Q1 2024 Lotus Technology Inc Earnings Call

Participants

Demi Zhang; Head of Investor Relations; Lotus Technology Incorporated

Alexious Lee; Chief Financial Officer; Lotus Technology Incorporated

Edison Yu; Analyst; Deutsche Bank

Presentation

Operator

Good day, and thank you for standing by. Welcome to Lotus Technology's Inc.'s First Quarter 2024 Earnings Conference Call. (Operator Instructions) It is now my pleasure to hand you over to the head of Investor Relations, Ms. Demi Zhang. Please go ahead, ma'am.

Demi Zhang

Thank you, [Anne-Marie]. Good morning, good afternoon, and good evening, everyone. Welcome to Lotus Tech's First Quarter 2024 Earnings Conference Call. This is Demi Zhang, the head of IR at Lotus Tech. Joining me today is our CFO, Alexious Lee.
On today's call, we will have Alexious begin with prepared remarks and conclude with a 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 Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties.
As such, the company's actual results may be materially different from the views expressed today. Further information regarding risks and uncertainties is included in relevant filings of Lotus Tech with the U.S. Securities and Exchange Commission. The company undertakes no obligation to update any forward-looking statements except as required under applicable law.
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.com. Now, I'd like to turn the call over to our CFO, Alexious Lee. Alexious, please go ahead.

Alexious Lee

Thank you, Demi. Hi, everyone. My name is Alexious Lee, and I'm the CFO of Lotus Technology, Inc. Let me go to the slide, please. Thank you. Now, this slide is a reminder that Lotus is old, with longstanding British heritage and F1 equivalent.
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 the ticker LOT. Next?
I want to begin with our first quarter financial performance. The company delivered approximately 2,200 units of vehicles and achieved total revenue of $173 million 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 Emira sports cars and the electric SUV that made up the bulk of the 2023 sales volume, the new Emeya, our electric GT sedan model, and the Evija began to deliver in March, which will contribute from the second quarter.
In the middle, we have sales revenue also growing exponentially year-over-year as compared to just US$19 million in the first quarter last year on seasonal cycle. The company successfully launched our Chapman Bespoke services in the first quarter of 2024, providing potential customization selections to customers on their Lotus vehicles.
On the right, gross profit margin was 18% in the first quarter, a step up versus the 15% achieved in 2023. The improvement is powered by asset-light model and higher margin businesses, including accessories, options, and R&D services. Next slide, please?
To your left, the chart will show you that the best, which is mainly the electric SUV model, contributes approximately 50% of total volume, while the Emira sports car sales contributing the rest. This is mainly driven by strong delivery in the US 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 UK 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. China is a new market to Lotus, 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 four models on delivery in 2024, as compared to only two in 2023. Emeya, our GT sedan, and Evija, our hyper-[halo] car, are new additions.
This slide shows an introduction about the performance Emira, the most powerful four-cylinder Lotus sports car ever. Emira is iconic and resonates with worldwide fans of Lotus. All the sales momentum of this ICE sports car is powered by demand from the U.S. market.
Electric, the slide shows our award-winning electric SUV model, which was launched in 2022 and began delivering in 2023. Electric has a single I-lead headline design, and is available in various performance spec options and a full suite of intelligent applications, such as ADAS and operating systems, to suit global preferences. This is our four-door electric GT sedan model, which was launched in New York, Manhattan, in third quarter 2023, and began delivering late March this year.
The Emeya model is ramping up awards and positive feedbacks, and is most known for its double I-lead headlight design versus the single I-lead electric.
This is our Evija, the [halo] car, which is an electric hyper sports car with 2,000 horsepower and priced at more than $2.2 million per unit. Evija made its first racetrack debut in China about two months ago by Jenson Button, the F1 gold champion.
This model offers great bespoke opportunity with customization for superior luxury segments, 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 designs 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 revealed the limited edition Emeya Blossom, a luxuriously customized vehicle in the middle. You can see that in pink.
This collection features rare gradient painting and 42 natural spires on the instrumental panel, which garnered a lot of significant attention 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 [BEVs] drivers. 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 charging stations will offer fully robotic charging arms to provide a world-class experience in a seamless charging field.
We value our - for the 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 to test drive our intelligent BEVs to engage with them directly to capture their ideas that can potentially be accepted in our next upgrades and designs. Passion of this F1 was reconnected with tens of millions through live streaming and social media, which is a good plus for the brand.
Beijing Auto Show is a parade for the Lotus Limited Edition, including the Evija, Eletre, Type 79, the Emira Tailor Made, and the Type 66 models. The Emeya 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's Festival of Speed, and other exclusive racetrack events to continue to build the iconic brand.
Now, in this slide, we really want to look at the numbers. We have two factories right now producing the Lotus vehicles, and they are both owned by Geely for long-term secure manufacturing. The [effort-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 200 stores in primary locations. Global sales operated under the traditional wholesale retailer model that have been established for a very long time. This is very as alike as compared to the D2C model.
China is new market to Lotus, and we operate under the direct customer D2C model. First 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 sales on stocks.
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 lightweightness, 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.
To your right, you'll note the progressive volume expansion of the brand. In 2023, only 90% and 60% of this market will actually have access to the Emira sports car and the Eletre SUV. This will change very quickly as 100% of the total retail market will have access to these models in 2024, especially in the second half of this year. Fifty percent of the markets will have access to the newly launched Emiya, which is our GT sedan.
To your left, you will note the progressive plan on the number of Lotus 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.
Now, looking at the guidance, coming back to our 2024 outlook, you'll see that to your left, it's important to note that before we start launching our electric vehicles, an average of 1,200 units of Lotus branded vehicles was sold annually between 2018 and 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 20% to 30% of the volume, while lifestyle vans will contribute the remaining 70% 80%. Product expansion to the SUV, sedan, GT, Crossovers open up opportunities for a much bigger pie in the luxury segment that is priced above US$80,000 per unit.
Based on our volume outlook, the forecasted sales revenue will be more than US$2 billion as compared to approximately US$680 in 2023. ASB is likely to stay around the same level as makeshift towards more lifestyle vans and take-up rates of accessories and options and customizations will boost ASBs.
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 first quarter, as I mentioned just now, we already delivered 18% in gross profit margin. This is definitely coming from positive scale effects and identifying synergies and cost saving coupled with executions of high margin businesses.
Coming back to the financials, first column will show our first quarter financials, which is very strong with volume delivery and sales revenue expansion of [at least] 700% to 800% year-over-year versus 2023.
The low base in first quarter 2023 was mainly attributed to unlimited sports car sales and bad sales that actually began in March 2023. Worth noting for this year's first quarter is the $30 million of gross profit achieved in the first quarter that translates to 18% gross profit margin.
It is important to flag that UK-built sports cars 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.
As mentioned previously, BEVs contribute nearly 50% of the first quarter volume and is supportive of our GPM. Other positive factors contributing to our GPM are sales of accessories, options and technology, R&D. EBITDA is negative of $204 million in the first quarter versus $154 million same time last year.
Objective is to gradually trim down net loss per quarter by the end of the year as the business scales up. Management team will continue to build on the strength of the business and improve operational excellence to support overall growth.
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% of the suppliers that signed the code of conduct with supply chain ESG management system with blockchain 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.
As the chairman of the ESG committee, I will emphasize that sustainability is at the core of our Vision 80 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 among stakeholders and aim for long term sustainability for the industry and the company.
As mentioned previously, we have four models of Lotus branded vehicles made available into the market this year. By 2025, all these models will be available in 100% of the retail stores. Following that, we will have a Type 134, a D-class electric SUV, which is smaller than the Eletre, to be launched in 2025.
Following that, we will have a next model of Type 135, which is a smaller sized sports car, which will be launched in 2026. We have six 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 with L. Catterton that offers brand building, consumer insights, and access to LVMH resources.
The Vision 80 strategy starts from 2018 to 2028. By then, management's view is for 4% market share in the luxury segment, which is priced above US$80,000 per unit. This is done through product lineup expansion from the niche sports car segment to the full range of lifestyle models, such as the SUV, the GD sedan, and the crossovers.
Revenue profile will also expand from traditional car sales, new or used options, pickup, after market, to those high margin revenue streams, such as technology IP licensing, L2, L3 plus [ADA] subscription, Chapman Bespoke Customization, charging facility services, and potentially in-car producers 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. 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 attendance today. We look forward to delivering our cars 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&A session. Thank you, everyone.

Demi Zhang

Thank you, Alexious. Operator, we are ready for the Q&A session.

Question and Answer Session

Operator

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

Edison Yu

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 wrap-up in deliveries for the next three quarters. How should we think about the trajectory? Should we think of it as very back-end loaded in the fourth quarter?

Demi Zhang

Thank you, Alexious. Thank you, Edison. Alexious, I will pass it on to you.

Alexious Lee

Yes. Hello. Can you guys hear me?

Edison Yu

Yes.

Alexious Lee

Okay. Edison, 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 delivery in the first quarter, 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 fourth quarter, a [back-end] loaded, but rather, it will be a progressively increase between the first quarter to the fourth quarter.
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 Emira in UK, Europe. We're also starting to deliver our Eletre 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 homologation, shipments, arrangements, and others. So we think that this is going to be definitely a gradual pickup from first quarter to second quarter, to third quarter to fourth quarter. Yes. The best way for you to understand is probably the Emira similar to 2023 pickup.

Edison Yu

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

Alexious Lee

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 they 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.S. market in terms of a 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 with the market. And definitely, the first thing is to get the vehicles in the market and looking at options ops, and also offering selectable customization services. So, volume up first, followed by ASP and GPM expansion.

Edison Yu

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 -- I think you're targeting for the second half of this year.

Alexious Lee

Well, we have continued to see potential risks. 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 the long term, and we remain very committed in delivering vehicles there.
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 highest cost demand meeting our expectation. Now, we are very committed to growing our global footprint, and definitely the U.S. is one of the key markets, the whole of America is a key market, and we want to make sure that we do not have a single market risk, a well-balanced market to actually offset any potential risk.

Edison Yu

Understood. And just one last one for me. The OpEx trajectory for this year, I think, we -- last time you mentioned something around flat-ish year-over-year. Is that still the target, or is that still the good way to think about OpEx for 2024?

Alexious Lee

I didn't catch your question.

Edison Yu

Oh, for this year, the OpEx, the operating expenses, SG&A, R&D, should we still expect about flat year-over-year?

Alexious Lee

Well, like I mentioned just now, SG&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 that goes with 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.

Edison Yu

Great. Thank you very much.

Alexious Lee

Thank you.

Operator

Thank you, Edison. (Operator Instructions).

Demi Zhang

Yes. Thank you, operator. Thank you, Edison and Alexious. While we are giving some time to the core participants to raise any questions, I also received a few retailer questions. I'd like to raise it to Alexious.
The first question I received is, will you adjust your pricing strategy to help driving sales also in reaction to the market and peers? Alexious, I may pass it to you, please.

Alexious Lee

Thank you. Lotus is an early mover in the electric field, especially for the lifestyle vehicle. We have a good window of 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 a 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.
Thank you.

Demi Zhang

Thank you, Alexious. Operator?

Operator

Thank you.
We have a follow-up question from the line of Edison Yu with Deutsche Bank. Please go ahead, Edison.

Edison Yu

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

Alexious Lee

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 Emeya 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 Eletre, 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, 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. Yes.

Edison Yu

Yes.

Alexious Lee

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

Edison Yu

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

Alexious Lee

Well, we think that we are moving up very quickly with customer 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 the consideration from a geographical perspective. There's a 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 charging facility network.
So, definitely, we want to be oversupplying or maybe what they call exceeding 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.

Edison Yu

Awesome. Thank you.

Demi Zhang

Thank you, Edison.

Operator

Thank you. (Operator Instructions).

Demi Zhang

Operator, if there is no hand raised right now, I may follow up with the second question I received from the retailer.
Alexious, 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? Alexious, pass to you.

Alexious Lee

Yes. Thank you, Demi.
I think, definitely, doing our service right, continuously developing on the volume, you will start to see new revenue streams. 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. So, these are things that is going to come into play in the second quarter, third quarter, and fourth quarter.
Now, as I mentioned previously, we do not put in a forecast exactly for that, but given that the first run through during the Beijing Auto Show's feedback was pretty awesome, we think that the take-up rate is definitely something worth watching 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 Vision80 strategy, for more than 30% gross profit margin for the company. Yes.

Demi Zhang

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

Alexious Lee

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 [Emira] is very well received.
I mentioned just now, the order book and the orders in the U.S. is beating our expectations every month to date. And we are also -- for every market that's going into, we are getting a very good feedback and we believe that getting into the vehicles through the test drive -- through the test drive is probably the best way to interact and drive demand.
Now, in terms of the Eletre, we are also getting very nice traction. We think that definitely we are having a good optionality for even substitutions on technologies, [ADA], Level 2, Level 2, 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 first quarter. Yes.

Demi Zhang

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

Operator

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

Demi Zhang

Thank you, [Anne-Marie]. 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 at Lotus Tech. You can send us an email or use the online request form, which are all listed on our website at ir.group/lotus.com.
This concludes the conference call. Have a wonderful day, everyone. Thank you.

Operator

Thank you, everyone. You may now disconnect.