Lotus Technology Inc. ($LOT)

Good day, and thank you for standing by. Welcome to Lotus Technology, Inc. Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your first speaker today, Ms. Michelle Ma, Head of Investor Relations. Please go ahead.

Thank you, and welcome to Lotus Tech's Fourth Quarter and Full Year 2025 Earnings Call. My name is Michelle Ma, the Head of Investor Relations here at the Lotus. With me today are the CEO, Mr. Qingfeng Feng; and the CFO, Dr. Daxue Wang. Our conference call materials were issued today and are available on our Investor Relations website. We are also broadcasting this call via webcast. Before we continue, please be reminded that today's discussion will contain forward-looking statements pursuant to the safe harbor provision 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 future results may be materially different from the views expressed today. Further information regarding risks and uncertainties is included in Lotus Tech's relevant filings 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 our earnings press release and this conference call will include disclosure of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. You can find a reconciliation of these figures in the press release available on our Investor Relations website at ir.group-lotus.com. With that, I'm delighted to turn the call over to our CFO, Dr. Wang, please.

Good morning, good afternoon and good evening to our shareholders, analysts and media friends. Thank you very much for joining us for Lotus Fourth Quarter and a Full Year 2025 Earnings Discussion. I'm Daxue Wang, Chief Financial Officer of Lotus Tech. It's my privilege to once again present the company's unaudited financial results. In the fourth quarter, the company delivered 1,908 vehicles, including 1,239 lifestyle SUV and Sedans and 670 sports cars. For the full year 2025, total deliveries reached 6,520 units. While this represents a 64% year-on-year decrease, it figures reflect a traditional year marked by the impact of tariffs, the phased start of the upgraded model deliveries and intensified market competition. Total revenues for the fourth quarter were USD 163 million, a 40% year-on-year decrease. For the full year 2025, total revenues were USD 519 million, down 44% year-on-year. Sales of goods fell 48% year-over-year to USD 563 million, driven by lower sales volume, while services revenue surged 69% year-over-year to USD 56 million, primarily due to the R&D service revenue. The commercialization of our intellectual properties through technical licensing and other channels has demonstrated significant market recognition of our pioneering technologies. Gross margin improved significantly to 10% in the fourth quarter compared to negative 11% in the same period of 2024. For the full year, gross margin improved to 9% from 3% in 2024. This improvement was driven by the global rollout of upgraded model deliveries, a favorable shift in our sales mix, healthier inventory dynamics and disciplined cost control. We continued our track record of disciplined cost management. Operating loss narrowed by 65% year-over-year to USD 66 million in the fourth quarter. Consecutive sequential quarterly reductions in operating losses demonstrate the company's commitment to operational efficiencies. In fiscal year 2025, lifestyle vehicles deliveries accounted for 70% of the total with sport car making up the remaining 30%. Deliveries were primarily driven by the China and European markets. Importantly, growth in Chinese deliveries outpaced the broader premium auto segment, underscoring the competitive strength of our product portfolio within China. By region, China accounted for 45% of full year deliveries, Europe, 34%; North America, 60% and the rest of the world, 5%. In the fourth quarter of 2025, our sports car deliveries to North America achieved remarkable Q-o-Q growth even with a 5% local price increases. Earlier tariff hikes hit our Q2 sales start, but the U.S. adjusting U.K. auto import tariffs down to 10% brought positive clarity. The recovery of sports car sales in the U.S. during the third and fourth quarters fully demonstrates our strong brand appeal and the price acceptability in the region, driving a due rebound in sales volume and gross profit margin. Research and development expenses were USD 171 million for the full year, down from USD 275 million in 2024, reflecting targeted prioritization of our technology investments. Selling and marketing expenses decreased to USD 153 million from USD 322 million, and general and administrative expenses declined to USD 136 million from USD 227 million. These reductions underscore our strong commitment to enhancing operational efficiency. Together with gross profit increase in 2025, operating loss narrowed 46% year-on-year and net loss decreased 58% year-on-year. On a non-GAAP adjusted basis, adjusted EBITDA for the full year improved by 63% year-on-year, narrowing to a loss of USD 356 million from USD 961 million in 2024. Beyond these numbers, I would like to reiterate that we have not reduced operating expenses for multi consecutive quarters through value-added measures. Our improved margin performance in the fourth quarter and full year of 2025 demonstrated our continued focus on cost optimization and operational efficiency. And this was also reflected in our significantly improved bottom line of results. Going forward, we expect the global launch of our PHEV model For Me to drive sales and revenue growth. Additionally, we expect that the combination of focusing on revenue growth efforts, maximizing product positioning and enhancing margins through the strict cost reductions will allow our business to progress towards profitability and enable us to deliver long-term value to shareholders. With that, I will now turn the floor over to Ms. Feng. Thank you.

[Interpreted] Hello, everyone. This is Qingfeng Feng, CEO of Lotus Group. Thank you for joining the Lotus Technology Quarter 4 and Full Year 2025 Earnings Conference Call. Last year, 2025 was a really important year for us, a true turning point in our strategic transformation. Even with all the global market ups and downs and higher tariffs, we made solid progress on our core operating metrics by staying focused on smart execution, pushing technological innovation and the tightening of how we run the business every day. I'll walk you through the latest development in 4 key areas, our recent highlights, market strategy, product lineup and the progress on our new hybrid model For Me Eletre X. With our 78-year racing heritage, building the Lotus brand has always been front and center for us. In 2025, we scored some real breakthroughs on both the business and the brand front. In motorsports, we wrapped up the very first Lotus Cup one-make race, at Sepang International Circuit in Malaysia back in November last year. 44 race-prepared Lotus Emira cars hits the track and with a sensational showcase of the brand's racing DNA. The 2026 season actually kicks off on April 3 this year and we will keep using this platform to share our motor sport spirit and cutting-edge tech with fans everywhere. In equity financing, we secured a strategic equity investments of USD 23 million from ECARX, deepening our global strategic partnership through capital size. Going forward, we will jointly accelerate innovation in next-gen intelligent cockpit ecosystems to deliver AI-driven experiences to consumers and collectively enhance products competitiveness. On the tech side, our [indiscernible] Eletre became the first and only Chinese-made electric vehicles to earn UN R171.01 certification for highway navigation systems. Though this is also only the second automaker in the world to achieve this, which is a huge validation of our advanced driver-assistance systems and opens more doors in the premium European market. On brand development, we teamed up with the Haus of Automotive for the exclusive IN-PROGRESS exhibition at the 2026 Milan Design Week. We showcased our industrial design philosophy and Theory 1 concept car, proving once again Hau's, lens, technology and aesthetics in a way that feels luxurious and forward thinking. For market strategy, Lotus is continuing to refine our global footprint and make our sales channels more efficient. We now have a well-balanced distribution network across 4 major regions. As of the end of December, we had 211 sales outlets worldwide, 67 in Europe, 58 in China, 48 in North America and 38 in the rest of the world. In China, we kept expanding and upgrading our dealer network. We opened a new store in the city of Dalian in China and refreshed several others. Dealers have been hiring more staff, adding more outlets and ramping up online marketing, which has clearly improved both customer acquisition and satisfaction. And in North America, we plan to grow our Canadian dealer network on the basis of existing channels. Now we have 6 dealers in Canada. We are expected to expand to 12 by the end of the year, fully leveraging local tariff policy opportunities. The Eletre is the only Chinese-made electric vehicle priced above USD 80,000 that's fully certified for the North American market. So we expect a strong sales growth there. We will start customer deliveries in Canada in May. In Europe, we streamlined our organization and run leaner and gave each region more freedom to tailor strategies to local needs. For example, we introduced the business addition model and vehicle value production plant in Germany, and we're expanding corporate and leasing business in the U.K. As I previously mentioned in the quarter 3 earnings conference call, Lotus is staying disciplined on costs. We are closing a few underperforming stores, expanding the high-performing ones and redirecting resources to the markets that matter most. On our product lineup, we are driving product competitiveness by expanding both our product range and the powerful options playing to our strengths while fixing any gaps. The expansion and upgrading of the product portfolio were core highlights of our work through the year. In 2025, new variants of EMIRA, Eletre and Emeya were launched and delivered in major markets, receiving positive market feedback. The sales proportion of new models continue to increase, helping stabilize product sales. In 2025, we also focused on hybrid product development. And in the first quarter of this year, we launched our all-new hybrid SUV For Me Eletre X and the delivery started just 1 day after the launch. This hybrid model gives mainstream luxury buyers another great option and let's reach markets that are moving more slowly towards full EVs like Italy, Spain and Saudi Arabia. It's also bringing in a broader mix of customers. In the future, we will keep strengthening both the sports car and lifestyle vehicle to our lineup, and we will roll out more hybrids built on our new hybrid architecture. This gives consumers real choice, combustion, battery electric or hybrid, whatever feeds their means. And also allow me to share with you the progress of the launch of For Me, which is the first hybrid in 78 years. In the EU, it is batch as Eletre X, like I previously mentioned. It completely changes what the hybrid SUV can do. For Me was launched in China on March 29, 2026, and deliveries began on March 30. Before the launch, we actually invited the dealers and the media outlets from the EU to test the ride and test the drive for this particular vehicle, and we have received a wide positive feedback. For Me runs on our X hybrid architecture, a 900-volt high-voltage platform paired with a 70-kilowatt hour battery and a total output of 952 horsepower. In CLTC testing, it delivers more than 1,400 kilometers of total range. Fuel consumption is just 0.7 liters per 100 kilometers in WLTC. And even when the battery is depleted, it's only 6.1 liter per 100 kilometers. From 0 to 100 kilometers power, Lotus For Me Eletre X only takes 3.3 seconds. And even when the battery is down to 10%, it still hits 3.5 seconds. In other words, performance stays strong in the rest of the battery level. Breaking is equally impressive, 100 to 0 kilometers power in just 33.9 meters and the car stays above international standards even after 12 heavy sports in a row. Plus at high speeds, the 4-speed active railing can flip into air brake at 170 kilometers hour, generating 120 kilograms of downfalls to help shorten stocking distance and keep the car stable, bringing safety production and driving confidence to drivers and passengers. Aerodynamics remain a Lotus signature, For Me carries forward our porosity design language with a low purposeful and functional air ducts. Every line has a purpose. [indiscernible] aeroducts used the Venturi effects to boost the downforce and the 26-degree windshield angle cost drive effectively. For Me, while we gradually launched to the global market in the second half of the year. Wholesale deliveries in the EU start at the end of October. Certification for [indiscernible] will wrap up by year-end with orders opening in October, official launch in November and deliveries in December. In the U.K., we expect the wholesale to begin in mid-2027. Looking ahead, we will keep accelerating product updates and the market expansion. On one hand, we will ramp up For Me global deliveries and at the same time, advance the R&D and the launch of new models as planned. On the other hand, we will deepen our channel partnerships and technical collaborations to make the Lotus name even stronger worldwide. Thank you again for your time and support. I will now hand it back to the host for questions.

[Operator Instructions] We will now take our first question from the line of Laura Li of Deutsche Bank.

I want to ask about -- just think about the total deliveries of 2025, it actually went down year-on-year by almost half. So what are the main drivers of this volume decline in '25? And how should we think about the potential impact of the geopolitical situation on future sales?

[Interpreted] Yes, I do see there's the decrease -- delivery volume decrease year-on-year, and it has been affected by a lot of elements. The first one is the uncertainty of the tariffs it has negatively impacts our production and also inventory. For example, the U.S. tariff to U.K. made vehicles affected our volumes about 60%. In addition to that, the EU and U.S. tariffs against Chinese-made EVs have also exerted pressure on our pricing in EU. And for the U.S. market, basically, it is impossible for us to enter. For those influences, they have also affected our inventory management and our destocking progress. We actively started the destocking in 2025 and adjusted our product lineup. But after the adjustment, the logistics have also taken some time and leading us to some late entry to some markets. In 2025, our stock level has been reduced dramatically by 43% to a very healthy level, and is set a very solid accounts for 2026. In addition to that, we've also adopted a lean but efficient organization to help us boost our profit margin. Despite the negative impact of geopolitics and tariff, we do see some new opportunities. For example, the tariff between U.S. and U.K. have been settled, the U.K.-made vehicles to the U.S. will be charged a 10% tariff, and it is a beneficial news for our EMIRA sales. And actually, the EMIRA sales in the U.S. have been recovered to a normal status. In addition to that, Canada has also announced a policy towards China-made EV. The tariff will be lowered from 100% to 6.1%. It is conducive to our exploration in North America. Given we have already certified our election for U.S., it's a good opportunity to leverage such channels to boost our sales volume. In addition to that, for our PHEV, EU at this moment currently kept 10% tariff to Chinese-made PHEV. So this is also a good window opportunity for us to launch PHEV in October to EU market. Despite the challenges that we've seen in the U.S. and EU markets, we do see some positive feedback from China market. Our sales volume has been increased from 2,800 to 2,900, an increase of 3% year-on-year. And actually, in 2025, the luxury market in China priced over RMB 400,000, dropped of 4.4%. But in that circumstances, we actually kept a 3% increase. And it is a demonstration that Lotus product is very competitive. We can achieve stable increase in such a fierce competition and the brand of Lenses have been gradually recognized in China market. In 2026, as we are going to roll out the PHEV in different markets, it will help us to reach wider markets, for example, some markets with a slow adoption of EV such as Italy or Spain. And it will also help us to touch a wider customer group who may have a range anxiety about battery electric vehicle. And in the future, we are pretty confident that 2026 is going to be a year for Lotus to recover. In addition to that, we're also exploring new markets such as South America. Brazil, we already had a dealer there. The shop is going to be opened this year and the first battery vehicle has been wholesale. Again, in summary, despite the negative influence from last year, we see some positive opportunities lying ahead. Thank you.

Okay. Great. Appreciate the color. Just to follow up on this volume perspective. So after the launch of Lotus For Me, the PHEV model, which have started deliveries by the end of last month. Could you provide an update on the current order intake and delivery progress? And could you like elaborate more about the volume expectation and the strategic position of this specific model?

[Interpreted] After the launch of For Me on 29th of March, the order status is actually telling our expectation. For Me is the first hybrid model of Lotus in the past 17 years. It redefined the hyper SUV covers all scenario, and this is one of the reasons that we can reach a wider customer group. Our consumer assets have been increased by 5x. And on the Douyin, the TikTok equivalent platform, we ranked the 20th on the vehicle consultation target. And on other integration platform for the vehicle price above RMB 500,000, we ranked the 10th. And in other words, those indicates that For Me and Lotus gains greater visibility and exposure and wider brand recognition. PHEV, particularly PHEV SUV priced above 400,000 in China, we see a trend of increasing. In 2022, the total volume of such segment is around 140,000. In 2024, it's increased to 280,000. And in 2025, we see it is getting closer to 290,000. In other words, for PHEV in China, now it is a good time to enjoy the benefit. Lotus For Me help Lotus to reach a wider customer group. In the past, the customers who are interested in our BEV offerings are most entrepreneurs and the owner of the business or business owners. Now the company management actually shows their interest in our products. And for our target customer age group, previously, it's a bit younger. Now we reached to a more senior age level. Among all those customer group, the owners of BMW X5 and also Porsche AN shows greatest interest on our products. We are going to launch this For Me Eletre X in the second half of the year to EU market. And for EU market per se, the PHEV penetration rate is also getting higher given the emission regulation is getting stricter. The tariff for Chinese made PHEV in EU is 10% and for Chinese made EV is 28.8%. There's a difference of 18.8%, which means this is a good opportunity that we can leverage. In the EU, PHEV are increasing, particularly from 2024 to 2025, there's an increase of 7.2% in some major cities, Spain, Italy and Germany. And in 2025 December itself, we see an increase of 30% year-on-year. And overall speaking, the PHEV is going to help us to have a well-balanced product lineup and product portfolio and give our targeted luxury consumers more options to choose. The BEV and PHEV from Lotus will help us to acquire more market share and wider market coverage.

We will now take our next question from Brian Lantier of Zacks Small-Cap Research.

It was really encouraging to see the improvement in gross margin going up to 9% for the full year and 10% in Q4. Obviously, services appear to have driven a lot of that. How recurring do you think that is? And do you have any guidance for 2026 gross margins?

Thank you, Brian. The company's gross margin improvement in 2025 was driven by 3 key factors. First, as Ms. Feng has just elaborated, we successfully cleared aged vehicle inventories in the first half of the year. Then, the second half saw a higher production of new vehicle sales and a significant reduction in overall variable sales subsidies. And second, we continuously reduced material costs through TD's centralized procurement platform. And third, we increased the share of the high-margin service revenue, which lifted the overall gross margin. Looking ahead to 2026, despite significant external headwinds such as continued price increase for core components like batteries and chips, which will put pressure on our gross margin, we expect total procurement costs, production costs and unit D&A to our decline. At the same time, we expect to maintain the overall production pricing at current levels leading to further gross margin improvement. And in addition, the ongoing merger with the U.K. local cars is expected to enhance the production and R&D efficiency and further support our gross margin growth. Thank you.

Great. That's helpful. Obviously, operating expenses were cut significantly in 2025, which helped to narrow your operating loss. Could you talk about any key cost control measures that you've implemented and whether you feel like more sustainable in 2026?

Yes. Thank you. So the company's cost control plan consists of structural long-term initiatives rather than these temporary measures. On the R&D front, the company fully leverages TD's R&D and resources, enabling us to reduce investment in general purpose technologies and focus on acquiring technology development, the improving our R&D efficiency. And on the marketing front, the company dynamically and flexibly manage its marketing spend to enhance marketing efficiency that has elaborated. And on the management front, the company strictly controls administrative expenses, streamlines the organizational structure and optimizes the personnel management frameworks to improve operational efficiency. And we believe these factors will continue to play a positive role in 2026. Thank you.

Thank you very much for the questions. I'll now turn back to the room for questions from the webcast.

Thank you for all the questions via conference call. We will now be answering investor questions via webcast. Our first question is service revenue grew 69% year-over-year in 2025. What are its core breakdown and the key drivers behind?

I'll take this question. The company's service revenue primarily consists of R&D service revenue and vehicle service income. In 2025, R&D service revenue accounted for over 75% of the total with customers, including first-tier OEM manufacturers. This fully demonstrates the market's strong recognition of the company's R&D capabilities as well as the company's ability to commercialize our intellectual properties. Thank you.

Our second question from the webcast is, what the implication does the recent rise in global oil price has on the company?

[Interpreted] Well, I think it's a good news overall for new energy vehicle and a good opportunity for us, particularly for our PHEV because for me, our first PHEV model can be solely driven by gasoline fuel or solely driven by battery. It cater all different types of needs from our consumers. And its consumption of both the fuel and the electric are very low. As I previously mentioned, the comprehensive fuel consumption is only 0.07 liters per 100 kilometers. And even at the depleted status, the fuel consumption is only 6.1 liters per 100 kilometers. So overall, this is a good opportunity for us to catch. Especially in the markets such as Middle East, where the charging infrastructure has not been very mature, the BEV adoption rate is slow. In those markets, we believe the PHEV model for is going to play an important role. Of course, we do see some headwinds given the hikes of the oil price. For example, the cost of our supply chain might be increased and the bond cost might be also increased correspondingly. And those are some negative influence we may see. And some of the established luxury OEMs may take this opportunity or feel pressure to accelerate their pace into PHEV arena, such as we see Porsche has been releasing the KN BEV model, and we also see the Volkswagen Group car launching some ranging standard models. Of course, for Lotus, we would keep demonstrate our spirit to be differentiated in the customization and play a leading role in this front. Thank you.

That's the question-answer session. And with that, I'll now hand the conference back to Ms. Michelle Ma for her closing comments.

Thank you all again for joining us today. We will conclude the call now. The Investor Relations team remains available to answer any further questions that you may have. Please feel free to contact us through the contact information on our website. Have a great day. Thank you.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect your lines. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]