S.

Lastly, improved product cost is also a key ingredient in our path towards higher margins here.

Here, we are working very closely with our two main contract manufacturing partners to drive down costs, while maintaining the high quality product our customers love unexpected.

We believe these four main initiatives alongside much improved product mix will enable us to achieve a gross margin in the high teens.

The rest will come from a combination of factors I outlined above.

Taxon options optimize market presence in Europe and China.

Stronger profitability of our U S business.

And from optimized production costs.

Alongside margin enhancing measures. We have also identified initiatives to reduce operational costs and become even leaner and more efficient as we continue to grow.

We announced head count reductions earlier this year and like I mentioned at the beginning those negotiations were completed successfully and poster now employs around 300 fewer employees globally.

Furthermore, we will look to resize and better optimize advertising sales promotion spend and ensure our sales footprint digital and R&D setup is operating more efficiently as we scale the business.

Although we have been steadfast in safeguarding our car programs, we have and we'll be very disciplined in our planned capex spend.

Finding ways to either reduce or push payments out beyond the cash flow breakeven point.

We're also looking at ways to reduce working capital for example, with the manufacturing footprint that is closer to the end markets as well as the new setup in China with the joint venture, we will be able to significantly reduce our inventory needs.

In combination, we expect cost management actions and dose on gross margin, we will see pulsar reach cash flow breakeven in 2025.

Of course this is not the end state 20 to 25 will be an important milestone for our business and thereafter, we expect to continue to grow volumes building on a profitable three car baseline to also include both the five and six as well as future models.

Moving onto funding updates with business actions to manage costs drive higher margins and cash flow outlined by both Thomas Tonight, we have reduced our total funding.

Showing their continued commitment proposed start we're pleased to announce that our two major shareholders have both increased their support.

Volvo cars has extended the maturity of the existing shareholder term loan to 2027 and is providing additional funding of $200 million.

In addition, daily Sweden, holding a b an affiliate of daily holding is providing $250 million shareholder term loan on substantially the same conditions as the Volvo cars shareholder term loan, including a maturity in 2027.

Both loans have an option on equity conversion feature.

Based upon the expected cumulative negative free cash flow from the end of third quarter 2023.

Until achieving cash flow breakeven targeted for 2025.

And taking into account existing and new financing and liquidity support from Chile, and Volvo cars Pulsar requires external funding of approximately $1 3 billion.

We continue to work on a plan, which will provide the remainder of the funding required until we achieve the targeted cash flow breakeven in 2025.

We expect to finalize this funding plan in the near term and it will include both additional debt and equity.

In short period of time poster has achieved so much already and.

And the hard work of our colleagues and the support of our main shareholders.

We are now at the beginning of an exciting phase as we move from one to four models.

And with a more efficient organization, we can see a clear path towards profitability within two years.

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

Thank you.

Ladies and gentlemen, as a reminder to ask a question. Please press star one on your telephone and wait to hear your name announced to withdraw your question. Please press star one again please.

Please standby, while we compile the Q&A roster.

Our first question comes from the line of Andrew Shepherd with Cantor Fitzgerald. Your line is open.

Hi, good afternoon, everyone.

Thanks for taking my question and congratulations on the quarter.

Our first question is you provided.

Outlook for delivery targets for 2025 approximately 160000.

Now have about 60000 expected deliveries for this year I'm curious if you can maybe give us some color on how we should be thinking about deliveries in 2020 for should we be looking at somewhere in the midpoint between those two or what's the best way to think about it. Thank you.

Okay.

Hi, This is johan.

I think the way you should think about about two things one is that.

The way you should think about it is that looking at the.

The startup of production in the rollout of the cars as.

As we mentioned in the initial comments really.

I'll start for in the past our three.

Those deliveries will occur in more meaningful way.

From Q2, so you have the second half of the year, we had the three core lineup.

So there's definitely going to be a certain facing next year that could flex down that started production of the deliveries.

We'll come back to this when we are in regards to guide any more specifics on 2024 as part of our Q4 earnings but I think that's the.

What I would take into consideration.

Ratio now.

Got it that's super helpful. I appreciate that.

Maybe as a quick follow up.

Just wanted to better understand.

The new <unk>.

Financing and liquidity with $450 million from Geely and Volvo you've mentioned that.

You will require another $1 3 billion to get to that.

Breakeven cash flow in 2025.

Any sense of when that timing for that $1 3 billion will look like is that it is.

Still a bit of a short term need or with this additional financing does this give you a little more flexibility on timing. Thank you very much.

Yes, I can help provide some color there just to kind of.

Give that make that picture to procure so.

Well the one three stems from his thought it based upon the expected accumulated negative.

Free cash flow as from the end of Q3.

Through cash flow breakeven in 2025.

And.

And that's a cumulative cash flow, we expect to be around $1 9 billion.

And then we.

Deduct.

<unk>, both existing or financing support from our owners around 600 million to get to the one three.

So between now and then of course, we expect this quarterly cash burn in 2000 2004 to slow and then ultimately arrive at a cash flow breakeven in 2025 based upon.

All the options that we are now.

Ill.

Executing on as reflected in the remarks from Thomson.

Very very helpful. Thank you again, congrats on the quarter I'll pass it on thank you.

Keith.

Thank you please standby for our next question.

Our next question comes from the line of Alexander Potter with Piper Sandler Your line is open.

Perfect. Thanks, guys.

The first question I had was if you could give an update on how the joint venture in China is progressing I know that was a relatively recent announcement, but I'm curious if there've been any.

Maybe initial findings.

Short term goals and medium term goals for that joint venture.

Yes.

Yes, I will take this question on the China JV.

Which is indeed progressing well obviously.

Very much the launch of the poster for now going into production.

Coming to customers in December 1st time.

It's very much under the light of.

It being depressed.

Execution of the JV really software in this call will already be.

Design and influenced by our partner on this so the customer gets this full benefit of connectivity and China targets hit.

Entertainment system and discount so the fruits of this JV already was in this short time come.

Come alive, but of course really in 2024.

Saying that now here of the Cleveland <unk>.

<unk>.

Opposed to phone coming together with the car to market then of course.

It will become full fledged, but we expect to be.

Yes.

A car that is.

Consumer centric.

Made in.

China.

Having the benefit of a software athene partner.

Business in our email.

We have the rollout of our postal spaces in China, as well happening parallel to that.

Having of course already target by the end of this year.

Which is.

The base for us.

Really accelerating now in China.

Yes.

We see that definitely positive for us.

The media feedback with the pre ordering converting into real on us.

It's showing that traction.

A product that is definitely in China are resonating well with the size and its.

Spaciousness, but as well of course.

Special combination of us having now software in the car which is design.

Designs.

And for Chinese customers.

Okay, Great. That's Super helpful. And then maybe just a related question on to that then is it possible for you to take those learnings and that China specific software infotainment offering and leverage it in your other vehicles as well I know that in the past you've talked about how <unk>.

Our two maybe isn't an ideal fit for the Chinese consumer that Chinese market is there a way that you can leverage the JV to push sales of that product or is that something that's not maybe on the radar screen.

Well it was in the China market obviously the.

The range of post our cost and to post a three of course will be an important product as well will.

Get the benefit of this software being much more catered for the China market. So that goes across car line.

I mean, the interesting aspect of it because a lot of what I see happening there in terms of what is being done for the customer in terms of software and the apps.

Absolutely expect for us as well learnings for the rest of the world.

Of course, this will not be a direct translation and we have a very strict.

Border between what is.

The cloud the customer electronics in China versus.

The western World, having said that certain behaviors of what we see.

Entertaining features I definitely see benefits from us learning.

Okay great.

I hate to harp on China here, but my last question is also related to China. So that Theres, obviously been a lot of.

It'd be geo political saber rattling lately, particularly in Europe about trying to throw out protection at barriers on imports of vehicles from China.

What are your thoughts on this I know that nothing is set in stone yet so there's a lot of uncertainty, but you alluded to potentially a new factory location in your prepared remarks I'm just interested in knowing what you're planning in terms of maybe a worst case scenario yes.

If the European Union does.

Institutes something resembling a protection policy again.

Imported Chinese cart.

Yes.

To answer anyway on that.

On one hand, I mean, some things very clear we are we are buying other parts from our contract manufacturing partners.

That's a very straightforward chase.

I'm, saying space so.

I think that.

Very well, how Pam we just simply have too.

Our cost element, but the.

The other thing is.

For some time now I mean, firstly this journey started like two years ago.

We had to make and efforts to diversify element infection.

Footprint you have.

It started with plus the three being.

Well now implemented into the plant.

And South Carolina.

Where we will produce this car.

Not only for the U S, but we will as well export from the U S.

To Europe.

So that certainly is a way of us derisking our business the other way is.

At our second important SUV.

Now the poster hall.

We are very soon.

<unk>.

Precise about how we found the way.

Having a second production footprint.

As well so obviously, yes, we have taken.

Very concrete steps that already.

In the near future will be in place for us to be prepared for such a situation.

Very good thanks very much.

Okay.

Thank you please standby for our next question.

Our next question comes from the line of Dan Levy with Barclays. Your line is open.

Hi.

Good afternoon to you. Thank you for taking the questions.

Wanted to start.

Just by asking within the.

Within the path to getting to breakeven, which we laid out a number of steps and I think one of those.

On getting improved cost.

And your licensing of manufacturing capacity and technology.

Volvo and Geely.

What is the line of sight to extracting those costs, how critical step and is this and getting to gross margin breakeven and in the event of a.

Weaker environment what is how.

How much pressure does it put on that target of extracting those cost saves.

Yes, Thanks, Dan.

I think.

First point to make clear is that the.

The bulk or the absolute majority of margin accretion comes from the product mix and improved margin profile of these vehicles.

The.

What we laid out in the remarks in regards to <unk>.

Continuing to work on and drive down the production costs.

In close collaboration with our contract manufacturing partners I mean on the one and Thats something that we would in any one would typically expect.

To continue regardless, we're just making sure that we're putting.

Extra emphasis on it with that being said of course.

Here, we devry.

Derived the mutual benefit of that especially.

On those platforms that we share.

So from that perspective.

We are well if they are both or all three of us very much focused on this.

And that's why we would expect it to add.

<unk> to the already healthy margin profile for these products.

Got it understood. Thank you.

The second question is just around demand broadly and <unk>.

Two part question and maybe you could just give us a sense at least for Pollstar for I know you said there has been very positive reception from.

In the media in China, if you have a sense on the visibility of order the magnitude of backlog and then the other question is yeah. So.

To the extent that it's just.

Obviously, a very tight.

Macro environment.

Across the regions to the extent that you need to pivot on any components of the plan what is your ability to.

Pivot.

Within the plan that you've laid out this afternoon.

Okay.

Okay.

Well Thomas Ian I will.

I would really like to make sure that that exercise of.

Working on the business plan strengthening in and making resilient was of course very much as well to make sure that those important goals.

Breakeven in 2025.

Reduction of the.

Funding need is all.

Working in an environment obviously.

Demand.

Is.

And then well climate.

At the moment, something which is very different to when we started the journey in 2017.

Even in 2020, it was still a complete different pictures of them yesterday.

So for that reason be rest assured that this exercise of this business plan and took very much into account that we cannot know dream of fancy demand scenarios, but have put down there are very achievable and realistic baseline.

That was very important element of us doing this work over summer.

Yeah.

Understood and then Paul stop or any visibility on near term volumes.

Backlog.

Well I think like Tom said, I mean based upon.

The initial reactions from.

The different advance it's been received very well. So I think we're very excited about this project.

We're starting to deliveries in China.

So of course that will serve as a good proxy.

Success, but.

Is it just one of those products that we expect the higher volumes to come from.

I think it's very well positioned to do so.

And the pace that we are in now.

Some things.

Now important behalf.

The first drive.

The journalists the next phases of course to have now customers coming into the car and being able to drive the car in order to make that big move from preorders too.

Two fixed orders so that is the face that we are in.

Obviously, we are very optimistic about that we will be successful in making that shift of the preorders.

Yeah.

Attract many more customers I mean, one thing is clear there.

First of all being a car, which indeed now.

Our niche is that opportunity for us and China will of course be and very important element of making the volume of the postal very significant follow up Brad.

And just from a personal experience I mean I.

So much of our.

Existing customers from close to two we see have a very strong interest in exploring this car and upgrading to it so we see of course.

That's why we always say we're not in the.

And starting from scratch all of that.

Investment in building up the brand building that customer base.

Thousands of 10 thousands of posts to customers of course that isn't very new and additional channel of us really bringing bringing that potential of people upgrading and going from a positive two poster for spending that much more money on that next level of exclusive SUV.

Great. Thank you.

Thank you.

As a reminder, ladies and gentlemen that star one to ask a question. Please.

Please standby for our next question.

Okay.

Our next question comes from the line up to buys bet with Redburn Atlantic Your line is open.

Hi, good evening, Thanks for taking my question.

Questions I have a couple actually.

Unfortunately, they are all Johann.

I guess, maybe let's take them one by one.

My first question is as follows can you explain how cumulative cash flow breakeven.

It is only $1 $9 billion when free cash burn this quarter was $700 million with very low capex and seemingly still lots of intangibles capital equipment relating to the pulse off three four and five still yet to be quiet.

Yes.

Thank you for the thank you for the question so.

As you.

Correctly pointed out here of course, what are the prices that we expect the quarterly cash burn in 2024 two.

<unk> slowed down significantly and that of course on the backdrop.

In part than the.

The volumes from pulse start three and four and the margin profiles of those course like I said in my opening remarks being in excess of 20%. So.

The earnings generated by those cars.

The primary driver to your question or the answer to your question.

That and the ambition them to executing on these actions that we've laid out to further take out costs.

It will improve the margin profile of.

Pollstar in them.

In regards to net working capital and Capex, Yes, there is a natural buildup of inventory as we are.

Introduced this.

Models, but of course, there is also a benefit of more localized production.

Doug will help pay for that to some extent.

And then in regards to Capex I mean, we continue to invest in the car programs.

But with that being said that's also an area that we've taken a hard look at to see.

<unk>.

Primarily as it relates to the phasing of the Capex to make sure that we can.

Revive at this breakeven point in 2025.

Okay. So is it possible.

And perhaps some of the Capex that you had anticipated pre 2025 now comes.

<unk> 25.

Yes, I would say that that's definitely one of the actions we've looked at with that being said, we've also been very adamant about keeping our core programs.

And so.

But of course to the extent, where we can.

Change the cash we can conserve cash whether it's looking at.

Pushing out or different ways to to.

To fund the project.

And we have taken a look at that.

Okay understood.

Yes.

You estimate.

No funding requirements.

In addition to what was announced today.

To get to the point of being free cash flow positive is one 3 billion.

Does this exclude proceeds from short term working capital loans.

If so what has been assumed for net new loan proceeds between now and 2025.

Yeah, Okay. So the the the assumption around that is that the existing debt.

<unk>.

Remained so to the extent that it's made up of short term working capital lines.

This will be rolled over and I think we've been able to demonstrate our ability to do so.

Uh huh.

The current borrowings for my shareholders as laid out its extended out to 2027.

So.

The 1.3 funding needed done based upon the cumulative cash flow less.

The new support from the owners and the remaining what remains.

And utilized from the prior $1 six.

So collected them 600 million.

To get to the $1 three funding.

Okay understood.

If I look at balance sheets, and advanced payments from customers roughly half a quarter on quarter.

<unk> discussed on prior earnings calls about it.

Correlation between this line item and the order book.

I was wondering if it's therefore right to conclude pitch wholesales backlog is half.

Yes, thanks for raising that point to be up I. Appreciate it the answer is no and the reason for the lower amount in Q3, it's actually it's related to certain arrangements with fleet customers that were initiated in Q2, which in Q3 has got to lead to a re class to deferred revenue. So it has to do with <unk>.

Timing of invoicing and when Costar is obligated to deliver the vehicle. So in your effort to try to correlate.

That line item to the order book I would say that it's relatively flat quarter on quarter.

Okay.

And then my last question's really about.

Our expectations for wholesale three and pulse thoughtful.

If I have a look at web polestar two volume talk today.

And roughly 50% below your prior 2025 expectations and incentives are already present in some of your major end markets on the model year 2024.

I'll start Matt and I was wondering.

What volumes have you assumed for pulsed off three and four this time at 2025.

And what is your success.

Gives you confidence in that success.

Yeah.

So maybe I can start I mean, maybe not.

We have not broken down.

The volumes are enterprise wide car model.

I think.

What we expect as <unk> alluded to.

If anything that we see that the pollstar for.

Becoming more of a.

Pardon me.

I think it's very well positioned to.

To be that then it caters well for both the Asian market in the U S market in Europe for that matter.

Sure.

Yes.

Yeah.

Okay, maybe Thomas here, sorry, I would love to add as well I mean, obviously.

I would call another plus a three and four of course much more.

World Light catering cost size wise they are.

Addressing a need in the U S and in China much more than the posted two can can do as a fairly compact.

European sized com.

And post the three and four close we'll have the benefit of many.

Affection footprint, which.

Obviously makes it much more profitable to sell them in China, and U S and in Europe.

Equally so for that reason.

I think it's fair to say that.

Proposal three and four we.

Oh.

Very well positioned to reach the volume ambition.

We've very clearly as well made.

He is in the last earning calls that we.

Will not drive.

Volume on the.

On the expense of margin and for that reason to concentrate was supposedly two on those markets where this car can.

Can achieve the margins that we expect is as well a very strict and clear policy that we have now so I think that explains as well.

How would that relates to volume expectations that had been put out long ago, yes. It goes to a prostitute.

Alright understood that's helpful color Thomas and Johan I appreciate it thanks for your time.

Okay.

Thank you.

I'm showing no further questions in the queue I would now like to turn the call back over to Guyana.

The floor is yours.

Thank you so much we will now take a few minutes left until the end of the call take three top questions from our retail shareholders.

So I'll read them out and then Thomas.

I can answer that.

So the first off question as an investor what can we look forward to stop cut shaping and your thought around that with your great vehicles to a larger demand.

How are you going to create that demand.

I read it as a volume confidence in our product lineup and our volume ambitions.

Thomas.

Well as mentioned before obviously the moment of us introducing a poster and poster three.

Yes.

A game changer in that respect we have on one hand first time Suvs and then two of them very nicely positioned from each other going into the market. We all know that the SUV segment as a much larger target group that addressable market almost across the world for Suvs is the <unk>.

Net of cost consciousness.

So that should be the main answer for that having said that.

China, JV again opens up to China market for us.

Much much more.

Optimistic situation that than ever before.

And of course.

We brought the poster three enterprise to fall very early now into our poster spaces in order to have.

Enough time months to get the customers excited about these costs. So there are a lot of actions, including a big Big test drive coming up.

In the beginning of 2020 full for journalists.

Cost drive a lot of attention to this new cost cutting.

Perfect. Thank you moving on to question number two what is your plan to stop the short term.

Yes, just to reiterate.

That has been done now.

How much.

Bring business plan into into play here.

Yes.

Resilient.

Working in an environment, which obviously is tougher than yes.

Yes before.

And that breakeven in 2025.

And really I mean.

How many months.

Is that I mean that is not now talking here long term in the future that is a very reachable goal.

The reduction.

After funding needs too.

A dimension, which I think compared to a lot of our peers is actually exceptional.

LOE and.

In that respect.

I think we read.

And it did a lot of our homework now too in order to.

Mike that future and the success of pulse of that retention.

And I think we've made three very significant steps forward in regards to the funding solution here.

We've lined out clearly the actions to get to just lower.

Funding needs, we have the support from the owners and we are well progressed in regards to the artistic from the time to close out the remaining.

And let's take the third and final question when can we expect to see production from the South Carolina facility and what impact they have on the company.

Okay Summer 'twenty four.

Simple answer on that one.

And the effects and impacts two things I mean very clearly.

Enabler for us.

And our profitability journey.

Having a car that is produced in the U S for the U S.

And that of course is as well.

Emotional thing, obviously again produced in the U S for the U S of course is a.

Very different starting point for us to be out.

Out with successful product.

Fantastic. Thank you. So closing remark said, we are on time to finish at three P. M.

Closing remarks, thanks Liana okay.

Yes, let me take this now.

Yes.

Pasta has made this significant achievement since launch.

Yeah.

Tablets, the new brands.

And we have.

Gain.

<unk> in the markets.

And of course, we have now developed this very very strong product lineup that we are about to rollout.

This has prepared our company operationally for scale up of volumes.

And postpaid is now at a pivotal point.

We have adapted to a constrained financial context requiring focus.

And.

Value of propulsion.

Poster will become successful and poster will create significant shareholder value.

Thank you.

Operator, we are concluding the call thanks, everyone for joining and we'll speak again soon.

Ladies and gentlemen. This concludes today's conference. Thank you for your participation you may now disconnect.

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Great.

Hello, and welcome to Pollstar Q3, 2023 results conference call.

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 this session you will need to press star one on your telephone.

You will then hear automated message advising yohan just raised.

Draw. Your question. Please press star one again.

I would now like to hand, the conference over to Brianna you may begin.

Thank you operator, Hello, everyone, Brian Maclean here from Costar Investor Relations.

Thank you for joining our Q3 2023 results call.

Thomas <unk>, CEO and Johan Barclays Bell CFO will start with the ripening remarks, followed by analyst and retail investor questions.

But before then I will cover some housekeeping points.

I would like to remind participants that many of our comments today will be considered forward looking statements under U S Federal securities laws and.

And are subject to numerous risks and uncertainties that may cause <unk> actual results to differ materially from what has been communicated.

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

The future financial performance of the company production and delivery volumes.

And operating results.

Tomas who can medium term targets.

Fund, raising and funding requirements macroeconomic and industry trends company initiatives and other future events.

Forward looking statements made today are effective only as of today and poster undertakes 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 contained in our SEC filings.

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

A discussion of why we use non-GAAP financial measures and information regarding reconciliation of non-GAAP financial measures with the most directly comparable GAAP measures in the Investor update presentation, you showed earlier today.

With that I would like to turn the call over to Thomas <unk>. Please go ahead.

Thank you Anna.

And thank you to everyone for joining us today at a slightly different time than we normally would hold our call.

The reason for this as you probably know who said we are hosting post study here in Los Angeles Tomorrow morning.

We will have a number of technology partners, including mobile I Lumina MTB com, joining us to deep dive into the technology sets will form the future of our costs.

It's shaping up to be a fantastic events and for those of you that aren't able to join US we will be publishing a recording of the keynote presentations and highlights from the exhibition area on our website afterwards.

Starting with the results.

The third quarter saw record deliveries of 13976, a growth of 51% compared to last year.

We saw a positive impact from channel market and product variant mix.

And the start of poster two model year 'twenty four deliveries.

In total during the first nine months of the year, we delivered 41817 cuts.

Growth of 37% compared to the same period last year.

Thank you Johan will take you through the financial results in more detail in a moment.

Turning to the operational highlights of the last quarter.

Staffing was supposed to end to significantly upgraded model year 'twenty four.

Deliveries of this higher price model continue to ramp up and it is receiving great reviews Chuck.

<unk> calls at one of the most complete electric cost money can buy.

<unk> trader ranks at four five out of five stars.

The highest possible rating the safety power and features category.

Similar high Scotland headlines continue to be published across pretty much all of our key markets.

This is calm it up until now we have built our brand cooperation commercial operations and supply chain side.

This one com.

When you consider this.

And see that significant opportunity that we now have with two new models luxury performance Suvs coming to the market.

Let's start with pasta three.

Preparations for startup production first in China early next year, and then in the U S and the sum of 24.

Progressing well.

Plus the three successfully completed hot weather testing in the UAE in September.

And the last phase of testing will be completed by the end of this year.

The new electric performance SUV created a bus when it arrived and our postal spaces over the summer and it is attracting new polestar customers to come in and experience it firsthand.

I spent a few days myself with one of our poster three test vehicles last months and even for me. It wasn't I open up to experience how much of a shift the concrete present swaps.

Right.

Handling and of course, the luxury space.

Turning to post a four hour SUV coupe.

Last time, we met I talked about the positive reception discard head at the Chengdu Auto show.

Two weeks ago, we held the first media test drives on nimble race track, where journalists pushed the cut to the limits.

The resulting reviews are very positive, especially with regards to its performance handling and passenger comfort.

Start of production of pasta and Hangzhou Bay begins next week with customer deliveries in China, starting before the end of the year and then the rest of the world planned for mid 2024.

Post as the leading partner of Google and posted two was the first cut on the market to feature Google's Android automotive glass.

And it launched in 2019.

Since then we've seamlessly integrated the number of apps into our cost most recently prime video, which we announced in September.

Several other manufacturers have now full of the pulse of our successful cooperation with Google.

Now as I alluded to earlier, we will deep dive into a number of exciting innovations tomorrow at post today.

Our lineup of cost, but also be onshore in the U S for the first time, and we're giving visitors the chance to experience. The first dynamic experiences posted a three and four on the roads in Los Angeles is our test engineers conducting ride alongs.

I've talked before about the value of this unique position and platform that we have created.

Strong and established market presence with a wide sales and service network that extends far beyond most pure EV startups and matches, but most traditional Oems cellphone.

Over the last few months, we took the necessary steps to rework our business plan.

We are reducing costs.

And improving efficiency.

Eight are more resilient and profitable pulp stock.

And reducing of our funding needs at the same time.

Achieving cash flow breakeven already in 2025 will show the strength of our asset light business model.

Margin of our volume.

The way forward.

Supported by a gorgeous lineup of exclusive performance costs.

Our strategic direction is clear we are safeguarding the premium position of the post op brand.

This plan.

Reduces our expected cash outflow from the end of September this year 2025 to around $1 3 billion U S dollars.

Following additional support announced to date from our two major challenges.

In 2025 targeting total annual deliveries of around 155000 to 165000.

In addition to the value derived from our growing lineup of pasta free fall in five.

We are taking several actions to improve margins and reduce opex.

Johan will cover in a bit more detail the contribution of these actions.

I will give you some further color where we have to introduce more significant changes to our operations.

Main steps are taken to further improve our margins.

Introducing more flexible pecs.

Model lineup growth into most luxurious segments.

So need to offer customers the ability for greater customization generating more revenue across our car lineup.

Taking a more focused approach to our market presence.

Starting in Europe, we have a number of markets that are both performing well and show continued scope for further profitable growth.

We are going to shift investments into these from markets, which are either smaller or less profitable.

It's not about leaving the market, but about directing our resources to where they give us the best impact.

Some cases.

Also move to an important moment.

As you know since the start of the summer our operations in China are part of a JV with major.

Providing a stronger foundation for us to succeed.

Improving the profitability of our U S business.

Part of this turnaround will be driven by the introduction of pulse <unk> three car that will be much better positioned for the U S consumer and especially once production in South Carolina stops.

That said, we are taking further steps to adjust and target our brand building and marketing spend.

We are making sure that we have the most efficient retail partner setup.

Identified product cost reduction opportunities both by working closely with R&D and purchasing we have ambitious but realistic cost reduction opportunities identified to reduce bill of material.

We are also reducing our operation expenditure across the business, which Johan will go into more detail in a minute.

2025 is an important milestone, but not the end state. Our ambition is of course to continue to develop the poster brand of our volumes and profitability in the long term.

We have a significantly stronger foundation from which to build on than many of us we.

We have a strong and a unique brand and strong and supportive shareholders.

And with that I'll hand over to Johan for more on the Q3 results 2023 outlook and some details behind our strength business plan.

And of course, the funding update.

Thank you for listening in and I look forward to taking your questions. After eight months remarks.

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

Thomas said, we are in Los Angeles getting ready for the post date Tomorrow, where we are going to be joined by hundreds of customers media investors and analysts.

Before moving into the quarterly highlights key business actions from our strengthened business plan and the 2023 outlook I would like to revisit points Thomas and I raised in our Q2 results call in late August.

Firstly.

We said, we expected a stronger second half of the year in terms of margin and volume, reflecting the ramp up of the upgraded and higher priced priced polestar two model year 'twenty four.

And we still expect that with Q4 being our strongest volume quarter. This year.

We saw improvement in the core business margins during Q3 on the back of the positive mix and as we continue to rollout polestar two model year 'twenty four alongside reduction in raw material costs, we expect margin progression to strengthen for the remainder of the year.

Secondly.

We've said that looking ahead into 2024, we will benefit from the rapid product rollout.

In 2024 is just around the corner and poster for starting production in a matter of days with first customer deliveries commencing in China next month.

Road by other markets in mid 2024.

Post our three started production is also on track with first customer deliveries expected in Q2 2024.

Thirdly, we said that the cost savings measures announced with our Q1 2023.

<unk>, which would include taking out both existing head count as well as rolls that are planned for this year, we're progressing well. We're now at a point that we would have 300 fewer employees by the end of the year.

Lastly, we said we would continue to explore other areas, where we can become leaner and more efficient to take down costs further and improve our competitiveness.

Thomas is taking you through the business drivers of our strengthened business plan and I will pick up on those briefly after I cover our quarterly results in 2023 output.

Starting with some operational highlights first with.

With established presence in 27 markets. We are now focused on improving the profitability in each of these.

We will drive sales and service through our Pollstar spaces and service points as our model lineup growth to three cars in the next six months.

As you know we benefit from access to an existing scalable state of the art manufacturing footprint of our experienced partners Volvo cars and Gili.

At the production plant in <unk>, we continue efforts to reduce both costs and overall <unk> impact of our polestar two.

In Hangzhou Bay, where poster forest manufactured the first cars will start to come off the line next week.

We will soon announce another production site outside of China.

And plan to start producing postal forced there in mid 2025.

Like I said post our three production in Chengdu with Amtrak and preparations at the South Carolina factory are also progressing well.

Moving now to the financial highlights for the third quarter of 2023.

We delivered 13976 cars this quarter versus 9239 last year a growth of 51%.

Revenue increased 41% to $613 million driven.

Driven by volume growth as well as price increases implemented last year and the model year 'twenty for ramp up offset by various sales support actions, including discounts.

In regards to channel mix this quarter has reverted to a more normal level of around 60% fleet sales.

40% retail.

And that has benefited revenue through product variant mix.

Our strategic partnership with Hertz is progressing well and at the end of Q3, we have delivered about 15% of the 65000 commitment.

We continue to be excited about this partnership and Theres, a strong collaboration and helping to develop what is currently a challenging <unk> market.

As a broader point fleet is and will remain an important part of our business.

Putting aside the Hertz partnership a very high percentage of our remaining fleet book is corporate car schemes, which attract margins that are more closely aligned with our retail business and provide access to an important pool of target customers for our upcoming product lineup.

Turning to gross profit for Q3 2023, it was approximately $4 million.

Corresponding to a margin of almost 1% broadly in line with last year.

Although the core business benefited from a positive channel market and product mix gross profit in the quarter was impacted by a large inventory impairment charge of $28 million.

Demand in certain markets and particularly in the U S was weaker than we anticipated, which led to fewer cars being sold and an inventory buildup.

Due to the margin profile in the U S with high import duties. Consequently, there was a need to write down the value of the inventory.

We also had any impact from secondhand cars, which have started to come in targeting inventory in a more meaningful way.

Recognizing the impact on the profitability of our business, we have taken mitigating actions to temporarily cut production volumes in order to improve inventory balances.

With regards to selling general and administrative expenses they were up 58 million.

236.

Reflecting primarily higher advertising selling and promotional activities ahead of the pulse archery and poster for delivery.

Research and development expenses were up $30 million, reflecting continued investment in future vehicles and technology.

Operating loss was $261 million compared to $196 million last year.

Moving onto cash flow for the first nine months of 2023.

Cash used for operating activities was $1 3 billion, mainly driven by operating loss higher levels of inventory and trade payable payments.

As previously guided we repaid related party payables in the quarter via new short term working capital facilities.

This reflects a more natural funding solution as we continue to develop our longer term capital structure.

Cash used for investing activities was $189 million, primarily as a result of polestar two poster three in poster for intellectual property investments.

Partially offset by the divestment of the Shanghai plant, while the poster one was previously produced.

Cash provided by financing activities was $1 5 billion, reflecting short term borrowings of $3 4 billion of which $800 million, what's drawn down from the Volvo cars shareholder loan facility.

And principle repayments of $1 9 billion.

At the end of the third quarter of 2023 cash and cash equivalents stood at 951.

Before shifting topic to a strengthened business plan and funding update let me address the 2023 outlook.

We now expect to deliver about 60000 vehicles for this year as we maintain a disciplined approach to our premium brand positioning against the background of a weakening global consumer demand, particularly affecting the rate of adoption.

Flowing from lower deliveries for the year and the financial performance to date in particular inventory impairment charges. We now expect a full year gross margin of around 2%.

Turning to our strategic direction, which remains unchanged and in line with our premium brand positioning.

Our strengthened business plan targets and accelerated margin improvement and a reduction of our total funding need to the point of anticipated cash flow breakeven in 2025.

By 2025, we are targeting our four car models to generate total deliveries of around 155000 to 165000.

We have taken a thorough look at all aspects of our business with a keen focus on measures to enhance the gross margin.

In 2025, with an improved product mix.

And the following business measures, we are targeting gross margins in the high teens.

We expect more than half of this progression to come from our model range rollout with more luxurious and exclusive cars cars that would naturally carry a gross profit margin of over 20%.

We have reviewed the structure of our product offering recognizing a high degree of options could lead to improved margins.

Therefore, we will be introducing as Thomas said more flexible option packs for our customers, hence generating more revenue.

We will have a more focused approach to market presence.

In Europe, we will be directing sales and investments towards markets that have the greatest potential for profitable growth in China, recognizing the competitive landscape, we have taken a different approach and formed an innovative joint venture.

We are very excited about the prospects firstly in selling more cars and secondly through the technology that our partner will bring to our cars.

Which could be deployed internationally in addition to China.

In the U S. Our objective is to improve the profitability of that market given the current China centric manufacturing footprint, which leads to high levels of tariffs into the U S.

This will in part be addressed by the production of pulse or three in Charleston, and even further from mid 2025 with a new manufacturing plant for Pollstar for outside of China, which we will announce soon.

Location also enjoys more favorable trade agreement terms with the U S.

Lastly, improved product cost is also a key ingredient in our path towards higher margins here.

Here, we are working very closely with our two main contract manufacturing partners to drive down costs, while maintaining the high quality product our customers love unexpected.

We believe these four main initiatives alongside much improved product mix will enable us to achieve a gross margin in the high teens.

The rest will come from a combination of factors outlined above.

Tax and options optimize market presence in Europe and China.

Stronger profitability of our U S business.

And from optimized production costs.

Alongside margin enhancing measures. We have also identified initiatives to reduce operational costs and become even leaner and more efficient as we continue to grow.

We announced head count reductions earlier this year and like I mentioned at the beginning those negotiations were completed successfully and pulsar now employs around 300 fewer employees globally.

Furthermore, we will look to resize and better optimize advertising sales promotion spend and ensure our sales footprint digital and R&D setup is operating more efficiently as we scale the business.

Although we have been steadfast in safeguarding our car programs, we have and we'll be very disciplined in our planned capex spend finding ways to either reduce or push payments out beyond the cash flow breakeven point.

We're also looking at ways to reduce working capital for example, but the manufacturing footprint that is closer to the end market as well as the new setup in China with the joint venture, we will be able to significantly reduce our inventory needs.

In combination, we expect cost management actions and dose on gross margin, we will see pulsar reach cash flow breakeven in 2025.

Of course this is not the end state 20 to 25 will be an important milestone for our business and thereafter, we expect to continue to grow volumes building on a profitable three car baseline to also include both the five and six as well as future models.

Moving onto funding updates with business actions to manage costs drive higher margins and cash flow outlined by both Thomas Tonight, we have reduced our total funding.

Showing our continued commitment for Pollstar, we're pleased to announce that our two major shareholders have both increased their support.

Volvo cars has extended the maturity of the existing shareholder term loan to 2027 and is providing additional funding of $200 million.

In addition, daily Sweden, holding a b an affiliate of daily holding is providing $250 million shareholder term loan on substantially the same conditions as they evolve of course shareholder turned up excluding a maturity in 2027.

Both loans have an option on equity conversion feature.

Based upon the expected cumulative negative free cash flow from the end of third quarter 2023.

Until achieving cash flow breakeven targeted for 2025.

And taking into account existing and new financing and liquidity support from Chile, and Volvo cars Pulsar requires external funding of approximately $1 3 billion.

We continue to work on a plan, which will provide the remainder of the funding required until we achieve the targeted cash flow breakeven in 2025.

We expect to finalize this finally plan in the near term and it will include both additional debt and equity.

In short period of time post our attitude so much already and.

And the hard work of our colleagues and the support of our main shareholders.

We are now at the beginning of an exciting phase as we move from one to four models.

And with a more efficient organization, we can see a clear path towards profitability within two years.

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

Thank you.

Ladies and gentlemen, as a reminder to ask a question. Please press star one on your telephone and wait to hear your name announced to withdraw your question. Please press star one again please.

Please standby, while we compile the Q&A roster.

Our first question comes from the line of Andrew Shepherd with Cantor Fitzgerald. Your line is open.

Hi, good afternoon, everyone.

Thanks for taking my question and congratulations on the quarter.

Hmm.

Our first question is you provided.

Outlook for delivery targets for 2025 approximately 160000.

Now have about 60000 expected deliveries for this year I'm curious if you could maybe give us some color on how we should be thinking about deliveries in 2020 for should we be looking at somewhere in the midpoint between those two or what's the best way to think about it. Thank you.

Okay.

Hi, This is johan.

I think the way you should think about about two things one is that.

The way you should think about it is that looking at the.

The startup of production in the rollout of the cars as we mentioned in the initial comments really.

I'll start for in the past our three.

Those deliveries will occur in more meaningful way really starting from Q2. So you have.

Second half of the year, we had the three core lineup.

So there's definitely going to be a certain facing next year that could flex down to start of production of the deliveries.

We'll come back to this one.

Regards to guide any more specifics beyond 2024 as part of our Q4 earnings, but I think that's the.

Uh huh.

What I would take into consider any.

Duration now.

Got it.

Helpful. I appreciate that.

And maybe as a quick follow up I, just wanted to better understand.

The new.

Financing and liquidity with $450 million from Geely and Volvo You've mentioned that you will require another $1 3 billion to get to that <unk>.

<unk> and cash flow in 2025.

Any sense of timing for that $1 3 billion will look like is that.

It's still a bit of a short term need or with this additional financing does this give you a little more flexibility on timing. Thank you very much.

Yes, I can help provide some color there just to kind of.

That makes that picture to procure so.

Well the one three stems from his thought it based upon the expected accumulated negative.

Free cash flow as from the end of Q3.

Through cash flow breakeven in 2025.

And.

And that's a cumulative cash flow, we expect to be around $1 9 billion.

And then we.

Deduct.

Yeah.

Assisting both existing or financing support from our owners around 600 million to get to the one three.

So between now and then of course, we expect this quarterly cash burn in 2024 to slow and then ultimately arrive at a cash flow breakeven in 2025 based upon.

All the actions that we are now.

Executing on as reflected in the remarks from Thomson.

Very.

Very helpful. Thank you again, congrats on the quarter I'll pass it on thank you.

Hi.

Thank you please standby for our next question.

Our next question comes from the line of Alexander Potter with Piper Sandler Your line is open.

Perfect. Thanks, guys.

The first question I had was if you could give an update on how the joint venture in China is progressing I know that was a relatively recent announcement, but I'm curious has there been any.

Maybe initial findings and short term goals and medium term goals for that joint venture.

Yeah, Thomas I will take this question on the China JV.

Which is indeed progressing well obviously.

Very much the launch of the poster for now going into production.

Coming to customers.

In December 1st time.

It's very much under the light of it being the first.

Execution of the JV really.

Software in this call will already be.

Design and influenced by our partner on that so the customer gets the full benefit of connectivity and China targets hits Entertainment system and discount so the fruits of this JV already was in this short time.

Come alive, but of course really in 2024.

Saying that now here at Cleveland.

Spell.

Opposed to phone coming together with the car to market then of course.

Will become full fledged, but we expect to be.

A car that is consumer centric may.

Made in.

China.

Having the benefit of a software athene partner, that's not us.

Those businesses very well.

We have the rollout of our passes spaces in China, as well happening parallel to that.

Having of course already target by the end of this year.

Which is.

The base for us.

Really accelerating now in China.

Yes.

We see that definitely positive for us.

The media feedback with the preordering converting into real on us.

It's showing that traction.

A product that is definitely in China are resonating well with the size and its.

Spaciousness, but as well of course.

Special combination of us having now software in the car which is.

Designed by.

And for Chinese customers.

Okay, Great. That's Super helpful. And then maybe just a related question on to that then is it possible for you to take those learnings and that China specific.

We're infotainment offering and leverage it in your other vehicles as well I know that in the past you've talked about how we'll start to maybe isn't an ideal fit for us.

The Chinese consumer that Chinese market is there a way that you can leverage the JV to push sales of that product or is that something that's not maybe on the radar screen.

Well it was in the China market obviously.

The range of poster.

And to post a three of course will be an important product in this well will.

Get the benefit of this software being much more catered for the China market. So that goes across car line.

I mean, an interesting aspect of it because a lot of what I see happening there in terms of what is being done for the customer in terms of software in the car.

Absolutely expect for us as well learnings for the rest of the world.

Of course, this will not be a direct translation and we have a very strict.

Border between what is.

The cloud the customer electronics in China versus.

The western World, having said that certain behaviors of what what we see.

Entertaining features are definitely see benefits from us lending.

Okay great.

I hate to harp on China here, but my last question is also related to China. So that Theres, obviously been a lot of.

It would be Geo political saber rattling lately, particularly in Europe about trying to throw out protection at barriers on imports of vehicles from China.

What are your thoughts on this I know that nothing is set in stone yet so there's a lot of uncertainty, but you alluded to potentially a new factory location in your prepared remarks.

They didn't knowing what you're planning in terms of maybe a worst case scenario, yes, if the European Union does.

Something resembling a protection policy against imported Chinese cart.

Yes.

To answer anyway on that.

On one hand I mean.

Some things are already clear, we up we are buying other parts from our contract manufacturing partners.

That's a very straightforward per chase.

Armstrong space so.

I think.

Very well.

We just simply have too.

Our cost element, but.

The other thing is.

For some time now I mean, firstly this journey started like two years ago.

We had to make and efforts to diversify element infection.

Footprint you have.

Started with plus the three being.

Well now implemented into the plant.

And South Carolina.

We will produce this car.

Not only for the U S, but we will as well.

But from the U S.

Europe.

So that certainly is.

Hey of Us Derisking our business the other way is at.

Our second important SUV.

Now the poster hall.

We are very soon.

But.

Precise about how we found the way.

Having a second production footprint.

As well so obviously, yes, we have taken.

Very concrete steps that already in the near future will be in place for us to be prepared for such a situation.

Very good thanks very much.

Okay.

Thank you please standby for our next question.

Our next question comes from the line of Dan Levy with Barclays. Your line is open.

Hi.

Good afternoon to you. Thank you for taking the questions.

Wanted to start.

Just by asking within the.

Within the path to getting to breakeven, which you laid out a number of steps and I think one of those was on getting improved costs in Europe.

Or licensing.

Manufacturing capacity and technology.

Volvo and Geely, what is a line of sight to extracting those costs, how critical step in it and getting to gross margin breakeven and in the event of a.

A weaker environment what is how much pressure does it put on that target of extracting those cost saves.

Yes, Thanks, Dan.

I think.

First point to make clear is that the.

The bulk or the absolute majority of margin accretion comes from the product mix and improved margin profile of these vehicles.

The.

What we laid out in the remarks in regards to <unk>.

Continuing to work on and drive down the production cost.

In close collaboration with our contract manufacturing partners I mean on the one and Thats something that we would in any one would typically expect.

To continue regardless, we're just making sure that we're putting.

Extra emphasis on it with that being said of course.

Here, we devry.

Derived the mutual benefit of that especially on those platforms that we share.

So from that perspective, we are well if they are both or all three of us very much focused on this.

And Thats why we would expect it to add accretively to the already healthy margin profile for these products.

Got it understood. Thank you.

The second question is just around demand broadly and.

Two part question and maybe you could just give us a sense at least for Pollstar for I know you said theres been no.

Very positive reception from.

In the media in China, if you have a sense on the visibility of orders or the magnitude of backlog and then the other question is this so.

To the extent that it's just obviously a very tight.

Macro environment.

Across the regions to the extent that you need to pivot on any components of the plan what is your ability to pivot.

Within the plan that you've laid out this afternoon.

Okay.

Well Thomas Ian I will.

I would really like to make sure that that exercise of.

Working on the business plan strengthening it and making resilient was of course very much as well to make sure that those important goals.

The breakeven in 2025.

A reduction of the.

Funding need is all.

Working in an environment, where obviously.

Demand.

Is.

And then well climate.

At the moment, something which is very different to when we started the journey in 2017.

Even in 2020, it was still a complete different pictures of them yesterday. So for that reason be rest assured that this exercise of this business plan and took very much into account that we cannot know dream of fancy demand scenarios, but have put down there are very achievable and <unk>.

Stick baseline.

That was very important element of us doing this work over summer.

Yeah.

Yeah.

Understood and then Paul stop or any visibility on near term volumes.

Backlog.

Well I think as I told him I said I mean based upon.

The initial reactions from.

The the different advanced that's been received very well. So I think we're very excited about this project.

We're starting to deliveries in China.

So of course that will serve as a good proxy.

Success.

And then.

Just one of those products that we expect the higher volumes to come from.

And I think it's very well positioned to do so.

And.

No I mean somethings.

Now important behalf.

The first drive.

The journalist.

<unk> phases of course to have now customers coming into the car and being able to drive the car in order to make that big move from preorders too.

Two fixed orders so that is the face that we are in.

Obviously, we are very optimistic about that we will be successful in making that shift of the preorders.

Yeah.

Attract many more customers I mean, one thing is cleared the poster for being a car, which indeed now.

Unleash that opportunity for us in China will of course be and very important element of making the volume of the postal very significant follow up Brad.

And just from a personal experience I mean I.

So much of our <unk>.

Existing customers from plus to two we see have a very strong interest in exploring this car and app.

Grading to it so we see of course, that's why we always say we are not in the.

And starting from scratch all of that casino investment and building up the brand building that customer base.

Of 10, thousands of posts to customers of course that isn't very new and additional channel of us really bringing bringing that potential of people upgrading and going from a positive two poster for spending that much more money on that next level of exclusive SUV.

Great. Thank you.

Thank you.

As a reminder, ladies and gentlemen that star one to ask the question.

Please standby for our next question.

Okay.

Our next question comes from the line up to buys bet with Redburn Atlantic Your line is open.

Hi, good evening, Thanks for taking my question.

Questions I have a couple actually.

Unfortunately, they're all Johann.

And I guess, maybe let's take them one by one.

My first question is as follows can you explain how cumulative cash flow breakeven.

It is only $1 $9 billion when free cash burn this quarter was 700 million with very low capex and seemingly still lots of intangibles capital equipment.

Looking to the pulse off three four and five still yet to be quiet.

Yes.

Thank you for the thank you for the question so.

Yes.

As you are.

Correctly pointed out here of course, what it implies is that we expect the quarterly cash burn in 2024 two.

So down significantly and that of course is on the backdrop.

Got it.

In part them the.

The volumes from pulse start three and four and the margin profiles of those course like I said in my opening remarks being in excess of 20%.

The earnings generated by those cars.

The primary driver to your question or the answer to your question.

That and the ambition them to executing on these actions that we've laid out to further take out costs.

It will improve the margin profile of.

Our poster and then.

In regards to net working capital and Capex, Yes, there is a natural buildup of inventory as we are.

Introduced this.

Models, but of course, there is also a benefit of more localized production.

Doug will help pay for that to some extent.

And then in regards to Capex I mean, we continue to invest in the car programs.

But with that being said that's also an area that we've taken a hard look at to see.

Uh huh.

Primarily as it relates to the phasing of the Capex to make sure that we can.

But this breakeven point in 2025.

Okay. So is it possible.

Perhaps some of the Capex that you had anticipated pre 2025 now comes aspect.

Five.

Yes, I would say that that's definitely one of the actions we've looked at with that being said, we've also been very adamant about keeping our core programs.

And so.

But of course to the extent, where we can.

Change to cash.

Can conserve cash whether it's looking at.

Pushing out or different ways to to.

To fund the project.

And we have taken a look at that.

Okay understood.

Sure.

You estimate additional funding requirements.

In addition to what was announced today.

To get to the point of being free cash flow positive is $1 3 billion.

Does this exclude proceeds from short term working capital loans.

If so what has been assumed for next new loan proceeds between now and 2025.

Yeah, Okay. So the.

The the assumption around that is that the existing debt.

<unk>.

Remain so to the extent that it's made up of short term working capital lines that dose will be rolled over and I think we've been able to demonstrate our ability to do so.

The.

The current borrowings for my shareholders as laid out its extended out to 2027.

And so.

The 1.3.

The need is done based upon the cumulative cash flow less.

The new support from the owners and the remaining what remains.

And utilized from the prior one six.

So collected on a 600 million.

To get to the $1 three funding.

Okay understood.

If I look at your balance sheets, and advanced payments from customers roughly half a quarter on quarter.

<unk> discussed on prior earnings calls about it.

Correlation between this line item and the order book.

I was wondering if it's therefore right to conclude that wholesales backlog is soft.

Yes, thanks for raising that point to be up I. Appreciate it the answer is no.

The reason for the lower amount in Q3 actually it's related to certain arrangements with fleet customers that were initiated in Q2, which in Q3.

Thats, a recast to deferred revenue. So it has to do with timing of invoicing and when Costar is obligated to deliver the vehicles. So in your effort to try.

Try to correlate.

That line item to the order book I would say that it's relatively flat quarter on quarter.

Okay understood and then my last question's really about.

Expectations for <unk>, III and pulse thoughtful.

If I look at where polestar two volume talk today are tracking roughly 50% below.

2025 expectations and incentives to already present in some of your major end markets on the model year 2020 for.

I'll start too.

And I was wondering.

What volumes have you assumed for Postop three and four this time at 2025.

And what gives your success.

Gives you confidence in that success.

Yeah.

So maybe I can start I mean, we.

We have not.

We have not broken down.

Moving on to <unk> model.

I think.

What we expect this unnecessarily alluded to.

If anything that we see that the pollstar for.

Becoming more of a problem.

<unk> is very well positioned to.

To be that then it caters well for both the Asian market in the U S market in Europe.

Not matter.

Yes.

Okay, maybe Thomas here, sorry, I would love to add as well I mean, obviously.

I would call another plus a three and four of course much more.

Well light catering cost size wise they are.

Addressing a need in the U S and in China much more than the posted two can can do as a fairly compact.

European.

<unk> com.

And post the three and four close we'll have the benefit of.

Our manufacturing footprint.

Obviously makes it much more profitable to sell them in China, and U S and in Europe.

Equally so for that reason.

It's fair to say that.

Proposal three and four we.

Very well positioned to reach to the volume ambitions and we've.

Very clearly as well made.

Yes in the last earning calls.

We.

Will not drive.

Volume on the.

On the expense of margin and for that reason to concentrate with supposedly two on those markets where this car can.

Can achieve the margins that we expect is as well a very strict and clear policy that we have now so I think that explains as well.

How would that relates to volume expectations that had been put out long ago, yes. It goes to a prostitute.

Alright understood that's helpful Thomas and Johan I appreciate it thanks for your time. Thank you.

Thank you.

I'm showing no further questions in the queue I would now like to turn the call back over to Brianna.

The floor is yours.

Thank you so much we will now take a few minutes left until the end of the call take three top questions from our retail shareholders.

So I'll read them out and then Thomas.

I can answer that.

So the first question as an investor what can we look forward to stock achieving further rollouts with your great vehicles to a larger demand.

And how are you going to create that demand.

I read it as a volume confidence in our product lineup and our volume ambitions.

Well as mentioned before obviously the moment of us introducing a poster and poster three.

Yes.

A game changer in that respect we have on one hand first time Suvs and then two of them very nicely positioned from each other going into the market be all know that the SUV segment as a much larger target group that addressable market almost across the world for Suvs is the <unk>.

Net of cost consciousness.

So that should be the main answer for that having said that.

China, JV again opens up to China market for us.

Much much more.

Optimistic situation that than ever before.

Yeah.

And of course.

We brought the poster three enterprise to fall very early now into our poster spaces in order to have.

Enough time months to get the customers excited about these costs. So there are a lot of actions, including a big Big test drive coming up.

And beginning of 2020 full for journalists.

Of course drive a lot of attention to this new cost cutting.

Perfect. Thank you moving on to question number two what is your plan to stop just short term.

Yes, just to reiterate that.

That has been done of our summer too.

Bring business plan into into play here.

Yes.

Resilient.

Working in an environment, which obviously is tougher than yes.

Yes before.

And that breakeven in 2025.

And really I mean.

How many months is.

Is that I mean that is not now talking here long term in the future that is a very reachable goal.

The reduction.

After funding needs too.

A dimension, which I think compared to a lot of our peers is actually exceptional.

And low and.

In that respect.

I think we really did a lot of our homework now too in order to.

Mike that future and the success of post some very tangible and I think we've made three very significant steps forward in regards to the funding solution here.

With lined out clearly the actions to get to just lower.

Funding needs, we have the support from the owners and we are well progressed in regards to the holistic funding plan to close up the remaining.

Great and lets take the third and final question when can we expect to see production from the South Carolina facility.

<unk> actually have on the company.

Yeah, Okay summer 'twenty four.

Simple answer on that one.

And the effects and impacts two things I mean very clearly.

Enabler for us.

And our profitability journey.

Having a car that is produced in the U S for the U S.

And that of course is as well.

Emotional thing obviously.

<unk> produced in the U S for the U S of course.

Very different starting point for us to be out.

Out with successful product.

Fantastic. Thank you. So closing remark said, we're on time to finish at three P. M.

Closing remarks, thanks Breanna okay.

Yes, let me take this now.

Yes.

Pasta has made this significant achievement since launch.

Yes.

<unk> the new brand.

And we have.

Gain.

<unk> in the markets.

And of course, we had lost develops it's very very strong product lineup that we are about to rollout.

This has prepared our company operationally for the scale up of volumes.

And pasta is now at a pivotal point.

We have adapted to a constrained financial context requiring focus.

And.

Value proposal.

Post our will become successful and poster will create significant shareholder value.

Thank you.

Operator, we are concluding the call thanks, everyone for joining and we'll speak again soon.

Ladies and gentlemen. This concludes today's conference. Thank you for your participation you may now disconnect.