Good day, and thank you for standing by. Welcome to Lotus Technology Inc. Third quarter 2024 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. It is now my pleasure to hand you over to the Head of Investor Relations, Ms. Demi Zhang. Please go ahead.

Thank you, operator. Good morning, good afternoon and good evening, everyone. Thank you for joining Lotus Tech's Third Quarter and the Nine Months 2024 Earnings Call. This is Demi Zhang, the Head of IR at Lotus Tech. I'm honored to introduce company management with us today; CEO, Mr. Feng; and also CFO, Alexious Lee. On today's call, we'll start with prepared remarks from CFO, Alexious, first, and then CEO, Mr. Feng, and then proceed to an open Q&A session. Before we continue, please be reminded that today's discussion will contain forward-looking statements pursuant to the Safe Harbor provisions of the U.S. Private Securities 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 our 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 @ir.group-lotus.com. With that, I'd like to turn the call over to our CFO, Alexious. Alexious, please go ahead. Alexious, you are live.

Thank you, Demi. Can you guys hear me?

Yes.

Good morning, good afternoon, good evening to everyone for your attendance today. My name is Alexious Lee, and I'm the CFO of Lotus Tech. I want to begin by saying the company delivered more than 7,600 units of vehicles and achieved total revenue of $653 million in the 9 months ending September. More than 2,700 units were delivered in the third quarter, up 54% year-over-year and 2% quarter-over-quarter. Third quarter sales revenue was $255 million, up 36% year-over-year and 13% quarter-over-quarter. Most notable is the new revenue stream from our ADAS technology-related income, which is high margin. To actually quantify the contribution, revenue of our intelligent driving business from customers other than Lotus surged to $11 million in the first 9 months, with a year-over-year growth of 450%. Investors can find the details in our earnings release published before this evening. Besides the Lotus models, other reputable brands of passenger and commercial vehicles will be rolling out with our in-house developed ADAS across the world. Gross profit margin was just 9% in the first 9 months, a step down versus the 11% achieved in the same time last year. Third quarter gross profit margin was just 3%, mainly due to proactive management of our inventory in response to trade protectionism, inflation impact and macro uncertainties. The margin impact is temporary and is likely to be shaped in the fourth quarter '24. Gross margin of our service revenue was 55% in the first 9 months versus 28% same period last year. Next slide, please. To your left, you'll see that our EVs, which is mainly containing the luxury Eletre SUV model and partly the Emeya GT, Sedan model, jointly contributes more than 50% of total volume, while the Emira sportscar model sales contributing the remaining. This pointed to accelerated delivery for…

[Interpreted] I'd like to demonstrate our future growth from 3 aspects: brand, technology and also autonomous driving. For a luxury premium brand, it is very important to prioritize brand awareness improvement and also user experience. Meanwhile, we have to manage our costs. First, we have opened our Lotus Boutique store in Beijing and has been widely recognized by the industry and also our customers. In addition to that, we have also provided Chapman Bespoke service to our customers. This is the way to help us to increase our delivery value and also delivery price. This service has been deployed in China already. And in quarter 4, it will be launched in North America. The delivery of bespoke vehicle will commence in quarter 3 this year. Besides, we've also launched a Lotus Champion Driver initiative because Lotus is born from the track and also born from the British. This is one of the reasons that we are trying to offer the track service to our customers. Every series that we open this to our customers, within 1 hour, the post will be acquired by all of our customers. In other words, it demonstrates our users' passion to get involved in such track services. And for our growth driven by technology, in our Vision80 strategy, electric transformation is the cornerstone for our sustainable growth. In this Guangzhou Auto Show, we have released our 900-volt Hyper Hybrid EV technology. I want to highlight the difference of the Hyper Hybrid EV technology with a commonly understood hybrid technology. Usually, it was driven by engine and supplemented by electric motor. But for the Hyper Hybrid EV technology, it will offer electric vehicles driving experiences along with engine-driven technologies. And such technology will satisfy Lotus users pursuit of driving joy and the passion of driving. And…

Operator, we are ready for the Q&A.

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

And my first question is about -- you mentioned the $130 million contract value of intelligent driving solutions. Could you give more color on the cadence of revenue generation? Like when exactly will those models be launched? And will we like receive the contracts or R&D or other payments before the launch?

Thank you, Laura, for your question. I will invite Mr. Feng to give answers to your question.

[Interpreted] For the contract value of our ADAS solutions, this will be categorized by 2 groups. One is through NRE. And NRE in other words, it will based on the project different milestones, for example, the kickoff stage of the project, all the way to the SOP stage of the project. And when the vehicle is delivered to customers, at that moment, we will be able to receive the full NRE. And the second approach is the licensing. And then the revenue for it will be calculated based on per vehicle. The first vehicle that's equipped with our ADAS solutions is Lynk&Co Z10. This vehicle has already been launched. For highway NOA capabilities, we have already equipped this vehicle with this technology. And for urban NOA technologies in recent months, the vehicle will also be -- it will be also available for this vehicle. In the future, there will be 4 more models from Lynk&Co to be equipped with our solutions. And for commercial vehicle next year, there will be one more model we put out with our solutions.

Okay. That's helpful. My second question is about -- you mentioned the hybrid product to be delivered in 2026. So, will that be like one or more like completely new models, or it's like a PHEV version of the current offerings?

[Interpreted] For the PHEV technology, it will cover all our models in the future. In other words, all of our models in the future will have EV version and also PEV version. As for the specific model that we are trying to launch in 2026, I think at this moment, I won't comment on it. But please stay tuned to our future product launch event. After our technological -- after we announced this technology, we have gained interest from both China's OEMs and also Europe OEMs. And for this particular technology and vehicle models, there are a lot -- we really would like to share, but not at this moment. The reason that we want to keep it for now because when we are ready to launch this product to the market, we want to be the first one to launch this technology and also the first luxury premium brand to do so.

Okay. I appreciate the color. I have one more question about the margin. I think the gross margin in 3Q was about 3%. There is actually a material sequential decline. So, my question is like what's the main driver of this? And also looking ahead, how we think about, like, the trajectory of the vehicle margin?

Thank you, Laura. I will also still invite Mr. Feng to give you answer on that question. Sir, please?

[Interpreted] For the question, I want to say that in China, quarter 1 next year and also Europe and rest of the world quarter 2 next year, we are planning to launch our model year '26 products. But before that, we are trying to finish our destock, particularly in Europe because an unhealthy stock level is not going to help us to launch our new models. Currently, in the China market, the stock level is at a relatively healthy, while delivering new products to our customers. So, our focus is that to reduce the stock to a healthy level for Europe region next quarter 1. And once the stock level return to a healthy level, the gross margin will also be benefited from that. And when we are planning to launch new models to the market, we have to precisely plan the cadence because if the old models still have a relatively large inventory in the market, it won't be conducive to selling new models. A good example is that one particular OEM, when they are switching from old models to new models, they didn't plan it well. So the old model had a 40% discount. And when they launched the new models immediately, the new model discounted by about 20%. And this is not a good outcome.

Next question comes from the line of [ Gavin Smith from Evest Collective ].

Thank you Lotus management for providing the informative updates to third quarter earnings. I have 2 questions here, hoping to get color on. My first question is, management mentioned earlier that operating expenses have declined for 4 quarters -- consecutive quarter so far. Will we continue to see a decline in quarter 4 this year? And what is the expectation for 2025? And what do you see as the major mitigants or drivers to help facilitate the further expense decline? Would it be a reduction of staff or by some other means?

I invite Mr. Feng to give an answer on that. Mr. Feng, please?

[Interpreted] We have promoted a strategy called [ Lean ] that's effective because in the segment, the EV penetration rate is not very high, and we have to think about how to manage to reduce the costs. For example, in marketing and sales aspect, we are trying to streamline our shop. The shop will be small but effective, instead of large shop. And for large shops, it requires a higher cost and more people to run it. And for R&D side, our focus is on technologies that will bring Lotus as a leading player in this industry instead of spending our R&D in all fields. In addition to that, we're also trying to leverage Geely's resources, for example, in the EV architecture. In the future, we believe in the EV industry, intelligent features will be the must-have features for our customers. So, our current focus is on cutting-edge technology development and also the technologies that can bring us the high profit margin such as ADAS solutions. In addition to that, Lotus is also working on its traditionally well-known field, which is chassis. We are currently working on intelligent chassis, and those are the other aspects that we currently focused. In summary, our future expense will be in 2 directions. One is on the technology and product development. The second direction is about brand awareness establishment and also market exploration. In quarter 3, we've already started to see some outcomes. And in quarter 4, we believe it will be more pronounced. And our synergy with Geely will also give us more benefits. In the future, the development of the EV architecture will be led by Geely, and we can use this technology off the shelf. And besides, the costs will be shared based on the volume. And for us, it won't be a huge cost to shoulder.

Our next question comes from the line of [ Vincent Yeung ].

Operator, I think Gavin has another question.

Would I have the opportunity to ask my second question here?

Yes. Sure. Please.

So my follow-up question is, what does Lotus management expect the full-year total loss to be for 2024? And generally, what will be the expectation for the next year, 2025?

Thank you, Gavin, for your question. I will invite CFO, Alexious, to give you color to your question. Alexious, please? Alexious?

Gavin, can you hear me? Yes. Let me share with you a little bit of our disclosure process and also how. So first and foremost, we kept our 2024 guidance, and we have a Win2026 strategy as what Mr. Feng has mentioned. So, our objective is 30,000 units of sales volume, driven by one new model that's forthcoming and aim of 20% gross profit margin. Now, we are doing a monthly disclosure on our sales volume. So by about 10th of every month, you will get the sales volume for the next quarter -- for the last month, sorry. It is likely that before Chinese New Year, end of January and also early February, we will be outlaying with -- or will be rolling out our 2025 guidances. So, that is the time where we will probably finalize most of the things that's going on into the market. Now, of course, I will say that 2025 is likely in the midpoint or just below the midpoint versus the '24 guidance and also the Win26. But the most important thing is that because we have a new model that's forthcoming in '26. That's all probably I can share right now in terms of outlook for '25.

Our next question comes from the line of [ Vincent Yeung from SC Asia ].

I have 2 questions. The first one is the company has delivered about 8,600 vehicles in the first 10 months. Is the management confident to achieve annual sales target of 12,000 units? What are the drivers to boost the monthly delivery to 1,500 or 2,000 in November and December, considering the holiday season are coming in Europe, which is your major market. So please, could you give the guidance on deliveries in first quarter of 2025 and the regional allocation?

[Interpreted] Well, first of all, I want to say that the 12,000 target is definitely challenging. However, we are confident to deliver this target. In China and particularly the U.K., the delivery cadence and the progress is quite promising. Meanwhile, we are trying to drive our delivery speed in EU. And in addition to that, we have already started our deliveries in some new markets, for example, Japan and South Korea. And for quarter 1 next year, the model year '26 products will commence delivery in China, and it will be another driven point for our sales volume. And in quarter 2, our delivery will also commence in Europe and also the rest of the world. In next quarter 1, as we are launching our model year '26 products, we believe it will stimulate our growth in sales for sure.

Okay. I have another following question is that, how do you view the luxury EV demand in Chinese market? Because I've seen that Lotus vehicle sales in China has dropped actually in the first 9 months compared to last year. So, what do you think the reason caused the sales decline? And what are the strategies you have in plan to boost the sales in China besides you just mentioned launching new models?

[Interpreted] In China, in this particular luxury premium EV segment, which is the vehicle priced above $80,000, it is true that the penetration rate of the EV has dropped roughly around 50%. However, Lotus is keeping growing. And for our strategy, we are trying to gain our market share in this particular segment. Like I previously shared with you, in October in China, we have already acquired 40% in this particular segment. In the future, our target is to improve our market share to 50% or even 60%. This is one of our approach to demonstrate our competitiveness. And by boosting our competitiveness, it's another way to give us confidence to increase our sales volume. In this particular segment, our expectation is to improve the penetration rate. However, if the penetration rate could not be improved, then our target is to increase our market share to become the absolute leading player in this particular segment.

Our last question comes from the line of [ Ling Zhou from UE Capital ].

I will repeat my question in English. My first question is how much has been invested in the R&D of Lotus Robotics so far? And how much do you expect to invest going forward? And my second question is, does the company have any plan to capitalize on the intelligent driving business?

[Interpreted] For the first question, the ADAS autonomous technology requires constant investment. This is not a one-off, one-time investment. As our user base is growing, the data is growing, it requires more and constant investment. Currently, we will prioritize our intelligence investment into 3 areas: the intelligent chassis, intelligent smart cockpit and also autonomous driving. Particularly for autonomous driving, it can keep us at the cutting edge in the industry, and it will be our very important second revenue stream. So, we will continue to invest in this particular area. And currently, we do not have a plan for capitalization. In the luxury premium segment, Lotus undoubtedly is the leading player when it comes to intelligent solutions, and we will be far beyond compared with other players in the same luxury premium segment. And such advantage of Lotus is not only limited to China, but also other global markets.

I'm showing no further questions at this time. I'll turn the conference back to Ms. Demi Zhang for her closing comments.

Thank you, Emily, and thank you, everyone, for joining us today. If you have any further questions, please feel free to contact our IR team. And given the time constraints, this will conclude the call. And thank you again very, very much, and have a great day.

This concludes today's conference call. Thank you for participating. You may now disconnect.

Thank you, everyone. Bye.

Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]