Good day, and thank you for standing by. Welcome to the Polestar Q2 2024 Results. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Bojana Flint. Please go ahead.

Thank you, operator. Hello, everyone. Bojana Flint here from Polestar Investor Relations. Thank you for joining our results call today covering the second quarter of 2024. I'm joined by Per Ansgar, our CFO, who will give the financials and business update. We will then open for analysts and retail investor questions. But before we start, I will cover some housekeeping points as usual. 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, 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 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 contained in our SEC filings. In addition, management may take references to non-GAAP financial measures during the call. A discussion of why we use non-GAAP financial measures and a reconciliation to the most directly comparable GAAP measure can be found in the appendix of the press release and in the Form 6-K published today. With that, I would like to turn the call over to Per. Please go ahead.

Thanks, Bojana. Once again, I would like to welcome you all to this earnings call. We meet again seven weeks after our Q1 release, and hopefully, you have had some restful vacation weeks in the meantime. As you know, yesterday, we announced that we have a new incoming CEO, who will join us for future earnings call. But before I go into and cover the financials, I would definitely like to take the opportunity to publicly and personally thank Thomas for his immense contribution in shaping Polestar into the innovative and forward-thinking company it is today. Thomas is and will remain an iconic legend at Polestar. We wish him the best for the future. Also I want to welcome Michael Lohscheller, incoming Polestar CEO. He brings over 25 years of experience in automotive industry, particularly in scaling businesses. And you will have the opportunity to meet him in upcoming calls later on. So, now, let me turn to the financials. I plan to give an update on the Q2 results, both in relation to Q1, as it is important to check our progress through 2024, and on year-over-year comparisons for consistency. And talking of progress, of course, I'm very pleased to say that we recently filed our audited results for 2023 on Form 20-F and we are now back on track with our more normalized reporting calendar. And by that, we have cleared the reporting deficiency we have had with NASDAQ. In the coming weeks, we aim to publish the usual documents, the management discussion and analysis and the IAS 34 report. With that, let me start with the key movements Q2 versus Q1 of 2024. We saw global vehicle sales of 13,150 cars, up more than 80%. Revenue was up close to 70% to $575 million and gross result…

Thank you. [Operator Instructions] And the first question comes from the line of Tobias Beith from Redburn Atlantic. Please go ahead. Your line is now open.

Hi, good afternoon, Per and Bojana. Thanks for taking my questions, and good to chat again. I have three questions, please. And as usual, I'll ask them separately. Are you able to provide some more detail on the sequential improvement in COGS per external unit? I identify a 14% reduction, which is quite notable.

Thank you, Tobias. Well, obviously, we are working hard on our cost reductions, and there are several parts of that one, and obviously most of the cars we are selling right now it is Polestar 2. You would also then probably see a little bit of mix shifts into that one here. But what we see here gradually is improvements on the prices for raw material going into the battery prices. So, you see a constant reduction of the cost for batteries, which is very helpful. We're also working very hard together with -- especially, Volvo has developed the Polestar 2, and also with Geely, who is supporting us in negotiations on the commercial side. So, we are expecting to see cost reductions even more going forward here.

Okay. So, understood. But perhaps maybe I can ask whether there was any sort of impairments or any releases that were exceptional in the second quarter versus the first quarter?

Yeah, no, it should not be, to my knowledge. Let us [indiscernible] we are 100% sure here.

Okay, great. Secondly, I observe a disconnect between operating income and free cash flow in the first quarter versus the second quarter. I was wondering if you can help me to understand the non-cash operating adjustments and the other parts of working capital in the second quarter. Is it just inventory that is responsible for the free cash improvement? And relatedly, what do you consider a normalized level of working capital for Polestar?

Yeah. What we've done, and as I said, we worked very hard with our cash flow and working capital. So, we have reduced our inventory significantly here, especially in the second quarter, and we will continue to work very hard with that one. So, the main reason for our good operating cash flow is a good reduction of our inventory, especially in the second quarter.

$300 million.

Around $300 million-ish.

Okay, great. And then, my last question is relating to the Polestar 3 and Polestar 4. Would you describe both of those models as being sold out for 2024 in Europe and the U.S. as of today?

Sold out?

Sorry, please repeat that question. I didn't follow that one.

Would you describe Polestar 3 and 4 as being sold out for 2024 in Europe and the U.S.?

Well, if we start with Polestar 4, we will basically not launch the Polestar 4 until very late this year. So that question -- we have not really started to deliver that car yet. So, we are not really starting to take orders. In -- on Polestar 3, we have a large order book, both in Europe and U.S., but we are expecting that to grow more during the balance of the year as we are now starting to ramp up the test drives. From our perspective, the test drives are extremely important to get the traction here. So, we are working very hard with test drives and demo cars. And yes, there is a little bit of anecdotal. I asked at a meeting with some of our controllers in our European markets, and one of them said it, the Polestar 4, very appreciative when people get into the car and drive it. But of course, there is a little bit of question mark, buying a car without rear windows, so a lot of people want to drive and test drive the cars. So from that perspective, yes, we have order books, but we are expecting more orders, especially now when we start to drive up the test drives.

And, Tobias, maybe if I can just wrap up on what Per said in terms of the point about Polestar 4, the deliveries of Polestar 4 in the U.S. were never scheduled for very kind of late in 2024. We have definitely started deliveries across many European markets, and that's really ramping up, but it's hard to say that Polestar 4 in the U.S. is sold out, because we never really plan to deliver it until much later in the year in the U.S.

All right, great. Helpful as always. Thank you.

Well, thank you for your questions.

Thank you. We will now take our next question. Please stand by. The next question comes from the line of Andres Sheppard from Cantor Fitzgerald. Please go ahead. Your line is now open.

Hi. Good morning, everyone. Thanks for taking our questions. Wanted to maybe start with deliveries for the second half of this year. So, roughly, you've done about 20,500 deliveries so far year-to-date. Curious if you can give us a little color as to how we should think about the second half of this year in terms of deliveries, and maybe also in terms of the delivery mix between the Polestar 3 and the Polestar 2. Obviously, the Polestar 4 will have probably the smallest breakdown, but just any color on how we should think about deliveries for the second half, that delivery mix, and what the impact will be on gross margins? Thank you.

No, thanks for the question. Obviously, as we've said here, we will see volume growth gradually through the year. So, you should expect third quarter to be better than before, and then you should expect fourth quarter to be even higher up. And especially you will see, as we have guided in our outlook, that fourth quarter will be strong from a volume perspective. And you're right, the Polestar 2, as we always said, will take a smaller portion of our sales going forward. That car has been fantastic for us many years, but now we will need to put our focus on this Polestar 3 and Polestar 4. So, in the third quarter, Polestar 3 will be a big vehicle in terms of sales as we start to deliver it, both in U.S. and in Europe. In the fourth quarter, you should expect the Polestar 4 to take a little bit higher lead in that one as we also start to deliver in U.S. from that perspective. And from a gross margin perspective, we have said that our ambition is to have a double-digit growth margin by the end of the year.

Got it. Thanks, Per. That's super helpful. And maybe just as a quick follow-up. Was wondering if you can just give us a reminder of where you stand on your capital needs. Looks like there was another $300 million in external funding raised recently. So, just curious what that means there for your upcoming capital needs. Thank you.

No, thanks for that question. If I start with our cash flow, and I probably portrayed myself now as a cash flow free care, as I said that, but we worked hard with our cash flow, making sure that we work with our working capital. So, we have had an -- as you see, on our first half of this year, our cash burn is significantly lower than the same period last year. So, we've done a lot of good improvements there. We went out last year -- by the end of last year saying that we had the need for $1.3 billion. We have secured $950 million on the club loan, which was early this year in the second quarter. We also then said that we are looking for more equity. We also now announced that we have been able to secure more debt financing around $300 million, which is not fully drawn down yet here. So from that perspective, you could maybe say that we are up to that $1.3 billion. And we have then also worked a lot with our working capital. On top of that one, as I also mentioned in my leading speech here, we have our trade financing facilities, which is our working capital, and that is largely undrawn for time being here. So, when we now start to ramp up our production in North America and continue with production in China, we have a lot of good working capital, credit lines. So, I don't see an immediate need from those perspective here. But obviously, as we always said, we are looking forward to more equity injections in the company.

Wonderful. Super -- thank you. Super helpful. And thanks for taking our questions. I'll pass it on.

Yeah, thanks very much.

Thank you. [Operator Instructions] We will now take our next question. Please stand by. And the next question comes from the line of Dan Levy from Barclays. Please go ahead. Your line is now open.

Hi, Trevor Young on for Dan today. I had a couple questions here if we could just go through. First, I wanted to drill down a little bit more, Tobias kind of was asking about this, but I was just curious if you could perhaps quantify the benefit you called out to gross profit related to the impairment release and the normalization of revenue recognition on sales of vehicles to the China JV? And just as an additional piece to that, if you could just give a sense of any additional opportunities on Polestar 2 gross margins beyond battery raw mats, or if that is the main driver from here on Polestar 2?

The main driver behind the gross margin in the second quarter, we have a couple of good news. Obviously, we did an impairment of inventory by end of 2023. So, we had some good news of that one in the first quarter and also some good news in the second quarter. From a -- and we also have had -- as we talked about, we have a little bit of good news from basically moving around the revenue between the quarters, between first quarter and second quarter. Then, we also have bad news from a gross margin perspective. We did a little bit more of impairment, a couple of million U.S. dollars on some of the Polestar 2s in specific markets. Not an enormous amount of money, but we have also moved as a part of our impairment assessment and our discussion on amortization. So, we have more amortization of Polestar 2s up in cost of goods sold, but they were previously down in R&D. You see that R&D is significantly lower, and part of that has gone up into cost of goods sold. So that are kind of like the main drivers for that one here. But talking about gross margin, the Polestar 2 has -- as I said, we have sold a lot of Polestar 2s in the second quarter. Our plan, as we talked about here from some of the other questions, is to have more focus now on Polestar 3 and Polestar 4. And our overall gross margin will improve with the deliveries of Polestar 3 and Polestar 4, especially into the fourth quarter.

Understood. And then I guess just following up on, specifically on the Polestar 4. I know you're launching it in Europe and the U.S., but I was just curious if you could give a little color on how Polestar 4 sales are trending in China, and then give a few examples of how working with Geely on this platform has been a benefit versus the Polestar 2.

Well, if I start with the benefits of working with Geely on this one, I think there are quite a lot of benefits. First of all, it is produced in China, where we have been able together with Geely to have a quite good cost base. Having said that, we are still working with the cost base on Polestar 4. And the Chinese market is very competitive. So, to be able to sell EV cars in China with decent margins, you need to work with the [cost stop] (ph). Geely is doing that one, and of course, that benefits us. And we have aligned a lot of activities around the cost reductions on Polestar 4. So that is one benefit we have. The other benefit is obviously the full R&D development. We are able to, as I say, use the best from two world. So, we can use software and kind of like entertainment systems from European and Western perspective for those cars in Europe and U.S. And we can also use the China, similar systems in China for Polestar 4, which is very helpful for us. The third, very good support is that we are now also working with South Korea to make this car being produced in South Korea for U.S. production and potentially also for other markets going forward. And that is also, of course, supported by Geely. We have their teams very close by and so on. So, the progress on making Polestar 4 produced in South Korea in Busan plant is progressing very well. So, we expect that production to start mid next year, which will be very helpful for our U.S. deliveries from that perspective. Then, of course, as you said, how are we doing in China? The cars were very well received. The Chinese market is tough. Many of the Chinese car brands are losing money on their sales. We have been making sure that we are balancing volume and margins in a good way. Our plan and our expectation is that by later of this year, we will also start to deliver Polestar 3s in China, and then into next year, Polestar 5 into China. And those two cars are significantly more, especially the Polestar 5 premium luxury vehicles, which we will target the more affluent Chinese customers. So that will continue to build the Polestar brand in China.

Understood. Thank you. If I could just squeeze in one more question here? I appreciate that you saw the strong working capital improvement in 2Q on the inventory drawdown and you quantified around $300 million, but just -- and I understand the focus on this. It's obviously very important. But how sustainable is this working capital strength against the ramp of two new models? Historically, ramping up of volumes is a working capital headwind. So, I was just -- if you could give a sense of how you're going to balance this and some of the levers you have to pull there?

A couple of things on that one is that we are working now very heavily with our partners. So, it's like what we are really -- and when I say partners from this perspective, I mean our retail partners. We are changing our sales model in Europe. We are working very closely to our retail partners in U.S., where we have wholesale models, for example, and similar in China. So, we are making sure that we can actually speed up the sales process and the delivery process. So, for example, in Europe, we are taking our measures to make sure that we can cut the lead time from the time that the car comes into the port in Europe until it's delivered in at the dealers. And the sales model in Europe is that we own the cars all the way up to handover to final customers. If we can squeeze out quite some time there, which we are able to do, that will help us a lot. And in conjunction with that one, the production in U.S. for Polestar 3 will help us a lot, because we will be much closer to the customers, not only in U.S., but also to the customers in Europe, because we will start to produce Polestar 3s in South Carolina for European production later this year. And we cut out quite many weeks from that perspective. So, we will see a lower working capital as a percentage of revenue compared to history. But of course, if you are selling significantly more costs, there will be a larger need of working capital. But as I said, we have basically 90% of our trade financing capacity not utilized right now, so we have a lot more potential there.

Great. Thank you.

Thank you. [Operator Instructions] We will now take our next question. Please stand by. And the next question comes from the line of Daniel Röska from Bernstein Research. Please go ahead. Your line is now open. Daniel Röska: Hey, good morning, good afternoon. Thanks for taking my questions. Maybe, Per, first, can we talk a little bit about the tariff situation, kind of what have you seen developing? And then maybe to help us wrap our minds around the impact of this, could you give us kind of a rough sense how much tariffs have weighed on the gross margins in the past? And whether that is -- whether there's any change expected in the upcoming quarters? And then, relating to that, how does that relate to your statement earlier that you hope to achieve double-digit gross margins by the end of the year? And then, I think, the second one, it was already touched up on, but I'd like to bring it back to free cash flow. You had the working capital relief. If I strip that out, it kind of looks like your ongoing cash burn is largely unchanged, right? If I look at the past couple of quarters starting last year, we're somewhere between $400 million and $700 million of cash burn a quarter. If I add back the $300 million you said on Q2, we're still at a $400 million cash burn. So, how do you think that cash burn kind of changes as you approach the volume scaling and the better gross margins in upcoming quarters? And are you in a position to kind of give us, let's say, a range when you would expect that underlying cash burn to turn positive? Thanks.

Thanks for your question. I wrote them down, so let's see if I can cover all of them in totality. First of all, on the tariff side, just to remind everyone again here that we have taken several decisions back in the time, which really are on the track of making sure that this is not a big deal for us going forward. Charleston plant being the significant one or South Carolina plant where we will produce Polestar 3s for U.S., Canada, for Europe, which will basically take away all the problems with tariffs. So far, the tariff situation has been 27.5% in U.S. And with the announcement that came in a couple of months ago, it's up to above 102%. That has not been implemented yet to my knowledge. It was not implemented like two weeks ago at least here. So, still a little bit to see when that's going to happen, but that is one of the big things that will help us avoiding tariffs. The second thing is, as I said, our plant in South Korea together with Renault, where we will produce Polestar 4s for Europe and we are also now in deep discussion can that plant also be used to supply Polestar 4s for Europe. And then thirdly, of course, our cost reduction activities, we have had to speed up significantly from this one. So, we have had, as I said, quite a lot of discussions both with Volvo Cars and with Geely on actions to be made here. So, we are looking into all of the car lines, Polestar 2, Polestar 4 and Polestar 3, to really reduce the base cost of the car, and there are quite a lot of opportunities. Although the cars are new, you could expect that they would have…

Thank you. [Operator Instructions] As there are no further questions on the phone lines, I would now like to hand back to Bojana for any questions from the retail.

Thank you, Sonya. So, Per, we're going to go through the top three shareholder -- retail shareholder questions that we have received in the Say Technologies platform. So, I'll read them out and then we can answer them. The first question as received reads, Polestar recently received a deficiency notice from NASDAQ. What measures are leadership taking to ensure compliance and to reassure shareholders that the stock will not be delisted in the future?

Two things on that one. First of all, we had a deficiency on our reporting compliance. That one was and I must say I'm very happy to make sure that we have healed that one as we filed our full year 2023 Form 20-F in mid-August. So that has gone now, so that is very good. The other deficiency is the share price being below $1. And we have been trading below $1 for quite some time. The last couple of days, it's been above $1. It was above $1 also earlier in July. So, it's moving around there. We have up to early next year to heal this deficiency. Our plan or our ambition is, of course, really to make sure now that with our increased deliveries and sales on Polestar 3 and Polestar 4, and continued good feedback from customers and you will gradually, during the year, see that this starts to happen that the share price should go up below -- above $1, which is really what we think. If you think about it, Polestar is European-based company with a good manufacturing and R&D and sales footprint globally, which can like stands out from all others and we have 170,000 cars on the road or close to that one. So, we are a company, which I think puts us apart from many of our EV competitors. Of course, that is what we are targeting.

Yeah. And maybe just to sort of wrap up on the previous one, we always said and we're very mindful of that and Board and management are monitoring the situation very closely when it comes to the $1 threshold.

Yes, definitely.

Okay. Question number two, which sort of links back to the previous question as well is very much what are current plans to increase the share value?

Yeah. I think...

Yeah, you've already.

...I've basically said most of this one. I think, again, the business needs to demonstrate improvement and I think we have been doing this gradually through the year, and we'll continue to do that.

Absolutely. And we have said in the past as well that we are going to grow in the existing markets, we're going to spread into new markets as well, and we have fantastic products coming through. So, a lot of exciting developments. And question three, just a little bit more color there. How do you plan to expose the brand more, sell more cars and keep the stock value going up?

Yeah, I think, we all want the stock value to go up. And a couple of things. One, we are a small brand. We don't have unlimited resources to do a lot of advertising campaigns. We are trying to find different ways to do it. We have done a lot of media drives. We did that here in spring in Spain. Global media drives, we are moving that over now to more like local/regional media drives to really get good coverage from journalists. We are -- when we do our marketing campaigns, we are working much more targeted, trying to reach the right type of consumers who really are interested in Polestars. We are also working a lot with test drive as we are very sure about the test drives will make a difference for Polestar. People need to come drive our cars and experience them. And on top of that, as Bojana said, we are expanding our geographical footprint in two ways. One, expanding into new markets, and markets, I mean, new countries. We will go into France, for example, next year. We will expand as an importer setup to Eastern Europe in some markets. We are also seeing what we can do in South America, for example. And, which I think is more important, when we are now making some changes to our sales model, we are expanding the existing geographical network in many of the countries in Europe, in U.S. And we are, also with the changed sales model, also engaging our investors and retailers in a completely different way. And that will with the energy from them and the good cars will expand our sales gradually this year and continuing into next year.

Great. That's it.

Okay.

So, we have taken the first top three questions from the retail shareholders, so we can close the call.

Yeah. And then, I'll say thank you very much for listening in here, and I will look forward to meet you here again quite soon when we are going through our third quarter results here in November. So, welcome back, and thanks for listening in, and thanks for your questions. Have a good day.

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