Hello and welcome to the Polestar Q3 2023 Results Conference. [Operator Instructions]. I would now like to hand the conference over to Bojana Flint. You may begin.

Thank you, operator. Hello, everyone. Bojana Flint from Polestar Investor Relations. Thank you for joining our Q3 2023 results call. Thomas Ingenlath, our CEO; and Johan Malmqvist, our CFO, will start with their opening remarks, followed by analysts and retail investor questions but before then, I will cover some housekeeping points. I would like to remind participants that many of our comments today will be considered forward-looking statements under 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, [Indiscernible] outlook and medium term targets, funding raising 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 Polestar 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 containing our SEC filings. In addition, management will make references to non-GAAP financial measures during this call. A discussion of why we use non-GAAP financial measures and information regarding reconciliation of our non-GAAP financial measures with our most directly comparable GAAP measures is in the investor of the presentation issued earlier today. With that, I'd like to turn the call over to Thomas. Please go ahead.

Thank you, Bojana, and thank you, everyone for joining us today at a slightly different time than we normally would hold our call. The reason for this, as you probably know, is that we are hosting Polestar Day here in Los Angeles tomorrow morning. We will have a number of technology partners, including Mobileye, Luminar, and Bcomp, joining us to deep dive into the technologies that will form the future of our cars. It's shaping up to be a fantastic event and for those of you, that aren't able to join us. We will be publishing a recording of the keynote presentations and highlights from the exhibition area on our web site afterwards. Starting with the results. The third quarter saw record deliveries of 13,976, a growth of 51% compared to last year. We saw a positive impact from channel market and product variant mix and the start of Polestar 2 model year 24 deliveries. In total, during the first 9 months of the year, we delivered 41,817 cars.Growth of 37% compared to the same period last year and Johan will take you through the financial results in more detail in a moment. Turning to the operational highlights of the last quarter. Starting with Polestar 2 and significantly upgraded model year 2024. Deliveries of this higher priced model continue to ramp up and it is receiving great reviews. Top Gear calls it one of the most complete electric cars money can buy. Autotrader ranks at 4.5out of 5 stars. It's the highest possible rating in the safety, power and features category. Similar high scores and headlines continue to be published across pretty much all of our key markets. This is a car that until now we have built our brand commercial operations and supply chains, this one car. When you…

Thank you Thomas. Hello, everyone, and thank you for joining us today. As Thomas said, we are in Los Angeles, getting ready for the Polestar Day tomorrow. Where we are going to be joined by 100 of customers, media, investors and analysts. Before moving into the quarterly highlights, Key business actions from our strengthened business plan and the 2023 outlook, I would like to revisit points Thomas and I raised in our Q2 results call in late August. Firstly, we said we expected a stronger second half of the year in terms of margin and volume. Reflecting the ramp up of the upgraded and higher priced Polestar to model year 2024 and we still expect that with Q4 being our strongest volume quarter this year. We saw improvement in the core business margins during Q3, on the back of the positive mix and as we continue to roll out Polestar 2 model year 2024 alongside reduction in raw material costs, we expect margin progression to strengthen for the remainder of the year. Secondly, we said that looking ahead into 2024, we will benefit from the Rapid product rollout and 2024 is just around the corner, and Polestar 4 is starting production in a matter of days, with first customer deliveries commencing in China next month, followed by other markets in mid-2024. Polestar 3 start production is also on track with first customer deliveries expected in Q2 2024. Thirdly, we said that the cost savings measures announced with our Q1 2023 results which would include taking out both existing headcount as well as roles that are planned for this year, we're progressing well. We are now at a point that we will have 300 fewer employees by the end of the year. Lastly, we said we would continue to explore other…

[Operator Instructions]. Our first question comes from the line of Andres Sheppard from Cantor Fitzgerald. Your line is open.

Hi, good afternoon, everyone, and thanks for taking that question and congratulations on the quarter. I guess, our first question is you provided your outlook for delivery targets for 2025 approximately 160,000.You now have about 60,000 expected deliveries for this year. I'm curious if you can maybe give us some color on how we should be thinking about deliveries in 2024?Should we be looking at somewhere in the midpoint between those 2, or what's the best way to think about it? Thank you.

Hi. This is Johan. I think the way you should think about it, well, two things.One is that the way you should think about it is that looking at the start of production and the rollout of cars, as we mentioned in the initial comments, really the, the Polestar 4 and the Polestar 3 those deliveries will occur in more meaningful way really starting from Q2.So you have the second half of the year with the 3 car lineup. So there's definitely going to be a certain phasing next year that reflects them to start of production and the deliveries. We'll come back to this when we are in regards to guiding more specifically on 2024 as part of our Q4 earnings, but I think that's - the what I would take into consideration now.

Got it. No, that's super helpful. I appreciate that. And maybe as a quick follow-up, I just wanted to better understand, the new financing and liquidity.So with the $450 million from Geely and Volvo, you mentioned that, you'll require another $1.3 billion to get to that breakeven cash flow, in 2025. Any sense of when that timing for that $1.3 billion will look like? Is that - it's still a bit of a short term need or with this additional financing, does this give you a little bit more flexibility on timing? Thank you very much.

Yes, I can help provide some color there just to - kind of - to give that, make that picture a little bit clearer. So, where the $1.3 billion stems from is that it's based upon the expectedaccumulated negative free cash flow as from the end of Q3 through cash flow breakeven in 2025 and that accumulated cash flow, we expect to be around $1.9 billion and then we deduct the existing - both existing and financing support from our owners around $600 million to get to the $1.3 billion. So between now and then, of course, we expect that quarterly cash burn in 2024 to slow and then ultimately arrive at a cash flow breakeven in 2025 based upon all the actions that we are now executing on as reflected in the remarks from Thomas.

I see. Very helpful. Thank you again. Congrats on the quarter. I'll pass it on.

Our next question comes from the line of Alexander Potter with Piper Sandler. Your line is open.

Perfect. Thanks guys. So the first question I had was if you could give an update on how the joint venture in China is progressing. I know that was a relatively recent announcement, but I'm curious if there have been any, maybe initial findings and short term goals and medium term goals for that joint venture.

Yes. Thomas here, I will take this question on the China JV, which is indeed progressing well. Obviously, very much the launch of the Polestar 4 now going into production and coming to customers in December first time is very much under the light of it being the first execution of the JV, really. The software in this car will already be designed and influenced by our partner there. So the customer gets this full benefit of connectivity and China targeted entertainment system in this car. So the fruits of this JV already within this short time come alive,but of course, really in 2024, when I say that now here publicly when there is as well, a Polestar 4 coming together with the car to market. Then of course, it will become full-fledged what we expect to be a car that is consumer centric made in for China and having that benefit of a software partner there that knows that business very well. We have the rollout of our Polestar spaces in China as well happening parallel to that, having, of course, already a target by the end of this year, which is a base for us, really accelerating now in China and we see that definitely Polestar 4 with the media feedback with the preordering converting into real orders, is showing that traction - a - of a product that is definitely in China resonating well, which it’s size and it's spaciousness, but as well, of course, a special combination of us having now software in the car, which is designed by and for Chinese customers.

Okay. Great. That's super helpful and then maybe just a related question onto that then. Is it possible for you to take those learnings and that China-specific software infotainment offering and leverage it in your other vehicles as well, I know that in the past, you've talked about how Polestar 2 maybe isn't an ideal fit for the Chinese consumer, the Chinese market. Is there a way that you can leverage the JV to push sales of that product, or is that something that's not maybe on the radar screen?

Well, within the China market, obviously, the range of Polestar cars and Polestar 3, of course, will be an important product there as well, will get the benefit of this software being much more catered for the China market.So that goes across the car line. I mean, an interesting aspect of it because a lot of what I see happening there in terms of what is being done for the customer in terms of software in the care, I absolutely expect for us as well learnings for the rest of the world. Of course, this will not be a direct translation and we have a very strict border between what is the cloud and the customer electronics in China versus the Western world.Having said that certain behaviors of what we see entertaining features, I definitely see benefits from us learning there.

Ok great. I hate to harper on China here, but my last question is also related to China. So that there's obviously been a lot of, maybe geopolitical saber rattling lately, particularly in Europe about trying to throw up protection and barriers on imports of vehicles from China. What are your thoughts on this? I know that nothing is set in stone yet, so there's a lot of uncertainty, but you alluded to potentially a new factory location in your prepared remarks. I'm just interested in knowing what you're planning in terms of maybe a worst case scenario if - if the European Union does institute something resembling a Protectionist Policy against the imported Chinese cars.Thanks.

Yeah. To answers anyway on that, on one hand, I mean, something's very clear,we are - we are buying our cars from our contract manufacturing partners that’s is very straightforward purchase, on arm's length base. So, I think that portrays very well how fair we just simply have to buy our cars from our manufacturing partner. The other thing is for some time now, I mean, obviously, this journey started, like two years ago, we had to make an effort to diversify our manufacturing footprint. We have started with Polestar 3 being, as well now implemented into the U.S. plant, in South Carolina, where we will produce this car not only for the U.S., but we will, as well, export from the U.S.the car to Europe.So that certainly is a way of us de-risking our business.The other way is, that our second important SUV that we will introduce now the Polestar 4. We are very soon being quite precise about how we found a way of having a second production footprint for this car as well.So, obviously, yes, we have taken, very concrete steps that already in the near future will be in place for us to be prepared for such.

Very good. Thanks very much you.

Our next question comes from the line of Dan Levy with Barclays.

Hi. Good afternoon to you. Thank you for taking the questions. I wanted to start just by asking, within the - within the path to getting to breakeven, which you laid out a number of steps and I think one of those was on, getting improved costs in your licensing of manufacturing capacity and technology from Volvo and Geely, what is the line of sight to, attracting those costs? How critical step in is this in getting to gross margin breakeven? And in the event of a - of a weaker environment, what is - how much pressure does it put on that target of extracting those costs saves?

Yes. Thanks, Dan. I think first point to make clear is that the bulk or the absolute majority of margin accretion comes from the product mix and the improved margin profile of these vehicles. What we laid out in the remarks in regards to, continue to work on and drive down the production costs in close collaboration with our contract manufacturing partners. I mean, on the one hand, that's something that we would and anyone would typically expect, continue regardless. We're just making sure that, we're putting extra emphasis on it. With that being said, of course, here we derived a mutual benefit of that especially on those platforms that we share. So, from that perspective, we, as well as they are both all three of us very much focused on this and that's where we would expect it to add accretively to the already healthy margin profiles of these products.

Got it. Understood. Thank you. The second question is just around demand broadly and two part question. A, maybe you could just give us a sense at least for Polestar 4. I know you said there's been very positive reception from, from the media in China, if you have a sense on, the visibility of orders or the magnitude of backlog, and then the other question is this, so to the extent that it's just obviously a very tight macroenvironment, across the regions, to the extent that you need to pivot on any component of the plan, what is your ability to pivotwithin the plan that you've laid out this afternoon?

Well, Thomas here, and I will - I would really like to make sure that that exercise of working on the business plans strengthening it and making resilient was, of course, very much as well to make sure that those important goals The breakeven in 2025. The reduction of the funding need is all working in an environment where obviously, demand is in the world's climate, at the moment, something which is very different to when we started the journey in 2017, even in 2020, it was still a complete different picture than we have today. So for that reason, be rest assured that this exercise of this business plan and took very much into account that we cannot now dream of fancy demand scenarios, but have put down there a very achievable and realistic baseline. So that was a very important, element of us doing this work of summer.

Understood. And then Polestar 4.Any visibility on near term volumes or the backlog?

Well, I think like Tom said, I mean, based upon, the initial reactions from the different events have been received very well. So I think we're very excited about this project. We're starting the deliveries in China, and so of course, that will serve as a good proxy of its success, and it's - it is one of those products that we expect the higher volumes to come from and I think it's very well positioned to do so.

And, the phase that we are in now, I mean, but something's, of course, now important, we have had the first, drive of the journalists, the next phase is, of course, to have now customers coming into the car and being able to drive the kind order to make that big move from preorders to - to fixed orders. So that is the phase that we are in and obviously we are very optimistic about that we will be successful in making that shift of the preorders and attract many more customers. I mean, one thing is clear, the first of all being a car which indeed now unleashes that opportunity for us in China will of course be a very important element of making the volume of the Polestar 4 very significant for our brand and just from a personal experience, I mean - I - so much of our existing customers from Polestar 2, we see have a very strong interest in exploring this car and upgrading to it.So we see, of course, that's why we always say we are not brand starting from scratch, all that, I say, no, investment in building up the brand, building that customer base, with 1000 of 10000 of Polestar 2 customers. Of course, that is a very new and additional channel of us really bringing that potential of people upgrading and going from a Polestar 2 to Polestar 4 spending that much more money on that next level of exclusive SUV.

Great. Thank you.

[Operator instructions] Our next question comes from the line of Tobias Beith with Redburn Atlantic.

Hi, good evening. Thanks for taking my questions. I have a couple actually and fortunately, they are all for Johan and I guess maybe let's take them one by one. My first question is as follows. Can you explain how cumulative cash flow to breakeven is only $1.9 billion when free cash burn this quarter was $700 million with very low Capex and seemingly still lots of intangibles and capital equipment relating to the Polestar 3, 4, and 5 still yet to be acquired.

Yes. Hi, Tobias. Thank you for the question. So, as you correctly point out here, of course, what it implies is that we expect to coordinate cash burn in 2024 to slow down significantly and that, of course, is on the back of, in part, then the volumes from Polestar 3 and 4 and the margin profiles for those cars, like I said in my opening remarks, being an over 20%. So the, the earnings generated by those cars the primary driver to your question or the answer to your question, that in addition then to executing on these actions that we've laid out further than take out costs. This would have improved the margin profile of, of Polestar and then there's in regards to net working capital and Capex, yes, there's a natural buildup of inventory as we, introduce these models, but of course, there's also a benefit of more localized production, that would help taper that to some extent and then in regards to Capex, I mean, we continue to invest in the car programs, but with that being said, that's also an area that we've taken a hard look at to see primarily as it relates to the phasing of the Capex to make sure that we can arrive at this breakeven point in 2025.

Okay. So is it possible that, perhaps some of the Capex that you have anticipated pre-2025 now comes after 2025?

Yes, I would say that that's definitely one of the actions we've looked at. With that being said, we've also been very adamant about keeping our car programs and so, but of course to the extent where we can change the cash - we can conserve cash, whether it's looking at pushing out or different ways to fund the projects, then yes, then we have taken a look at that.

Okay. Understood.You estimate that additional funding requirements in addition to what was announced today, to get to the point of being free cash flow positive is $1.3 billion. Does this exclude proceeds from short-term working capital loans?And if so, what has been assumed for net new loan proceeds between now 2025?

Yes. Okay.So the assumption around that is that the existing debt will remain. So to the extent that it's made up of short-term working capital lines that those will be rolled over, and I think we've been able to demonstrate our ability to do so. The current borrowings from our shareholders have laid out, it's extended out through 2027 and so the $1.3 billion funding need is then based upon the cumulative cash flow less the new support from their owners and the remaining - what remains, unutilized from the prior $1.6 billion, so collected them $600 million to get to the $1.3 billion funding.

Okay. Understood andif I look at your balance sheet, advanced payments from customers roughly half quarter-on-quarter,and I know we've discussed on prior earnings calls about the correlation between this line item and the order book, I was wondering if it's therefore right to conclude that Polestar’s backlog is halved?

Yes. Thanks for raising that point, Tobias.I appreciate it. The answer is no, and the reason for the lower amount in Q3. It's actually it's related to certain arrangements with fleet customers that were initiated in Q2 which in Q3 had led to a re-class to deferred revenue. So it has to do with timing and invoicing and when Polestar is obligated to deliver the vehicle. So in in your effort to be able to, try to correlate that line item to the order book, I would say that it's relatively flat quarter-on-quarter.

Okay. Understood. And then my last question is really about expectations for Polestar 3 and Polestar 4. If I have a look at where Polestar 2 volumes are today, they're tracking roughly 50% below your prior 2025 expectations and incentives are already present in some of your major end markets on the model year 2024, Polestar 2. I was wondering what volumes have you assumed for Polestar 3 and 4 this time out to 2025 and what gives you success -what gives you confidence in that success?

So maybe I can start it - I mean, we've not to just give not broken down the volume targets identified by car model. I think what we expect is, and as I alluded to, if anything that we see that the Polestar 4, becoming more of a golden product. We think it's very well positioned to be that and it caters well for both the Asian market and the U.S. market and Europe for that matter.

Okay. Maybe Thomas here, sorry. I would love to add as well. Obviously, I would call Polestar 3 and 4, of course, much more worldwide catering cars, size wise, they are addressing a need in the U.S. and in China, much more than the Polestar 2 can do as a fairly compact European sized car and Polestar 3 and 4 both will have the benefit of the manufacturing footprint, which obviously makes it much more profitable to sell them in China and U.S. and in Europe equally. So for that reason, I think it's fair to say thatfor Polestar 3 and 4, we are very well positioned to reach the volume ambition and we very clearly have as well made clear in the last earning calls that we will not drive volume on the on the expense of margin and for that reason to concentrate with the Polestar 2 on those markets where this car can achieve the margins that we expect is as well a very strict and clear policy that we have now. So I think that explains as well, how that relates to volume expectations that had been put out long ago for Polestar 2.

All right. Understood. That's helpful, Thomas and Johan. Appreciate it. Thanks for your time.

Thank you. I'm showing no further questions in the queue. I would now like to turn the call back over to Bojana. The floor is yours.

Thank you so much. We will now take a few minutes left until the end of the call. We'll take three top questions from our retail shareholders. So I will read them out and then Thomas and Johan can answer them. So the first stop question as an investor, what can we look forward to the stock achieving and your further rollouts of your great vehicles to a larger demand and how you're going to create that demand? I read this as a volume confidence in our product lineup and our volume ambition. So Thomas?

Well, as mentioned before of me, obviously, the moment of us introducing now Polestar 4 and Polestar 3 is a game changer in that respect. We have on one hand, first time SUVs and then two of them very nicely positioned from each other going into the market. We all know that the SUV segment has a much larger target group, the addressable market, almost across the world for SUVs is the biggest and better cost as well for these. So that should be the main answer for that. Having said that, China JV, again, opens up to China market for us, much, much more optimistic situation than ever before and of course, we brought the Polestar 3 and the Polestar 4 very early now into our Polestar spaces in order to have enough time months to get the customers excited about these cars. So there are a lot of actions, including a big, big test drive coming up in the beginning of 2024 for journalists where we will, of course, drive a lot of attention to this new car's coming.

Perfect. Thank you. Moving on to question number two. What is your plan to stop the short term bleeding?

Yeah. Just to reiterate the effort that has been done over summer to bring a business plan into play here, which is resilient working in an environment, which obviously is tougher than years before and that break even in 2025, and really, I mean, how many months is that? I mean, that is not now talking here long term in the future, that is a very reachable goal. The reduction of the funding needs to a dimension, which I think compared to a lot of our peers, is actually exceptional and low, I mean, in that respect. So I think we really did a lot of our homework now to in order to, make that future and the success of Polestar are very tangible.

And I think, you know, we've made 3 very significant steps forward in regards to the funding solution here.Thomas said, we've lined out clearly the action to get to this lower funding need. We have the support from the owners and we're well progressed in regards to the holistic funding plan to close-up the remaining gap.

Great. And let's take the third and final question. When can we expect to see production from the South Carolina facility and what impact will it have on the company?

Yes, okay. Summer of 2024, very simple answer on that one and the effect and impact, two things. I mean, very clearly, it's a big enabler for us in our profitability journey, having a car that is produced in the U.S. for the U.S. and it, of course, is as well a big emotional thing obviously, again, a car produced in the U.S. for the U.S, of course, is a very different starting point for us to be here out with successful product.

Fantastic. Thank you. So closing remarks, and we are on time to finish at 3 p.m.

Closing remarks. Thanks, Bojana. Okay. Yeah, let me check this now. Polestar has made this significant achievement since launch. We established a new brand. We have gained footholds in the markets and of course, we have now developed this very, very strong product lineup that we're about to roll out. This has prepared our companies operationally for scale up of volumes and Polestar is now at a pivotal point. We have adapted to a constrained financial context requiring focus and value [Indiscernible]. Polestarwill become successful and Polestarwill create significant shareholder value.

Thank you. Operator, we are concluding the call. Thanks everyone for joining, and we'll speak again soon.

Ladies and gentlemen, this concludes today's conference. [Operator Closing Remarks].