Q3 2024 Lotus Technology Inc Earnings Call
Speaker Change: Good day and thank you for standing by. Welcome to Lotus Technology, Inc. 3rd Quarter 2024 Earnings Conference Call. At this time, all participants are in the listen-only mode.
Speaker Change: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised.
Speaker Change: To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. It is now my pleasure to hand you over to the head of investor relations, Ms. Demi Zhang. Please go ahead.
Speaker Change: Thank you, Amberling. Good morning, good afternoon, and good evening, everyone. Thank you for joining Lotus Tech's third quarter and the nine-month 2024 earnings call. This is Danny Jiang, the head of IR at Lotus Tech. I'm honored to introduce company management with us today, CEO Mr. Feng, and also CFO Alexis Zee.
Speaker Change: On today's call, we will start with prepared remarks from CFO Alex Gershberg and then CEO Mr. Feng.
Speaker Change: and then proceed to an open Q&A session. Before we continue, please be reminded that today's discussion will contain forward-looking statements pursuant to the safe harbor provisions of the U.S. Private Securities and Litigation Reform Act of 1995.
Speaker Change: Forward-looking statements will be inherent in risks and uncertainties. As such, the company's actual results may be materially different from the views expressed today. Further information regarding risks and uncertainties
Speaker Change: as included in relevant filings of Lotus Pact with the U.S. Securities and Exchange Commission. The company takes no obligation to update any forward-looking statements, except as required under applicable law.
Speaker Change: Please also know that our earnest press release and this conference call will include disclosure of non-audited GAAP financial information as well as un-audited non-GAAP financial measures.
Speaker Change: Please refer to our press release, which contains a reconciliation of unnoticed and non-GAAP measures to comparable GAAP measures, which you can find at ir.google-loaded.com. With that, I'd like to turn the call over to our staff, Alexis. Alexis, please go ahead.
Thank you.
Bye.
Bye.
And that should be all, bye.
Speaker Change: Thank you, Demi. Can you guys hear me? Good morning, good afternoon, good evening to everyone for your attendance today. My name is Alexis Lee, and I'm the CFO of Lotus Tech.
Speaker Change: I want to begin by saying the company is committed to improving the quality of vehicles and achieve total revenue of $633 million in the nine months ending September.
Speaker Change: More than 2,700 units were delivered in the third quarter, up 54% year-over-year and 2% quarter-over-quarter.
Speaker Change: The quarter sales revenue was $255 million, up 36% year-over-year, and 13% quarter-over-quarter.
Speaker Change: Most notable is the new revenue stream from our ADAS technology-related income, which is high margin.
Speaker Change: To actually quantify the contribution, revenue of our intelligent driving business from customers other than Lotus surged to $11 million in the first nine months, with a year-on-year growth of 460%.
Speaker Change: Investors can find the details in our earnings release published before this evening.
Speaker Change: Besides the Lotus models, other reputable brands of passenger and commercial vehicles will be rolling out with our in-house developers across the world.
Speaker Change: Gross profit margin was just 9% in the first 9 months, a step down versus the 11 achieved in the same time last year.
Speaker Change: Third quarter gross profit margin was just 3% mainly due to proactive management of our inventory in response to trade protectionism, inflation impact and macro uncertainties.
Speaker Change: The margin impact is temporary and is likely to be shaped in the fourth quarter of 2024.
Speaker Change: Gross margin of our service revenue was 55% in the first 9 months versus 28% same period last year.
Next slide, please.
For more information visit www.FEMA.gov
Speaker Change: To your left, you'll see that our EVs, which is mainly containing the luxury electric SUV model and partly the EMEA GT sedan model, jointly contributes more than 50% of total volume, while the EMEA sports car model still contributes the remaining.
Speaker Change: This pointed to accelerated delivery for the electric SUV and the EMEA GT sedan model in the third quarter.
Speaker Change: This is mainly driven by ongoing new market entries, improving customer attractions, and rising product and brand awareness.
Speaker Change: The chart in the middle and the right shows a very balanced vehicle delivery and the retail network distribution across the world.
Speaker Change: Europe, inclusive of the UK, is home base given our British heritage.
Speaker Change: Contributions to volume and revenue was 35% in the first nine months.
Speaker Change: pointing to nearly 45% in 3Q. This is the fastest expansion quarter given new models entries.
Speaker Change: Through our arrangements, more than 3,300,000 charging stations are now available and accessible for Lotus drivers in Europe to charge their vehicles.
Speaker Change: Given that Lotus is an early mover in electrification, ESG-sensitive conglomerate for fleet purchase or luxury courtesy cars are a growth potential opportunity for the company.
China is new market to Lotus.
and the only market that operates under the Direct-to-Customer model.
Speaker Change: Contributions in terms of volume and revenue was 25% after six years of ongoing investment and expansion.
Speaker Change: CAPEX cycle already picked up and forward-looking strategic partnerships will enable Lotus drivers to access more than 18,000 charging stations across China, of which some of them are fully robotics.
Speaker Change: The U.S. market remains as the key market for Heritage Performs Sports Car.
contributing 22% of total bottom
Speaker Change: Given trade uncertainties, the company targets the ultra-luxury segment with limited editions and performance-variant ED models for brand positioning.
Speaker Change: profitability and deliveries can begin as early as end of this year.
Speaker Change: Lotus is well-recognized in rest of the world regions for its F1 heritage and racing history, especially in the GCC region and other parts of Asia.
Speaker Change: The market is fragmented and operates under the distribution model which is very asset-light.
Speaker Change: and fastest growing given that generation X customers are seeking digitalization and smartification.
Speaker Change: The market is also least impacted by any trade uncertainties, and new production orders for the next two quarters' delivery is likely to increase its overall weighting in terms of contributing to our overall sales.
Next slide, please.
Speaker Change: Coming to our financial highlights, total revenue for the first nine months was $653 million.
105% EOB increase.
Sales of goods was $624 million, a 104% yield increase.
Service revenue was $29 million, a 129% yearly increase.
Speaker Change: Gross margin for the first nine months was 9% versus 11% the same as last year, and gross margin of sales of goods.
Speaker Change: was 7% versus 10% in the same period of last year.
Speaker Change: Gross margin of service revenue was 55% versus 28% in the same period last year.
Speaker Change: Operating loss was $598 million in the first 9 months of the year, 18% year-over-year increase.
Net loss was $667 million.
Speaker Change: Excluding the share-based compensation and expenses, adjusted net loss non-GAAP was $633 million, a 20% yearly increase.
Speaker Change: Adjusted EBITDA loss non-GAAP was $563 million, a 16% yield increase.
Now to the right hand side is the quarterly numbers.
Total deliveries was 2,744 units, 54% year-over-year increase.
Total revenue was $255,036 percent yield increase.
Speaker Change: Gross Margin was just 3% versus 15% same period last year, while Net Loss was $206,019% year-over-year increase.
Speaker Change: Excluding share-based compensation and expenses, adjusted net loss was $209 million and adjusted EBITDA loss non-GAAP was $182 million, an 18% yield increase.
Next slide, please.
Speaker Change: In the first nine months of 2024, we continue to deliver strong operational growth driven by both the sales of goods and the sales of service.
Speaker Change: On top of the delivery of daily growth, we have also made significant progress in our intelligent driving business, or better known as the ADAS.
which is not booked under the service revenue.
Speaker Change: Currently, revenue of the ADAS business from customers other than Lotus was $11 million, contributing to nearly 2% of total revenue of the company, and is likely to expand in the future.
Yeah.
Speaker Change: Secondly, gross margin shrank due to proactive management of the inventory and is likely to reshape in Q4.
Speaker Change: We recently also announced securing of new $130 million worth of ADAS contract in 2024 and part of it will be converted to revenue in 2025.
supportive of blended GPM, gross profit margin expansion.
Speaker Change: Lastly, as part of our commitment to our WIN26 strategy, we make continuous improvements to streamline our operations.
Speaker Change: drive efficiency and resource optimization, and achieve operating expenses reduction for four consecutive quarters.
Speaker Change: Operating loss was $116 million for the quarter, narrowed by 22% quarter-over-quarter and 2% year-over-year.
Next slide, please.
Speaker Change: In the first nine months of this year, Lotus is the fastest-growing brand and top-performing British luxury heritage brand with deliveries ahead of the likes of Bentley, Rolls-Royce, Aston Martin and McLaren.
Speaker Change: This is driven by four models in delivery, including our Evia hypercar model, our electric SUV model, our Emira sports car model, and our latest addition to the family, Emia, the GT sedan model.
Speaker Change: Despite faster than the segment and industry growth, we kept blended MSRP above US$100,000 per unit.
as part of our price integrity.
and bread equity value protection measures.
We have achieved $130 million.
Speaker Change: contract value from intelligent driving ADAS business with multiple global auto conglomerates in this year.
We are continuously making expansion into new markets.
Speaker Change: and fill them with more models, availability, more technologies, and high-performance variants to cater to different market demands.
Speaker Change: For example, we have revealed the electric carbon model that is tailored for the North American market.
Technology innovation is at the heart of Lotus.
Speaker Change: and this is demonstrated in the newly reviewed Tier 1 concept car, made with sustainable materials and all the next-generation automobile technologies.
that will redefine performance and luxury in the future.
Many of these components will be found
Next slide, please.
Speaker Change: Business sustainability is at the core of the company and the company has been improving efficiencies through streamlining operations and has won multiple awards including the Reuters Sustainability Awards, the EU CCC Business Awards and so on.
Speaker Change: In all, the company is committed to continuously improve profitability, create long-term value, and deliver results to our stakeholders and shareholders.
Speaker Change: I'll pass it over to Mr Fong, our CEO, for more details on the pillars.
Speaker Change: that is driving our future growth. Mr Fung, please. Thank you.
Thank you.
Mr Fung: As for our future growth, we look at it from three perspectives. The first is brand, the second is technology.
Mr Fung: One is the growth of our smart driving business in the future.
Mr Fung: I'd like to demonstrate our future growth from three aspects, brand, technology and also autonomous driving.
Mr Fung: 同时呢也要能够很好的控制成本 At the same time, you have to be able to control the cost well
Mr Fung: For a luxury premium brand, it is very important to prioritize brand awareness, improvement and also user experience. Meanwhile, we have to manage our cost.
Mr Fung: We opened our first boutique store and gained the recognition of the users and the industry.
Mr Fung: First, we have opened our Lotus boutique store in Beijing and it has been widely recognized by the industry and also our customers.
Mr Fung: At the same time, we have also launched a custom brand called Chakman. Through this kind of high-end customized service, we can improve the value and price of our transactions.
Mr Fung: Since the launch in the first half of 2014, it has been imported to China. In the fourth quarter of this year, it will be imported to North America. We have already started to deliver this customized car in the third quarter of this year.
Mr Fung: In addition to that, we have also provided a chat and bespoke service to our customers.
Mr Fung: This is the way to help us to increase our delivery value and also delivery price. This service has been deployed in China already and in quarter 4 it will be launched in North America. The delivery of the bespoke vehicle will commence in quarter 3 this year.
Mr Fung: At the same time, we have created a winning route for Lutus. Because Lutus is a reputation track, we have also launched a new route for our Lutus users.
Mr Fung: the service of the track. At present, after we have built it, after we launch each phase, almost within an hour, it will be taken away.
Mr Fung: In other words, it demonstrates how our users' passion to getting involved in such a track
Mr Fung: and technological growth in the future. As WESEN 80, the transformation of automation is the cornerstone of sustainable development in the future.
Mr Fung: And for our growth driven by technology, in our Vision 80 strategy, electric transformation is the cornerstone for our sustainable growth.
我们在这次广州车展期间发布了我们的900伏的路遥超级混电技术
Mr Fung: In this Guangzhou Auto Show, we have released our 900V hyper-hybrid EV technology.
huǐng dòng
Mr Fung: is driven mainly by the engine, and is supplemented by electricity.
Mr Fung: So, the mixed chain is different from the mixed chain. The products we are going to launch in the future
Mr Fung: It is still the experience of electric cars, but it increases the driving of the engine and its participation.
Mr Fung: I want to highlight the difference of the hyper-hybrid EV technology with the commonly understood hybrid technology. Usually it was driven by engine and supplemented by electric motor, but for the hyper-hybrid EV technology, it will offer electric vehicles driving experiences along with engine-driven technologies. This is the difference of the hyper-hybrid EV technology.
is able to meet the driving pleasure of Luthor's users.
我也特别强调一下不同欲增成
Mr Fung: There is a characteristic of lighting, which is that it cannot satisfy our pursuit of performance in this particular situation.
比如说在这个 For example, in this
Mr Fung: In the event of a power failure, the vehicle will be in a state of failure, which will not meet our performance requirements. For Lotus, we want to be able to deliver all the performance of this vehicle under 100% conditions.
And such technology will satisfy Lotus users' needs.
Mr Fung: pursue of driving joy and the passion of driving and in addition to that I also want to highlight that this technology is different from extended range because in some circumstances the extended range could not offer extreme or ultimate performance to our customers. For example when the battery capacity is very low the vehicle could not accelerate fast enough.
Mr Fung: And for our Lotus users, what we are trying to do is to provide a technology that can deliver the performance of Lotus at all scenarios.
Mr Fung: I will use a few numbers to describe it. I call it 1, 2, 5. First, it can travel more than 1,000 kilometers in total. It can travel more than 1,000 kilometers. Second, we call it...
Mr Fung: And I also would like to share some of the parameters regarding this particular technology.
Mr Fung: First, the total range of this technology can give you more than 1,000 kilometers.
Mr Fung: In addition to that, it can offer dual-flash or hyper-charging experience. When the vehicle is plugged in, it can charge from 10% to 80% within 10 minutes. And when the vehicle is on the drive, the engine can also offer a flash charge experience to our customers.
无能的速度能够五倍放电的速度
Mr Fung: Another feature of this technology is that when the vehicle is on the drive, the charge speed is 5 times of that of the discharge. In this way, as long as there is oil, it can always be operated by electricity to ensure the experience of the electric vehicle, rather than the experience of the engine.
Mr Fung: So as long as there are sufficient gasoline in the tank, it can offer a similar driving experience as the BEV vehicle instead of the pure ICE driving experience.
Mr Fung: For example, when driving at high speed, it can be driven by the engine, not by electricity. We all know that when driving at high speed, the power efficiency of the engine is the highest.
都会得到应用。
This technology will be put into our future product.
Mr Fung: Lutus Robotics is a company of Lutus Technology, which provides smart cars for the Lutus brand and other global leading car partners to provide smart driving infrastructure solutions that cover the world.
Mr Fung: And our growth is also driven by ADAS, Lotus Robotics, this is a wholly owned subsidiary of the Lotus company. It provides intelligent driving solutions with global coverage for both Lotus brand intelligent vehicles and other global leading auto partners.
Mr Fung: Our autonomous driving solution has realized the large model of end-to-end. It is a form of one model. It has started to get on the car.
Mr Fung: Our solution can be achieved through end-to-end, and this is a one model approach, and such a solution has been put on a vehicle already.
Mr Fung: The biggest advantage of this solution is that it is a global solution. That is to say, one solution can cover the whole world. At present, whether it is OEM,
hǎn shì zhè guè,
Speaker Change: Autonomous vehicle service providers will not be able to cover the entire globe.
Speaker Change: We are now successfully in Europe and Asia, and have entered the Taiwan region, including North America and Asia.
Speaker Change: Recently, the auxiliary function of the highway in Europe has been launched via OTA.
Bye.
Speaker Change: For our solution, the best advantage of it is that it can cover global markets. At this moment, OEMs or the suppliers of ADAS technology could not say that they can cover all global markets. However, we have already deployed this solution to Europe, Asia, GCC region, North America, Oceania. In addition to that, we have also upgraded this technology through OTA in Europe.
Speaker Change: Especially in Europe, our high-speed NOA is ready. As long as the European regulations are passed, we will immediately become the first OEM in Europe to implement high-speed NOA.
Speaker Change: Especially in Europe, we are ready to offer highway NOA capabilities as long as the regulation is passed. Once it's passed, we will be the first brand to offer highway NOA capabilities in Europe.
Our autonomous driving not only serves Hess, but at the same time we also provide for
Speaker Change: So all OEMs can provide services. Now we have covered many brands in Geely Ecosystem, including important customers outside Geely Ecosystem, especially a large car OEM in Europe, and a Tier 1 in Japan. So we have formed a cooperation.
Speaker Change: For our ADAS technology, we will not only be able to supply it within Lotus, but also other OEMs.
Speaker Change: For example, we have already cooperated under GDE system. In addition to that, we're also building partnerships for external customers, such as one OEM in Europe and also one top tier from Japan.
Speaker Change: In the next 2-3 years, there will be many automobile brands.
Speaker Change: More than 10 types of vehicles, including commercial vehicles, will use the smart driving solution of Roots.
Speaker Change: In the next 2-3 years, there will be more brands covering more than 10 models, including commercial vehicles adopting Lotus data solutions.
Speaker Change: the second growth curve can achieve higher income and higher profit.
Speaker Change: ADAS in the future will be our second revenue path for Lotus, which can give us greater profit and also a profit margin.
Speaker Change: In September, Lucid Robots achieved a revenue of $19 million and increased by 217%.
Speaker Change: Revenues from other customers surged to 11 million U.S. dollars, a year-over-year growth of 450 percent.
Speaker Change: In other words, external customers' revenue has achieved 58%. According to the regional income, China currently accounts for 70%, and 30% of the rest of the world. But in the future, we believe that China will account for 30%.
中国其他地区变成70%
Speaker Change: If we break it down by region, currently China is contributing 70% of the revenue, and for non-China region, they are accounted for about 30%. In the future, we believe it will be another way around.
Speaker Change: Revenues in the future will come more from US, Europe and also Japan.
Speaker Change: At the same time, I would like to talk about some recent developments.
Speaker Change: In the first 10 months of 2024, we delivered more than 8,600 vehicles. Especially in October, Luthors' occupancy rate in China's super-luxury electric market of more than 80,000 US dollars reached 40%.
Speaker Change: And some of our recent development progress, our first is our delivery updates. We have already delivered a total of 8,631 vehicles in the first 10 months of 2024. And in China, Lotus has already acquired 40% of the ultra luxury vehicles, which means the vehicle is priced above 80,000 US dollars.
虽然我们进入的是一个小众的市场,高端的小众市场,
Speaker Change: The capacity of the market is not very large. We need to achieve our growth through a higher market share.
Speaker Change: Even though we are in a rather niche but luxury premium market and the size of this market is not so that huge
Speaker Change: But whatever we're trying to do is to increase our market share in this particular segment
Speaker Change: In this super-luxury electric car worth more than $80,000, we can achieve more than 50% occupancy rate in China.
Speaker Change: I'm bullish that by the end of this December, within the segment of 80,000 U.S. dollars in China particularly, our market share can be above 50 percent.
Speaker Change: The NOA of the city will be very important in the end-to-end solution plan. Now we are already doing the NOA analysis in the main city. So soon we will use the OTE method to make the city NOA, that is, one model.
无途的 Wǔ tóu de
高级自动驾驶
在中国上线
to the Gauss-Guenlloy
Speaker Change: Besides the end-to-end solutions, we are also working on urban NLA solutions in some key cities in China.
Speaker Change: been doing our beta testing and in the future it will be pushed to our users through OTA.
Speaker Change: So this OTA will be based on a one model solution, and in the future, once the Europe region passes the regulations, our highway NOA will also be delivered to our customers through OTA.
Speaker Change: In addition, in the Hawaiian region, India, Great Yangzhou, Japan, South Korea, and Southeast Asia, we are also about to start our second electric car for living in Myanmar.
Speaker Change: In addition to that, in more regions such as GCC India, ASEAN, Japan, South Korea, and Southeast Asia countries, our EMEA will also be opened for order soon.
afterwards. So to sum up, as a standard Bluetooth base
我们继续会在明年的三月份进行举行。
Speaker Change: In March, in addition to the Lotus Day event, we will release our new Model Y, the new model of the 26 series. This new model will bring a bigger surprise.
Speaker Change: And the Capital Market Day will also be held on December 4th, 2024.
Speaker Change: We are currently implementing our Juesheng 2026 plan, which means that in 2026, we will be able to implement our cash flow and other transactions to improve our profitability.
Speaker Change: We are currently undergoing to implement our WIN26 plan. In other words, in 2026, our operational cash will turn positive.
and EBITDA term positives.
Speaker Change: This is a product of mixed electricity. Through the input of such a product, our sales can increase to 30,000 units, and the gross profit will increase to 20%.
Speaker Change: In 2026, we are planning to deliver our PHEV products globally. It will help us to boost the sales volume above 30,000 and our profit margin above 20%.
Speaker Change: For Lutus, we can't get into the price war, but we have to increase our average price to increase our profitability. We will also launch more limited editions and increase the ratio of our high-end cars.
Speaker Change: For Lotus, we are not going to participate in the price-income addition. On the contrary, we are trying to increase or maintain our average selling price to give us more profitability. And meanwhile, we are also launching more limited editions and bespoke editions.
Speaker Change: In terms of high-end autonomous driving services, our contract has reached 1.3 billion yuan.
Speaker Change: We will continue to promote the development of this business to achieve more income, because this income is high-profit income.
Speaker Change: For our ADAS services, currently we have already acquired a country value of $130 million. In the future, we are trying to expand this business because it will give us a higher profit margin and also more revenue.
把智能化和自动化打造得更好,从而能够提升我们软件的订阅率。
Speaker Change: In addition to that, we will keep optimizing our autonomous experience and also intelligence experience to increase the intake rate of our software subscription.
Speaker Change: To increase our profitability, besides expanding our revenue streams, we're also trying to manage our costs through bond reduction and also streamlining our operations. Thank you. Thank you, Mr. Feng. Operator, we are ready for the Q&A.
Speaker Change: Thank you. We will now begin the question and answer session. To ask a question, please press star 11 on your telephone and wait for your name to be announced.
Speaker Change: To withdraw your question, please press star 11 again. For the convenience of everyone on the call, if you wish to ask your questions in Chinese, please translate your questions to English right after. There may be a short pause while we compile the Q&A roster.
Speaker Change: We will now take our first question from the line of Laura Lee from Deutsche Bank. Please ask your question Laura.
Laura Lee: Hey, thank you for taking my question, and my first question is about
Laura Lee: You mentioned the $130 million contract value of Intelligent Driving Solutions.
Laura Lee: Could you give more color on the cadence of revenue generation? Like when exactly will those models be launched? And will we receive the contract R&D or other payments before the launch?
Is this working?
Speaker Change: Thank you. Thank you, Laura, for the question. I will invite Mr. Fung to give answers to your question.
Mr Fung: First of all, the income from this contract is divided into two parts. One is NRE, and the other is the license fee.
这是我们合同组成的部分 This is the part of our contract.
NRE's income is based on the project's...
节点来进行输入的
for the contractor value of our ADAS solutions.
Mr Fung: It will be categorized by two groups. One is through NRE.
Mr Fung: And NRE, in other words, it will, based on the project, different milestones, for example, the kickoff stage of the project.
Mr Fung: all the way to the SOP stage of the project. And when the vehicle is delivered to customers, at that moment, we will be able to receive the full NRE. And the second approach is licensing, and then the revenue for it will be calculated based on per vehicle.
Mr Fung: This is our first car on the market, the Philips Link Z110, which is already on the market. We have already opened the highway NOA, and the city NOA will be opened soon.
Mr Fung: The first vehicle that equipped with our ADAS solutions is a LINK ENCODE V10. This vehicle has already been launched. For highway, NLA capabilities, we have already
Mr Fung: In the future, there will be four more models from LINK&CO to be equipped with our solutions.
Mr Fung: And for commercial vehicle next year, there will be one more model equipped for that with our solutions.
Bye-bye.
Thank you.
Thank you all, have a good one.
Okay, that's helpful.
Speaker Change: My second question is about, we mentioned the hybrid product to be delivered in 2026. So will that be one or more completely new models where it's like a PHE version of the current offerings?
Thank you. Bye.
Speaker Change: First of all, our PHEV will be installed in all of our future vehicles. That is, all of our future vehicles will have PHEV.
I think we should keep it a secret for now.
Speaker Change: For the PHEV technology, it will cover all our models in the future. In other words,
Speaker Change: All of our models in the future will have an EV version and also a PEV version. As for the specific model that we are trying to launch in 2026, I think at this moment
I want to comment on it.
Speaker Change: Many OEMs are also very concerned about this technology. So we still have a lot of...
值得我们保密的保密的包括技术上的
The first and also the only super brand.
Speaker Change: The reason that we want to keep it for now is because when we are ready to launch this product to the market, we want to be the first one to launch this technology and also the first luxury premium brand to do so.
Speaker Change: Okay, I appreciate the color. I have one more question about the margin, because I think the gross margin in 3.2 was about 40 percent. There's actually a material sequential decline. So my question is, what's the main driver of this? And also, looking ahead, how we think about the trajectory of the vehicle margin? Thank you.
Speaker Change: Thank you, Laura. I will also still invite Mr. Fan to give you an answer on that question. We are about to launch the first season in China.
Thank you. Bye.
we will launch our new Model E26.
Bye.
Before that, we need to clean up the storage.
This is not good for our new car market.
Bye.
Speaker Change: So this is mainly due to the impact of the new inventory. We have already cleaned up the Chinese inventory. Now there are also subcontractors. They are all new cars customized by subcontractors. In Europe, we need to clean up the inventory in the first quarter of next year.
For the question, I want to say that in China,
Speaker Change: quarter one next year and also Europe and rest of the world quarter two next year we are planning to launch our model year 26 product but before that we are trying to finish our destock particularly in Europe because
Speaker Change: an unhealthy stock level is not going to help us to launch our new models.
Speaker Change: Currently in the China market, the stock level is at a relatively healthy while delivering new products to our customers. So our focus is to reduce the stock to a healthy level for Europe region next quarter 1.
Speaker Change: And once the sub-level returns to a healthy level, the gross margin will also be benefited from that.
Speaker Change: Every time a new product goes on the market, you have to be very careful. If the old product is not handled well before the new product goes on the market, it will definitely have a huge impact.
Speaker Change: I won't talk about a competitor's brand. I'll give you an example. But I won't talk about which brand.
Speaker Change: So it's because the new old model is not well done. When the new model is pushed to the market, the old model is at 60%.
当老款打六折处理完了以后,新款开始推向市场的时候,新款刚刚开始卖就打八折。
Speaker Change: And when we are planning to launch new models to the market, we have to precisely plan the cadence.
Speaker Change: because if the older models still have a relatively large inventory in the market, it won't be conducive to selling new models. A good example is that one particular OEM, when they are switching from older models to new models, they didn't plan it well, so the older model had a 40% discount and when they launched the new models immediately, the new model discounted by about 20%, and this is not a good outcome.
Speaker Change: Thank you so much. Thank you, Laura. Hopefully, we're ready for the next one.
Speaker Change: Thank you. Next question comes from the line of Kevin Smith from Ethos Collective. Please ask your question, Kevin.
Kevin Smith: Hi, good evening and thank you Lotus management for providing the informative updates to third quarter earnings.
Bye.
Speaker Change: I have two questions here. I'm going to get color on. My first question is, management mentioned earlier that operating expenses have declined for four quarters, consecutive quarters so far.
Speaker Change: Will we continue to see a decline in Q4 this year, and what is the expectation for 2025?
Speaker Change: And what do you see as the major mitigants or drivers to help facilitate the further expense decline? Would it be via reduction of staff or by some other means?
Speaker Change: Thank you, Gavin. I will invite Mr. Fengjiang to give you an answer on that.
推出了叫小而美的战略
因为我们的销量并不大,在这个细分市场
Speaker Change: The penetration rate of electric vehicles is not very high. We have to do some research on the company.
Speaker Change: We have to promote a strategy called a lean but effective because in the segment the EV penetration rate is not very high and we have to think about how to manage to reduce the cost.
比如说我们在营销领域
我们的店也是要做得小而美,而不是大而全。 那么店越大,就意味着成本支出会越高,需要的人员也会越多。 那我们就要把我们的店开得小而美。
Speaker Change: high-tech technologies, instead of developing everything. At the same time, we also need to take advantage of the resources, such as the electronic battery architecture.
Speaker Change: For example, in the marketing and sales aspect, we are trying to...
Speaker Change: streamline our shop. The shop will be small but effective. Instead of a large shop, it requires a higher cost and more people to run it.
Speaker Change: And for R&D side, our focus is on technologies that will bring Lotus as the leading player in this industry, instead of spending our R&D in all fields. In addition to that, we are also trying to leverage Geely's resources, for example, in the EE architecture.
Speaker Change: I think that in the future, electric cars will become more and more necessary for users in the field of intelligence. Therefore, we will focus on...
Speaker Change: bring us technological advancement and income. For example, autonomous driving is a direction we must focus on.
Speaker Change: Of course, we will still play the long-term role of LUT4, which is in terms of the bottom plate. We will build a smart bottom plate, which will be our focus. So it becomes more focused.
Speaker Change: In the future, we believe in the EV industry, intelligent features will be the master have the features for our customers.
Speaker Change: So our current focus is on cutting-edge technology development and also the technologies that can bring us the high profit margins such as the ADAS solutions. In addition to that Lotus is also working on it's a traditionally well-known field which is the chassis. We are currently working on intelligent chassis and those are the other aspects that we're currently focused.
Speaker Change: In other words, to sum up, we will be in this...
Speaker Change: In the future, we will only focus on two directions. One is the development of technology and product development, which is in the field of research and development. The other is to focus on the construction of brands and the expansion of the market.
Speaker Change: We have to get rid of everything related to our main business.
In summary, our future expense will be in two parts.
directions. One is on the technology and product development.
Speaker Change: The second direction is about brand awareness, establishment, and also market exploration. We can already see the results from the third quarter. The results will be more obvious in the fourth quarter.
Speaker Change: In Quarter 3, we've already started to see some outcomes, and in Quarter 4 we believe it will be more pronounced.
Speaker Change: At the same time, it is also playing a role in co-operating with the base. We can better co-operate with the base. For example, in the development of the future electrical architecture,
Speaker Change: to lead us to use it. It can guarantee its advancement and it can guarantee that when we are in it, it is distributed according to quantity. Because our quantity is not large, so the cost of our distribution is not high.
Speaker Change: Our synergy with Geely will also give us more benefits. In the future, the development of a EE architecture will be led by Geely, and we can use this technology off the shelf. Besides, the cost will be shared based on the volume, and for us, it won't be a huge cost to Sheldon. Thank you.
Thank you so much, Vincent. Do you have another question?
Speaker Change: Would I have the opportunity to ask my 2nd question here? Yeah, sure, please.
Thank you.
Speaker Change: So, my follow up question is, um, what does Lotus management expect the full year total loss to be for 2024? And generally, what will be the expectation for the next year? 2025.
Speaker Change: Thank you. Thank you, Gavin, for your question. I will invite the Seattle elections to give you a color to your question.
Hello.
Hi, Gavin. Can you hear me? Yep.
Speaker Change: Let me share with you a little bit of our disclosure process and also how. So first and foremost we kept our 2024 guidance.
Speaker Change: And we have a win 2026 strategy as what Mr. Fung has mentioned.
Speaker Change: So, our objective is 30,000 units of sales volume driven by one new model that's forthcoming.
and aim of 20% gross profit margin.
Speaker Change: Now, we are doing a monthly disclosure on our sales volume, so by about the 10th of every month, you will get the sales volume for the next quarter, for the last month, sorry.
Speaker Change: It is likely that before Chinese New Year, end of January and also early February, we will be rolling out our 2025 guidances.
Speaker Change: So there is a time where we will probably finalize most of the things that are going out into the market.
Speaker Change: Now, of course, I will say that 2025 is likely the midpoint or just below the midpoint versus the 2024 guidance and also the Win-26, but the most important thing is that because we have a new model that's forthcoming in 2026.
Speaker Change: That's all probably I can share right now in terms of Outlook for 25.
Speaker Change: Thank you. Our next question comes from the line of Vincent Yu from SC Asia. Please ask your question, Vincent.
Vincent Yu: Hi, good evening. Thank you for having me. I have two questions. The first one is
Vincent Yu: The company has delivered about 8,600 vehicles in the first 10 months. Is the management confident to achieve annual sales target of 12,000 units?
Vincent Yu: What are the drivers to boost the monthly delivery to 1,500 or 1,200 in November and December, considering the holiday season are coming in Europe, which is your major market? So please, could you give the guidance on deliveries in the first quarter of 2025 and the regional allocation?
Thank you.
Speaker Change: First of all, the 12,000 units are very challenging, but we are still very confident, because now China and the UK are growing.
Speaker Change: Especially the growth of the British market is still very obvious. At the same time, we also need to drive the growth of European continent.
Speaker Change: The second is that we have already started to deliver to the new market, such as Japan and South Korea, which will also become a new growth point for us.
Speaker Change: Well, first of all, I want to say that the 12,000 likely is definitely a challenging however, we are confident to deliver this target.
Speaker Change: In China and particularly the UK, the delivery cadence and the progress is quite promising. Meanwhile, we are trying to drive our delivery speed in the EU. In addition to that, we have already started our deliveries in some new markets, for example, Japan and South Korea.
关于明年第一季度的话,我们这个猫豆叶26在中国首先就会开始交付了,第一季度就会开始交付了。
Speaker Change: This will definitely be an area of growth for us. Of course, Europe and other countries are starting to meet in the second quarter. Other countries and regions still need to sell our old models first.
Speaker Change: And for quarter one next year, the model year 26 product will commence delivery in China, and it will be another driven point for our sales volume. And in quarter two, our delivery will also commence in Europe and also the rest of the world.
Speaker Change: We believe that with the launch of Model Year 2.6 in the first quarter of next year, there will be a better growth.
Speaker Change: In the next step, as we are launching our model year 26 product, we believe it will stipulate our growth in sales for sure.
Thank you.
Speaker Change: Okay, thanks. I have another following question. How do you view the luxury EV demand in Chinese markets?
Speaker Change: because I've seen that Lotus vehicle sales in China has dropped actually in first nine months compared to last year. So what do you think the reason caused the sales decline and what are the strategies to have in plan to boost the sales in China besides you just mentioned the launching new models? Thank you.
Speaker Change: First of all, the Chinese market is a super-luxury market worth more than $80,000.
电动车的渗透率是下降蛮多的,将近百分之十吧。
Speaker Change: 50% decline, but the growth of Lotus is still there. This is the first point. Although in this field...
Speaker Change: The big market has not grown, but our strategy is to continue to increase our effectiveness.
Speaker Change: As I said, in October, we have achieved a 40% increase in market share in China, and we hope to reach 50% or even 60% in the future.
Speaker Change: This is an increase in our competitiveness. By increasing our competitiveness, we can increase our quantity.
Speaker Change: In China, in this particular luxury premium EV segment, which is the vehicle's price above US$80,000, it is true that the penetration rate of the EV has dropped to roughly around 50%.
Speaker Change: However, Lotus is keeping growing and for our strategy we are trying to gain our market share in this particular segment. Like I previously shared with you, in October in China we have already acquired 40% in this particular segment. In the future our target is to improve our market share to 50 or even 60%. This is one of our approaches to demonstrate our competitiveness.
Speaker Change: And by boosting our competitiveness, it's another way to give our confidence to increase our sales volume.
So in this divided market, what we hope is...
Speaker Change: In this particular segment our expectation is to improve the penetration rate, however if the penetration rate could not be improved then our target is to increase our market share to become the absolute leading player in this particular segment.
Thank you.
Thank you very much.
Speaker Change: We will take the last one. One more question due to the time.
Thank you. Our last question comes from
Thank you.
Speaker Change: Hello, Mr. Feng. First of all, we are very happy to see that the company's smart driving business is making good progress. I have two questions about smart driving. The first one is that we see that the overall investment of the company's R&D is about $300 million to $400 million a year. So we want to know how much R&D investment our robot business has so far and how much investment is expected in the future. The second question is about whether our company has a plan and idea to capitalize on this smart driving business.
Speaker Change: I will repeat my question in English. My first question is how much has been invested in the R&D of Lotus Robotics so far and how much do you expect to invest going forward? And my second question is, does the company have any plan to capitalize on the intelligent driving business?
Thank you.
Speaker Change: In the field of autonomous driving, we are pursuing a continuous approach, rather than relying on a one-off input of how much money to break it down.
Speaker Change: Especially its investment is increasing according to the growth of data. So, especially our users are getting more and more. Of course, we will also invest more and more in this area.
Speaker Change: For the first question, the data is autonomous, the technology requires constant investment. This is not a one-off or one-time investment. As our user base is growing, the data is growing, it requires more and constant investment.
Speaker Change: As I said, we will focus on smartization, including smart chassis, smart cabin, and smart driving.
In these three areas, we will continue to invest.
Speaker Change: So in autonomous driving, especially in autonomous driving, it can ensure the company's technological advancement and also bring us the income of the second growth curve. So we will continue to invest in this field. At present, there is no idea of autonomous driving.
Speaker Change: Currently we prioritise our intelligence investment into three areas, the intelligent chassis, intelligent smart cockpits and also autonomous driving. Particularly for autonomous driving, it can keep us at the cutting edge in the industry and it will be our very important second revenue stream. So we will continue to invest in this particular area and currently we do not have a plan for capitalisation.
Speaker Change: In the field of super-luxury, there is no doubt that Luxus is the world's leading smart product, far beyond other super-luxury brands.
This will become our advantage.
Speaker Change: In the luxury premium segment, Lotus undoubtedly is the leading player when it comes to intelligent solutions. And we will be far beyond compared with other players in this same luxury premium segment.
Speaker Change: And this lead is not only in China, it is a global lead.
Speaker Change: And such an advantage of Lotus is not only limited to China, but also other global markets. Thank you.
Thank you very much.
Thank you.
Thank you.
Speaker Change: Thank you. I am showing no further questions at this time. I'll turn the conference back to Ms. Demi Zhang for her closing comments.
Demi Zhang: Thank you, Emily, and thank you, everyone, for joining us today. If you have any further questions, please feel free to contact our IR team, and given the time constraint, this will conclude the call. And thank you again very, very much, and have a great day.
Speaker Change: This concludes today's conference call. Thank you for participating. You may now disconnect.