Polestar Automotive Holding UK PLC (PSNY) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Polestar Second Quarter and First Half 2026 Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Anna Gavrilova. Please go ahead.

Thank you, operator. Hello, everyone. I'm Anna Valova, Head of Investor Relations at Polestar. Thank you for joining this call covering Polestar results for the second quarter and the first half of 2026. A I'm joined by Michael Lohscheller, Polestar CEO; and Jean-Francois Mady, Polestar CFO, who will comment on the performance, and then we will open the floor to analysts' questions. Before we start, I would like to remind participants that many of our comments today will be considered forward-looking statements under the U.S. federal securities laws and are subject to numerous risks and uncertainties that may cause Polestar's actual results to differ materially from what has been communicated. These forward-looking statements include, but are not limited to, statements regarding the future financial performance of the company, production and delivery volumes, financial and operating results. near-term outlook and medium-term targets, fundraising and funding requirements, macroeconomic and industry trends, company initiatives and other future events. Forward-looking statements made today are effective only as of today, and Post tar undertakes no obligation to update any of its forward-looking statements. For a discussion of some of the factors that could cause our actual results to differ, please review the risk factors contained in our SEC filings. In addition, management may make references to non-GAAP financial measures during the call. A discussion of why we use non-GAAP financial measures and a reconciliation of the most directly comparable GAAP measure can be found in the appendix of the press release and in the Form 6-K published today. Now I will hand over to Michael.

Thank you, Anna. Hello, everyone, and thank you for joining us today as we present our second quarter and first half 2026 financial and operational results. I am pleased with the commercial progress we have achieved in light of the market conditions which remain challenging. We delivered a record first half with retail sales of 30,423 cars. This growth has been supported by the continued transition to our active selling model, the expansion of our retail network and a stronger contribution from Polestar for Coupe, which is our best-selling car. This has happened during 1 of the most challenging and competitive times I have experienced in the automotive industry and delivering record sales in this environment confirms that customers want our cars. At the same time, we are realistic about the challenges we face. Competition in the EV market continues to intensify. Pricing pressure remains significant, and geopolitical developments continue to impact the industry. We have also seen regulatory headwinds, particularly in the U.S., which affected our performance during the first half. This, combined with factors mentioned above further impacted our financial results. As was announced in late June, the U.S. Department of Commerce denied Polestar's application for an authorization under the current connected vehicle rule to sell vehicles in the U.S. from model year '27 onwards. In light of all this, we have updated our full year volume outlook to low to mid-single-digit growth. This reflects the continued market pressure across our industry as well as portfolio transition. Polestar 4 SUV customer deliveries will start in the fourth quarter and ramp up into next year. Our focus remains on building the right product and channel mix and strengthening the underlying performance of the business. The most important thing that the operational improvements we have been implementing are beginning to show results. Our reported operating loss improved significantly compared with the first half of last year, which included substantial impairment charges. At the same time, cost discipline measures contributed to lower general and administrative expenses. When I joined Polestar 2 years ago, we had to address a number of structural challenges. For the past 2 years, we have worked to build a leaner, more focused and more resilient company. We are not trying to be everything everywhere all at once. Instead, we are concentrating on the areas where we can create sustainable value, improve profitability, CapEx allocation and position poster for long-term success. We are doing the right things, and we are beginning to see the benefits of those actions. A key part of that transformation has been our shift from an online-first model to a retailer-led commercial sales model. Today, we work with 235 sales points and 178 retail partners across 28 markets and our retail footprint has expanded by 39% year-on-year. But this transformation is about much more than opening a new location. It's about working more closely with our partners, improving the customer experience and giving retailers a business model they can invest in with confidence. We have also continued to strengthen the company's financial foundations. During the first half, we have enhanced our capital structure through new external equity funding debt-to-equity conversion with Volvo cars and Geely Sweden and the extension of the remaining Volvo Cars shareholder loan. These actions have increased our financial flexibility as we execute our strategy and prepare for upcoming launches. Yesterday, we opened the order books for the new Polestar 4 SUV. As a sibling to our best-selling Polestar for up -- it brings everything customers already love about the car to a broader audience with vehicle to load capability, Uggemini integration, 1 of the lowest carbon footprint in our portfolio and the price starting at EUR 57,900, it is a very compelling addition to our product range. Over 900 cars are already on their way from the factory in Busan, South Korea and customer deliveries will begin in the fourth quarter. We are also preparing for the imminent first customer deliveries of Polestar 5. Feedback from journalists who have driven the car has been exceptional. As our Halo car Polestar 5 embodies everything the brand stands for, design, performance, technology and sustainability. Simply put, it is a Polestar brand on wheels. So while market conditions remain challenging, our priorities are clear. We are growing our retail business. We are improving our operational performance. We are strengthening our financial position. We are launching the strongest product portfolio in our history. The transformation of Poste continues, and we remain focused on disciplined execution and building a stronger company for the long term. With that, I'll hand over to Jean-Francois and look forward to taking your questions. Thank you.

Thank you, Michael. Good morning, good afternoon, everyone. Looking at the financial results for the first 6 months of 2026, operating loss reduced by 43%. In summary, these results were supported by carline mix evolution towards higher-margin models driven by Pulsar, positive adjustment of net realizable value of inventory, except in the U.S. continued cost discipline measures and lower head count spend and the net impairment expense recognized in the first half of 2025 with no impairment expense recognized in H1 2026. These positive developments were offset by a number of adverse factors in the period, mainly continued pressure on pricing, lower sale of carbon credit, adverse foreign exchange movement positive one-off in first half 2025 and material adjustments related to the U.S. restructuring measures. The U.S. material adjustments related to the decision by the U.S. Department of Commerce Bureau of Industry and Security, the BIS amounted to an estimated USD 130 million. The impact regarding the U.S. operation is mainly recognized in the following areas: residual value guarantee costs within revenues, net realizable value of inventory within other cost of sales and organizational changes impact on investment and suppliers, which are included in other operating expense. These are based on current estimates and information available as of the reporting date. Additional costs and charges may arise as further assessment and completed and the full effect of the BIS decision continue to develop, starting with the results for the first 6 months of 2026. Retail sale of over 13,400 cars were supported by the continued transition to an active selling model, retail cell network expansion and Polestar attractive model lineup. Polestar group remain our best-selling model and it made up 2/3 of the volume. By geography, we saw particularly strong performance in Europe, led by the U.K., Germany and Southern Europe. And in Asia Pacific by South Korea. Europe delivered 78% of our total volume. Our U.S. business continued to be affected by higher tariffs and changes in the regulatory environment. In the first half 2026, the U.S. market represented 6% of our retail sales down from 9% in the same period in 2025. In the period, we were active in 28 markets worldwide, including 17 in our key region of Europe. We launched sales in Estonia at the end of June, we've sailed to start in 2 more Baltic countries, Latvia and Itani imminently. In cooperation with our partners, we opened 24 new call points and signed up 20 new retailers in the first half of 2026. Most of this expansion was in Europe. Revenue of USD 1.36 billion was 4% lower year-on-year. The positive effect from volume, carline mix and foreign exchange tailwinds was offset by significant pressure on pricing, residual value guarantee costs, mainly in the U.S. and related to the BIS decision and lower carbon credit sale of USD 52 million versus USD 72 million last year. In addition, we recognized $4 million of carbon credit sales booked in other operating income compared to USD 18 million last year. The decrease in revenue related to sale of carbon credit primarily reflect the increased competition in EU, while the decrease in other operating income is mainly driven by regulatory changes in U.S. Gross margin was a negative 8% in the period, an improvement of 41 percentage points as the comparable period result was impacted by net impairment expense of USD 724 million. Adjusted gross margin was a negative 9%. The key drivers impacting profitability negatively were lower revenue growth in cost of sales due to higher production costs associated with the carline mix, EU and U.S. tariff impact, limited product cost reduction due to higher raw material costs and 2025 one-off positive items, which did not repeat in 2026. The profitability was further impacted by material adjustments included in the reported results specifically adjustment of inventory to net realizable value in the U.S. related to the U.S. restructuring. These negative key drivers were, however, partially offset by positive margin development due to the carline mix attributable to Polestar 4 and positive adjustment of inventory to net reliable value, excluding in the U.S. market. Selling general and administrative expenses of USD 431 million were flat year-on-year. Savings in general and administrative expenses, driven by continuous cost discipline and lower head count spend were offset by higher sales agent remuneration and increased marketing activities following the launch in France in June 2025 and to the launch of the Polestar 5 in different markets. Research and development expenses were USD 15 million, down from USD 31 million due to reduced head count and spending on new program with higher capitalization rate compared to the prior period. operating loss of USD 629 million and net loss of USD 842 million, narrowed year-on-year, respectively, by 43% and 29%, mainly due to net impairment expense of USD 724 million recognized in the prior period. This development was mainly offset by factors previously mentioned and by foreign exchange headwinds and costs related to the U.S. restructuring related to the U.S. Pulsar organizational changes, investment and suppliers impacting the other operating expenses. Our operating income were as well impacted by lower sales of carbon credit and H1 2025 positive one-off impact driven by the commercial termination of our operation in China in Polestar client technology company. Higher finance expense and net foreign exchange losses on financial activities were further factors contributed to net loss. Adjusted EBITDA loss for the first half of 2026 of USD 521 million increased year-on-year despite margin improvement due to model mix driven by Polestar 4 due to adverse evolution of profitability with adjusted gross loss in the period, which included the impact of the U.S. restructuring measures, H1 2025 positive one-off, unfavorable foreign exchange movement and negative other income effect as previously mentioned. If we look at the results of the second quarter, Retail sales were close to 17,300 cars, a decrease of 4% year-on-year. Revenue was USD 727 million, down 8% year-on-year on lower volume, pressure on pricing, lower sales of carbon credit and residual value guarantee costs in the U.S. connected with the U.S. restructuring measures. Sale of carbon credit amounted to USD 36 million in Q2 2026 versus USD 42 million in Q2 2025. In Q2 2025, we also recorded USD 19 million of carbon credit sales in other operating income. Carbon credit sales are expected to follow the same pattern with revenue weighted toward the second half of the year. Gross margin was negative at 13%, representing an improvement from the last year result of a negative margin of 97% which reflected the net impairment expense of USD 724 million recognized in the second quarter 2025. Adjusted gross margin was a negative 13% from negative 6% last year. The lower margin was predominantly a result of lower revenues, adjustment of inventory to net realizable value in the U.S. due to the U.S. restructuring measures and Q2 2025 positive one-off impact. These were, however, partially offset by positive margin development due to the carline mix driven by Polestar 4 and positive adjustment of inventory net reliable value, excluding in the U.S. market. Net loss for the quarter was USD 459 million, an improvement of 55% compared to net loss of USD 1.27 billion a year earlier. -- mainly due to the fact that no impairment expense was recognized in the reporting period compared to a year ago. Adjusted EBITDA loss of USD 286 million compared to adjusted EBITDA loss of USD 206 million in the prior year period, was due to adjusted gross loss results explained earlier, unfavorable foreign exchange movement and negative other operating income item. These impacts were offset by lower selling, general and advised expenses driven by cost discipline and reduced head count despite higher sales agent remuneration due to the carline mix and lower net research and development expenses due to the reduced head count and spending on new program with higher capitalization rate compared to the prior period. On the funding of our operation and liquidity, we provided a detailed update at the full year results in April. Since then, GilSweden and Volvo completed the conversion of approximately USD 640 million of loan outstanding to Polar, including acrointerest into equity. In the meantime, Volvoca extending the battery of its remaining shareholder loan of USD 660 million to December 2031. This transaction further strengthened our capital structure, reduce leverage and enhance our financial flexibility. It demonstrates as well the continued support of our key shareholders. Also, Polestar was in compliance with all its covenants at the end of the second quarter 2026. Our cash position at the end of June 2026 was USD 888 million from USD 1.59 billion at the end of 2025. The change in cash position was primarily driven by operating cash outflow of USD 850 million, mainly reflecting the operating loss net of noncash adjustments financial interest expense and a negative movement in working capital, driven primarily by negative change in trade payables, partly offset by favorable movement in inventory and trade receivables. Within investing outflow, capital expenditure amounted to USD 211 million and within positive net financing inflow of USD 769 million primarily driven by the new equity proceeds of USD 700 million previously announced and a net increase in borrowing partially offset by repayment of debt financing. To conclude, I would like to reiterate our priorities in this challenging environment. First, driving growth through the active selling model, expanding cell network and by leveraging our attractive and broaden model lineup. And as Michael mentioned earlier, we continue to make progress with Polestar 5 and Polestar 4 SUV. We have updated our volume guidance to low to mid-single-digit volume growth to reflect current market conditions, portfolio changes and our focus on quality growth. Second, continuing to reduce losses and improve profitability through as well cost discipline, efficiency measures and a relentless focus on operational execution. Third, maintaining financial flexibility through disciplined working capital management, improved cash conversion and prudent capital allocation. And finally, continuing to strengthen our capital structure and securing appropriate sources of future funding. Now I will hand over back to the operator.

[Operator Instructions] We will now take our first question from the line of George Yang from Barclays.

Good morning Josh Young on for Dan Levy, Barclays. So First off, it's great to see the early looks at the Polestar 4 SUV. Are you able to share any early indications on how demand is trending as well as any learnings or maybe some enhancements that might translate -- how this might translate to other models and variants. And then similarly, what are the latest reads for the Polestar 5.

Yes. Thanks, Josh. Michael here for the question. So let me talk a little bit about the Polestar 4 SUV, which obviously, we started with the launch yesterday and very, very good feedback. And why is it so positive? It's actually very simple. First of all, SUV trend is very strong, right? And with that, the poster 4 really goes into the mainstream and wherever the big segment is, while the group is always a bit in the niche, right? So that's a big, big improvement. Car very well received, especially by fleet people. but also private demand. But again, we just start with this, right? So it's early days, but we're optimistic because the coup was a little bit in the niche now with SUV, we go right into the sweet spot of the market. So a very, very important car for us. And early days, right? Polestar 5, also just at the beginning obviously very different segment, right? Also the role of the car is different. It's about positioning the brand. But also there, we get a lot of attention and start to deliver now the first cars and people obviously want to test drive the car, right? It's very unique. It's a very specific car, but both cars are I see off to a very good start.

Okay. Great. And then as a brief follow-up, -- while it remains earlier, are you able to share volume expectations for 2027 or maybe just some broad puts and takes there.

Yes. Obviously, as we highlighted during this call, we have changed the guidance for 2026 because market conditions are slightly different, right? Obviously, for '27, we work through this. I mean the reason why we are cautiously optimistic for '27 is because product lineup is different. As we have announced in February of this year. We obviously launched the Polestar for SUV as we were just talking about. But in addition to that, also the Polestar 2 successor both cars go right into the big segments of the market. So the profit pools, the volume potential is much, much bigger and also both segments are growing, right? So more to come on this, what that means in precise volume numbers, right? But Obviously, it's a big shift from where Polestar was very much into niche segments, right, going into much bigger segments. So -- also there, we are doing the right things. And now it depends obviously on the market conditions and will you update on this further when we come to '27. But again, I want to highlight the importance of those 2 cars, which go right into the sweet spot of the market.

We will now take our next question from the line of Andres Sheppard from Cantor Federal.