Lotus Technology Q1 2024 Earnings Call Transcript

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May 29, 2024

There are 4 speakers on the call.

Operator

Welcome to Lotus Technology Inc. 1st Quarter 20 24 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and 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.

Operator

Demi Zhang. Please go ahead, ma'am.

Speaker 1

Thank you, Ann Berlin. Good morning, good afternoon and good evening, everyone. Welcome to LOTUS Tech's Q1 2024 Earnings Conference Call. This is Demi Zhang, the Head of IR at Lotus Tech. Joining me today is our CFO, Alexis Li.

Speaker 1

On today's call, we will have Alexis begin with prepared remarks and conclude with a Q and A session. Before we continue, please be reminded that today's discussion will contain forward looking statements pursuant to the Safe Harbor provisions of the U. S. Private Securities Litigation Reform Act of 1995. Forward looking statements involve inherent risks and uncertainties.

Speaker 1

As such, the company's actual results may be materially different from the views expressed today. Further information regarding risks and uncertainties is included in relevant filings of LOTUS Tech with the U. S. Securities and Exchange Commission. The company undertakes no obligation to update any forward looking statements except as required under applicable law.

Speaker 1

Please also note that LOTUS Tech's earnings press release and this conference call will include disclosure of unaudited GAAP financial information as well as unaudited non GAAP financial measures. Please refer to our press release, which contains a reconciliation of unaudited non GAAP measures to comparable GAAP measures, which you can find at ir. Group/doses.com. Now, I'd like to turn the call over to our CFO, Alexis Bi. Alexis, please go ahead.

Speaker 2

Thank you, Demi. Hi, everyone. My name is Alexis Lee, and I'm the CFO of Lotus Technology Inc. Let me go to the slide please. Thank you.

Speaker 2

Now this slide is a reminder that Lotus is old with long standing British heritage and F1 Ecolab. Lotus is also new with lots of awards and milestones achieved recently. In 2024, we won the Brand of the Year award by Carwow and also got ourselves listed on NASDAQ in late February with a ticker LOT. Next. I want to begin with our Q1 financial performance.

Speaker 2

The company delivered approximately 2,200 units of vehicles and achieved total revenue of US173 $1,000,000 in the quarter, of which both are record numbers in the 76 years of LOTUS history. To your left, year over year growth by more than 700% with vehicle delivery expanding to the Americas and many other regional markets across the world. Beside EMEA sports cars and the electric SUV that made up the bulk of the 2023 sales volume. The new EMEA, our electric GT Sedan model and the Evija began to deliver in March, which will contribute from the Q2. In the middle, we have sales revenue also growing exponentially year over year as compared to just $19,000,000 in the Q1 last year on seasonal cycle.

Speaker 2

The company successfully launched our Chapman Bespoke Services in the Q1 of 2024 providing potential customization selections to customers on their Lotus vehicles. On your right, gross profit margin was 18% in the Q1, a step up versus the 15% achieved in 2023. The improvement is powered by asset light model and high margin businesses including of accessories, options and R and D services. Next slide please. To your left, the chart will show you that the BEVs which is mainly the electric SUV model contributes approximately 50% of total volume, while the Imira sports car sales contributing the rest.

Speaker 2

This is mainly driven by strong delivery in the U. S. Market given well established network. The chart in the middle and the one on the right shows the vehicle delivery as compared to the retail network distribution across the world. Europe, which is inclusive of the U.

Speaker 2

K. Market remains the biggest contributor to Lotus volume and revenue, given our British heritage and long standing brand recognition. The U. S. Is the most efficient market contributing 31% of volume through 23% of total retail stores.

Speaker 2

China is new market to notice and took up 25% of total vehicle delivery with about 25% of total retail stores. Next slide please. This is a slide just to highlight that there are 4 models on delivery in 2024 as compared to only 2 in 20 23. EMEA, our GT Sedan and Evija, our Hyper Halo car, are new additions. And this slide shows an introduction about the performance Imira, the most powerful 4 cylinder Lotus sports car ever.

Speaker 2

Imira is iconic and resonates with worldwide fans of Lotus. Orders and sales momentum of this ICE sports car is powered by demand from the U. S. Market. Electri, the slide shows our award winning Electri, our electric SUV model, which was launched in 2022 and began delivering in 2023.

Speaker 2

It actually has a single I LEAP headline design and is available in various performance spec options and full suite of intelligent applications such as ADAS and operating systems to suit global preferences. This is our 4 door electric GT sedan model which was launched in New York Manhattan in 3rd quarter 2023 and began delivering late March this year. The EMEA model is ramping up awards and positive feedbacks and is most known for its double idled headlight design versus the single idled electric. This is our EVAIA, the hellocar which is electric hyper sports car with 2,000 horsepower and priced at more than 2,200,000 dollars per unit. EVA made its 1st race track debut in China about 2 months ago by Janssen Burton, F1 Gold Champion.

Speaker 2

This model offers great bespoke opportunity with customization for superior luxury segment, especially young generation, high net worth individuals. As mentioned earlier, we roll out our exclusive prestige bespoke services during the recent Beijing Auto Show to offer exclusively luxury specifications to potential Lotus car owners. Many of these design not only integrated the Colin Chapman's charm into this design concept, our limited edition and the specs are all tailor made. Adoption of these bespoke services will not only drive ASP, but also gross profit margin expansion. In April, the company reviewed the limited edition EMEA Blossom, a luxuriously customized vehicle in the middle.

Speaker 2

You can see that in pink. This collection features red gradient painting and 42 natural fires on the instrumental panel, which garnered a lot of significant attentions from the viewers at the Beijing Auto Show. Now moving away from the cars, we look at what is the ecosystem. As a pioneer among traditional luxury brands to spearhead into transformation towards electrification, LOTUS is also ahead in terms of establishing our charging infrastructure. More than 300,000 charging stations across Europe are now accessible for Lotus Babs drivers.

Speaker 2

The company also entered into a strategic partnership with NIO on battery charging, granting drivers access to its network of 21,000 EV chargers across China. Among them, Lotus owned the charging stations would offer fully robotic charging arms to provide a world class experience and a seamless charging field. We value our affordable drivers brand mission and we put them into action. During the Lotus Day 2024, we invited VIPs to not only celebrate the new product launch in China F1 circuit, but we also got them test drive our intelligent BEVs to engage with them directly to capture their ideas that can potentially be accepted in our or incepted in our next upgrades and designs. Passion of this F1 was reconnected with tens of millions through live streaming and social medias, which is a good plus for the brand.

Speaker 2

Beijing Auto Show is a parade for the Lotus Limited Edition including the Evija, Elecri, Type 79, the Imirat Helamade and the Type 66 models. The EMEA Blossom, which I shared with you just now, is also sitting in the middle, which received a high level of customer interest. A series of global auto shows media test drives were conducted throughout the world and Lotus also prepared for marquee events such as the Monterey Car Week, the Goodwood Festival of Speed and other exclusive racetracks events to continue to build the iconic brand. Now in this slide, we really want to look at the numbers. We have 2 factories right now producing the Lotus vehicles and they are both owned by GD for long term secured manufacturing.

Speaker 2

The asset light arrangement means low industrial CapEx and limited depreciation and amortization for the company. Lotus has been around for a very long time selling iconic vehicles through its global sales network of over 2 other stores in prime locations. Global sales operated under the traditional wholesale retailer model, they have been established for a very long time. This is very asset light as compared to the D2C model. China is new market to Lotus and we operate under the direct customer D2C model.

Speaker 2

1st quarter contribution from China is 25% of total volume through 25% of total retail stores. We are definitely at the end of the CapEx cycle for establishing or building up cell phone stores. LOTUS Tech, the company that's listed in NASDAQ is responsible for the global distribution of all LOTUS branded vehicles and will capture all the financial returns from the Lotus development. Now looking at this slide, Lotus has always been an award winner. While we are previously known for our market leading engineering services, aerodynamic designs and material science for Light Witness.

Speaker 2

Lotus is also known for its relentless pursuit for next generation Automobility Technologies. I would like to point to the middle row where you can see a full display of our awards in electric charging, digital operating system and applicable AIs. These next generation technologies are accepted in our Lotus models. Next please. To your right, you'll note the progressive volume expansion of the brand.

Speaker 2

In 2023, only 90% and 60% of this market will actually have access to the Imira sports car and the electric SUV. This will change very quickly as 100% of this our total retail market will have access to these models in 2024 especially in the second half of this year. 50% of the markets will have access to the newly launched EMEA which is our GT sedan. To your left, you will note the progressive plan on the number of motor stores that is going to be established globally. In short, for 2024, 2025, the growth of LOTUS Tech will be powered by more models into more markets through more stores.

Speaker 2

Now looking at the guidance, coming back to our 2024 outlook, you will see that to your left, it's important to note that before we start launching our electric vehicles, an average of 1200 units loaded spreader vehicles was sold annually between 2018 2022. We achieved nearly 7,000 units of sales in 2023 and we are targeting about more than 20,000 units in 2024. Out of the 2024 volume, sports car is expected to contribute 23% of the volume, while lifestyle BEVs will contribute the remaining 70% to 80%. Product expansion to the SUV, sedan, GT crossovers open up opportunities for a much bigger pie in the last three segment that's priced above US80 $1,000 per unit. Based on our volume outlook, the forecasted sales revenue will be more than US2 $1,000,000,000 as compared to approximately US680 dollars in 2023.

Speaker 2

ASPs like to stay around the same level as mix shift towards more lifestyle beds and take up rates of accessories options and customizations will boost ASPs. To your right, you'll see the gross profit margin evolution with potentially positive improvement to the range of 17% to 19% as compared to just 15% in 2023. In the Q1, as I mentioned just now, we already delivered 18% in gross profit margin. Now this is definitely coming from positive scale effects and identifying synergies and cost saving coupled with executions of high margin businesses. Next please.

Speaker 2

Now coming back to the financials. 1st column will show our Q1 financials, which is very strong with volume delivery and sales revenue expansion of around 700% to 800% year over year versus 2023. The low base in Q1 of 2023 was mainly attributed to only sports car sales, unlimited sports car sales and BAV sales that actually began in March 2023. Worth noting for this year Q1 is the $30,000,000 of gross profit achieved in the Q1 that translates to 18% gross profit margin. It is important to flag that UK built sports car are lower in gross margin given that we have higher manufacturing expenses, while the Wuhan built BEVs are higher margin give a higher degree of automation, supply chain and operation efficiency.

Speaker 2

As mentioned previously, VAS contribute nearly 50% of the Q1 volume and is supportive of our GPM. Other positive factors contributing to GPMs are sales of accessories, options and technology R and D. EBITDA is negative of $204,000,000 in the Q1 versus $154,000,000 same time last year. Object is to gradually trim down net loss per quarter by the end of the year as the business scale up. Management team will continue to build on the strength of the business and improve operational excellence to support overall growth.

Speaker 2

Yes. Now moving on to the ESG section. Today the company also published our annual 2023 ESG report which outlined its achievement in building a green value chain, leading clean mobility and upholding business integrity through the efforts in security and privacy protection as well as community support. One of the key highlights include 100 percent of the suppliers that signed the code of conduct with supply chain ESG management system with blockage technologies. Some of the recognitions and achievements in 2023 include the Gold Certification of LEED for the Lotus Tower in Shanghai, the National Level Green Factory Award which is a very exclusive award, 100% renewable energy usage in selected regional offices.

Speaker 2

As the Chairman of the ESG Committee, I will emphasize that sustainability is at the core of our Vision AD strategy and the company is committed to achieve 100% electric portfolio by 2028, carbon neutrality from the entire supply chain and to secure top ESG rating with our stakeholders and aim for long term sustainability for the industry and the company. As mentioned previously, we have 4 models of Lotus branded vehicles made available into the market this year. By 2025, Audi's models will be available in 100 percent of the retail stores. Following that, we will have a Type 134, a D Class electric SUV which is smaller than the electric to be launched in 2025. Following that, we will have a next model of Type 135, which is a smaller sized sponsor, which we launched in 2026.

Speaker 2

We have 6 models in our hand to support our future growth trajectory. Lotus is definitely standing on solid foundation. To your left, you'll see that GD is a strategic shareholder and have the means to empower Lotus in global manufacturing, supply chain procurement, talent incubation and others. The company also has a strategic partner of L. Carrington that offers brand building consumer insights and access to LVMH resources.

Speaker 2

The Vision 80 strategy start from 2018 till 2028 and by then management's view is for 4% market share in the Luxury segment, which is priced above US80 $000 per unit. This is done through product lineup expansion from the niche sports car segment to the full range of lifestyle models such as SUV, the GT Sedan and the Crossovers. Revenue profile will also expand from traditional car sales, new or used options pick up aftermarket to those high margin revenue streams such as technology IP licensing, L2L3 plus ADA subscription, Chapman and Bespoke Customization, charging facility services and potentially in car purchases through the operating system. When done right, the company could potentially achieve more than 30% gross profit margin based on our estimates. The growth is enormous and we plan to deliver cash and profits to our shareholders.

Speaker 2

So business is evolving and is in line with our Vision 80 strategy. Now without further ado, I thank everyone for staying with me today and we appreciate your attendance today. We look forward to delivering our costs to all the drivers who have actually placed their orders and cash to our shareholders. I'll pass it on over to Demi to host the Q and A session. Thank you, everyone.

Speaker 1

Thank you, Alexis. Operator, we are ready for the Q and A session.

Operator

Thank you. We will now begin the question and answer session. Our first question comes from the line of Edison Yu from Deutsche Bank. Please ask your question, Edison.

Speaker 3

Hi, thank you for taking our questions. Good morning, good evening, everyone. First off, you maintained the guidance for the full year. Obviously, that suggests a pretty big ramp up in deliveries for the next three quarters. How should we think about the trajectory?

Speaker 3

Should we think of it as very back end loaded in the Q4?

Speaker 1

Thank you, Alexis. Thank you, Alison. Alexis, I will pass on to you.

Speaker 2

Yes. Hello. Can you guys hear me? Yes. Okay.

Speaker 2

Harrison, thank you for the question. I think it's important to note that from where we are standing, the company is definitely gradually moving up, stepping up progressively for the sales and order delivery. Now while we are looking at only approximately 2,200 units of sales order sales delivery in the Q1. We have also shipped more models and more vehicles through the network to global distribution. So definitely, we think that this is not going to be a 4th quarter second loaded, but rather it will be progressively increased between the Q1 to the Q4, I guess.

Speaker 2

So as more markets, like I mentioned just now, more markets will start to have more products, more models into them. And for example, we are starting to deliver our EMIRAS in U. K, Europe. We're also starting to deliver our electric in the likes of Korea, Southeast Asia and even the Middle East. We'll start to see more of this market taking up these products, especially in the second half of this year, given home obligations, shipments, arrangements and others.

Speaker 2

So we think that this is going to be a definitely a gradual pickup from Q1 to Q2 to Q3 to Q4 to the yes. The best way for you to understand is probably the mirror is similar to 2023 pickup.

Speaker 3

Understood. Curious on the second question, on the order intake from the newer markets that you've launched in, how are you feeling about those? And I know the bespoke solution is very profitable. Do we have a sense on the take rate for that?

Speaker 2

We do not have a specific forecast for the Chapman Bespoke Customization Service. Definitely, we are very observing in terms of how the take rate is. Now part of it is definitely on the customization services to individuals and tailor made services on that. Part of it is also offering limited editions that probably resonates very well with the market given that it has what you call unique prestige designs and also limited edition on that. Now we think that looking at where we are, if you look at the market right now, the demand from the U.

Speaker 2

S. Market in terms of our sports car is beating our expectations. We're seeing orders moving up very quickly as more stores are able to get hold of the products and actually display reach out to customers engage with them test drive and place the orders. So we think that the entire brand's pedigree is all resonating very well to market. And definitely, the first thing is get the vehicles into the market and looking at options hubs and also offering selectable customization services.

Speaker 2

So volume up first followed by ASP and GPM expansion.

Speaker 3

Understood. On the U. S, I'm sure you've seen the headlines of the higher tariffs. How does that impact, if at all, the BEV rollout I think you're targeting for the second half of this year?

Speaker 2

Well, we have continued to see potential risk. We have considered them and in the process of evaluating this impact. Now one very important message is we believe the U. S. Will be a key market for our vehicles in long term and we remain very committed in delivering vehicles there.

Speaker 2

Now while we are seeing like I've mentioned just now, while we're seeing the orders going up very strong, We are also seeing even the ice cost demand beating our expectation. Now we are very committed to growing our global footprint and definitely U. S. Is one of the key markets, the whole Americas is a key market and want to make sure that we do not have a single market risk, well balanced market to actually offset any potential risk.

Speaker 3

Understood. And just one last one for me. The OpEx trajectory for this year, I think we last time you mentioned something around flattish year over year. Is that still the target or is that still the good way to think about OpEx for I didn't

Speaker 2

catch your question.

Speaker 3

For this year, the OpEx, the operating expenses, SG and A, R and D, is it should we still expect about flat year over year?

Speaker 2

Well, like I mentioned just now, SG and A in a way of selling is definitely something that will go hand in hand with the number of sales. So there's going to be a portion of that because of it. Now the broader OpEx is going to have incremental increase, but it's definitely going to be way smaller than our volume trajectory and outlook. Thank you very much. Thank you.

Operator

Thank you,

Speaker 1

Yes. Thank you, operator. Thank you, Alison and Alexis. While we're giving some time to the call participants to raise any questions, I also received a few retailer questions. I'd like to raise it to Alexis.

Speaker 1

The first question I received is, will you adjust your pricing strategy to help driving sales also in reaction to the market and peers? Alexis, I may pass it to you, please.

Speaker 2

Lotus is an early mover in the electric field, especially for the lifestyle vehicle. We have a good window opportunity, especially in the markets that we have entered in a way to fill the gap and allow customers to be focused on that. Now Lotus will never be involved with cutting prices to build volume or to start the channel. We need to remain luxury positioned, build desirability for the brand and work on our customers' interactions through our rich heritage in racing and sporting. We do not expect to shift any of the focus to the lower end of the market and compete in pricing and volume gain.

Speaker 2

Thank you.

Speaker 1

Thank you, Alexis. We have

Operator

a follow-up question from the line of

Speaker 3

Yes, just a couple of more from me. What's been the initial feedback for EMEA in China? Where do we think we're taking share from in which competing models?

Speaker 2

As I personally have interacted with many of these CAR buyers and I think this time around we have done something really great with the EMEA blossom. We have gotten a lot of positive resonates and feedbacks from female drivers and also what they call families where they really like the styling. So it's not as big a car in terms of size and everything as compared to the likes of our electric. But it gives a very good handle and also a much better handle and also what they call a good feel in terms of the dimension, size and everything. So we get the impression and based on some of those feedback that we got and also the orders that this resonates very well with female car drivers, which is a breakthrough for the Lotus sets of products right now.

Speaker 2

Yes. We do not actually benchmark ourselves against competitor in terms of debt, but we understand that definitely 50% of these car customers that see look at our vehicles are definitely coming from competing brands or same priced categories like Porsche or even others. Now we were surprised to see even more pricey brands customers to actually look at the EMEA as a consideration for an extension on their sports cars and others. So that is something where we gotten that we are filling the gap really well given that we are fully electric cars with what we call intelligent operating system and also features embedded on them.

Speaker 3

Got it. Got it. And on the new charging network, I know you have a new partnership there. What's the I guess, what was the motivation and what would be the economics, if any, in terms of that partnership?

Speaker 2

Well, we think that we are moving up very quickly with Qatar base. So there is a lot of commonality in terms of partnership with NIO in terms of the additional charging facilities. So definitely there is consideration from a geographical perspective. There's consideration in terms of the locality of the customer base and definitely it's an additional feature add on to our already what they call established Chinese facility network. So definitely we are off we want to be oversupplying or maybe what you call, speeding our expectations of our customer base and giving them the best options in terms of charging facility that's available in major cities, metropolitans and others, yes.

Speaker 3

Awesome. Thank you.

Speaker 1

Thank you, Madison. Thank you. Operator, if there is no hands raised right now, I may follow-up with the second question I received from the retailer. Alexis, the question is what are some of the factors underlying the growth in your high margin business? And do you expect this trend to continue?

Speaker 1

I'd like to pass to you.

Speaker 2

Thank you, Damian. I think definitely doing our service right continuously developing on the volume, you will start to see new revenue strip. So we are moving definitely integrating the business very quickly. We are looking beyond just the traditional new car, old car sales. We are providing more options and providing the customizations, bespoke services for customers.

Speaker 2

So these are things that is going to come into play in the Q2, Q4 and Q4. Now as I mentioned previously, we do not put in a forecast exactly for that. But given the first run through during the Beijing auto shows feedback was pretty awesome, we think that the take up rate is definitely something worth watchful and how it can continue to contribute to our gross profit margin evolution. So this is definitely not one off and we think that this is something that is going to be supportive of margin expansion and our more long term trajectory. As I mentioned just now, if we do it right, we are definitely looking at 2028, which is the end of the Vision 80 strategy for more than 30% gross profit margin for the company, yes.

Speaker 1

Thank you, Maixi. And one more question is as following. Could you share any information on your order book? How have Elektra and Yimiya have been received across markets as you continue your expansion? Elexis, I'll pass it out to you.

Speaker 2

Yes. We will only be providing specific guidance on the deliveries right now rather than actually looking at the orders going forward as we believe that that's the best indicator of our performance. Yes, but definitely I can tell you that both the IMIRA is very well received. I mentioned just now the order book in and the orders in the U. S.

Speaker 2

Is beating our expectations every month to date. And we are also for every of the market that's going to, we are getting a very good feedback and we believe that getting into the vehicles through the test drive is probably the best way to interact and drive demand. Now in terms of the electric, we are also getting very nice traction. We think that definitely we are having a good optionality for even subscriptions on technologies, ADAS, level 2, level 3 and others. We expect deliveries to grow significantly throughout the later year the next three quarters of the year as we fulfill the new orders received over the Q1.

Speaker 1

Thank you, Alexis. That's all the questions I received from retailers for now. Operator, I pass to you.

Operator

Thank you. I am showing no further questions. Thank very much for all your questions. I'll now turn the conference to Ms. Demi Zhang for closing comments.

Speaker 1

Thank you, Amberlyn. Well, thank you everybody again for joining us today. We will conclude the call soon. If you have any further questions, please feel free to contact the IR team of Lotus Tech. You can send us an e mail or use online request form, which are all listed on our website at ir.group/lotus.com.

Speaker 1

This concludes the conference call. Have a wonderful day everyone. Thank you.

Operator

Thank you everyone. You may now disconnect.

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