Good day, and thank you for standing by. Welcome to the Polestar First Half 2025 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, Head of Investor Relations. Please go ahead.

Thank you, operator. Hello, everyone. I'm Anna Gavrilova, Head of Investor Relations at Polestar. Thank you for joining this call covering Polestar's results for the first half of 2025. I'm joined by Michael Lohscheller, Polestar's CEO; and Jean-Francois Mady, Polestar's 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 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 make 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. Now I will hand over to Michael.

Hello, everyone, and thank you for joining us today. It's 1 year since the announcement of my appointment as CEO of Polestar, and I'd like to spend a few moments reflecting both on my first 12 months here as well as our commercial and operational performance during the first 6 months of 2025. There were 2 main things that attracted me to Polestar that have become even more important and clearer during the last 12 months. First off, Polestar's strong brand with clear focus on design, performance and sustainability. The proof points for that are our unique incredible cars. Secondly, Polestar's unwillingness to compromise is something that I see manifested almost every single day. And as the world continues to throw more challenges towards us, it will remain. First and foremost, we are invested in the future, not in the past. We are convinced that the future of mobility is emission free. It is not hybrid technology or ICE. It is electric. That's why Polestar was founded and what we will continue with. Regulators and policymakers across the world spend years creating a framework for this transition and now is not the time to backtrack simply because some legacy OEMs haven't been fast enough in their technology development or cost competitiveness. Customers want electrification. They want emission-free mobility. Demand is increasing across major markets and our sales figures underline this. As Europe's first and only pure EV start-up, we continue to follow our mission, making the best performance EVs. We are very proud of our cars, which get great feedback and reviews from customers and industry experts. Polestar 4 recently won the prestigious Red Dot Best of the Best award. The Mille Miglia rally in Italy as well as achieving a 5-star Euro NCAP safety rating, just like Polestar 2…

Thank you, Michael. Good morning, good afternoon, everyone. Financial results for the first 6 months of '25 reflect strong commercial performance as we continue the transition to the active selling model at pace. However, significant external headwinds, notably tariffs and mounting pricing pressure impacted profitability, particularly in the second quarter. Looking at the financial results for the first half of 2025, retail sales volume as preannounced, grew by 51% to over 30,000 cars, ahead of our growth target of 30% to 35% for 2025 to 2027. Polestar 3 and Polestar 4 made up well over 50% of the volume. In the second half of the year, the comparison will be tougher as first sale in Q1 2024 were low. Second, sales increased during H2 2024 compared to H1 2024. And third, we face a very different industry environment compared to a year ago. Having said that, we expect to continue to grow year-on-year in line with our set growth targets. By geography, we saw particularly strong performances in Europe with U.K., Germany, Belgium and the Nordic region and in APAC with South Korea. However, the situation in the U.S. is challenging due to tariffs and policy changes, and this market represents about 9% of our retail sales. We operate in 28 countries worldwide, and Europe is now our main regional market with presence in 17 countries, and I'm pleased to say that it is doing well, especially in terms of commercial footprint as mentioned by Michael. Polestar signed up 26 new retail partners, of which 20 in Europe compared to just 10 partners for the whole of 2024. And as part of our commercial geographic development in Europe, we launched in France in the first week of June with all 3 models available for purchase. In this context, our revenue…

[Operator Instructions] And the first question comes from the line of Winnie Dong from Deutsche Bank.

I was wondering if you can maybe comment on the demand environment quarter-to-date. You achieved some really good growth in Q2. Just curious on your commentary in terms of how that extend into Q3 and then the rest of the year? And then secondly, I was wondering if you can help us bridge from Q1 adjusted gross margin to the Q2 figure. What were some of the factors that drove the margin decline and maybe break down for what each components were possible?

Thank you, Winnie, this is Michael here. Let me take the first question on the demand and give you some color, and then I'm sure Jean-Francois will give you some further color on the margin development. So what did we see in terms of demand? I mean, obviously, overall BEV markets are still growing, right, despite what everybody is saying, right? But the growth is obviously not as we expected a couple of years ago. But we see in all key markets growth of the BEF markets, especially here in Europe, which obviously is good news for us. However, we do see shifts in segments, right? So there's clearly a trend to lower-priced BEVs in particular European market. But overall, I think there is demand. Demand is developing in a positive way. Then of course, it varies like the U.S., we see a lot of uncertainty, right? You guys all have seen that the tax credits are going away. Obviously, there is uncertainty. It's hard to predict. But overall, I think it's important to remind ourselves we still see growing BEV markets across Europe, and I think that's positive for us. With that, maybe Jean-Francois, you take the second one.

Yes. Thanks, Michael. So just to give you some color regarding the evolution of the gross margin between Q2 and Q1. So in Q2, despite the increase of volume, what we can see is, I would say, a negative car line sale mix with more demand on the Polestar 2, detrimental, I would say, to the mix of Polestar 4 and Polestar 3. We can see also that in terms of channel mix, we had more internal sale in order to further promote Polestar 3 and Polestar 4 in phase with the development of our retail network in order, I would say, to support those cars in a more competitive environment. As well as part of this competitive environment, what we can see, this is a mounting pressure on the prices. But also looking at our cost of goods sold, we have been fully impacted by the confirmed increase of tariffs, including partially the new increase that we have seen during Q2 on the import of parts and components. And when we consolidate all those factors, pricing and increase of cost of goods sold, we had also to reconsider an assessment of the net reliable value of our inventory, which caused a negative impact. Having said that, I would like to mention that we had also positive impact related to the CO2 credit sale, but also the continuing decrease of the cost of our product. I think that we did significant improvement since the last 6 to 8 months. And looking at H2 and entering H2, while still wanted to comply with our volume guidance of 30% to 35% volume increase over '25 to '27, it is fair as well to comment that we want to still monitor all the actions which are under our control, that is to say the sales mix, but also the channel mix, but still continuing as well on the cost reduction.

Your next question comes from the line of Tobias Beith from Rothschild & Co Redburn.

I have 2, please. I'll ask them separately, if that's great. If they're present today, I was wondering whether you could quantify how large potential reimbursements are to your contract manufacturing partners for lower-than-expected volumes today and over the next few years versus when these nameplates and presumably the supply contracts were conceived.

I can take that, Tobias. So obviously, as you know, we have an asset-light business model, right? So obviously, you have the support from Geely and Volvo also in terms of where we produce our cars, right? And of course, there, we have long-term agreements. But of course, there are changes, right, as the industry is changing. So we don't give you a figure here today as you might have expected, but I can tell you that we have long-term agreements with our partners, work through any possible changes. And of course, needless to say, you have seen it in our figures expected. So that's what I can say on that side.

All right. Second question, how does Polestar intend to establish brand independence from Geely and Volvo Cars over the next couple of years given the overlap, which will still exist between the respective product portfolios and the requirement for Polestar to establish a premier with similar products to generate its own profits?

Yes. Also, great question, Tobias. Let me take that, Michael, again. So first of all, I think it's fair to say that Polestar really has established a strong brand, right, absolutely being perceived as a Swedish Scandinavian brand. While on the one hand, we utilize, for example, the service network of Volvo of the Volvo dealer network, which is very, very important because customers immediately ask like where can we do the service? We have separate showrooms, right? Most of our retailers, and we have seen a strong growth of retailers, also Volvo retailers, but we have separate showrooms. And I think the brands differentiate extremely well. So Polestar clearly stands for design but also performance and sustainability. And we have seen very little overlap between Volvo and Polestar. It's actually incremental business for most of our dealers, right? And that's why they appreciate that. That's why we can also grow the number of retailers very fast. You have seen that we are now having a retail number of 169. We grow every month 5 to 6 retailers around the world. So that's what we do. And with that, we can also make sure that we develop Polestar more and more to a premium brand, right? And this takes time. This doesn't come overnight, but I think we do the right things, price accordingly and also have very different marketing activities. And then obviously, also products like the Polestar 5, which we will introduce next week at the IAA Munich, and some of you might have seen pictures, that is obviously a very, very strong asset to build this premium of the Polestar brand because very few brands have a car like that. Let me tell you that, right? So I hope that, that gives you a little bit of color how we want to differentiate on the one hand, while using the synergies of the Volvo service network and dealer network in particular, and how we want to develop the Polestar brand as a premium brand further.

Your next question comes from the line of Andres Sheppard from Cantor Fitzgerald.

Jean-Francois, I'm wondering if -- I know you touched this on the call, but can you just remind us the company's total liquidity, maybe cash burn expectations for the second half? And how are you thinking about capital needs, capital runway?

Thanks, Andres. First, I just would like to step back regarding the liquidity situation of Polestar, to mention that we have a constructive and positive dialogue with the lenders participating to our pool. And just to demonstrate it, as mentioned it previously, we have secured a renewed plus USD 2.1 billion over the first 8 months of 2025. At the same time, in full agreement with our lenders, we have also renegotiated some of our comments -- some of our covenants, sorry. So at the end of June, in terms of cash, we are at USD 719 million. Looking at our debt. So as I already mentioned it, the level of the debt is too high and this is not satisfying for Polestar. We are still compliant with our total debt covenant of USD 5.5 billion. We still have some headroom. And as we mentioned it previously, it is very much important for us to deleverage this level of debt and to continue financing our operation and investing activity, diversifying our source of funding and raising new equity. When it comes to the cash burn, so in H1, it is fair to comment that we had a negative EBITDA of $300 million, which obviously impacted our cash burn, but also to recognize that as part of our working capital improvement, we had a significant decrease of our inventory, which have moved from 23,000 units at the end of December '24 to 14,000 units at the end of June '25. This is a great achievement, which contributed to improve our working capital. However, at the same time, we had a very good commercial performance in June, but it impacted our level of receivable. And also in the meantime, we had paid some significant amount of a related party, which caused all in one, a negative variation of our working capital management with, I would say, considering the investing level that we had in H1 to an average cash burn of around USD 140 million for the first 6 months of H1, which is not aligned with our normalized cash burn considering the previous effect that I have mentioned. Now entering H2. As you know, we [ paused ] our financial guidance. So I will not comment. But clearly, I will say, considering still the increase of our volume, the improvement of our car line mix, but as well of our expected profitability normally, the operating cash burn should improve. But also, it is fair to say that in terms of cash use for our investing activity, we are expecting higher cash out linked to a sale of legacy investments related to the Polestar 5, but also our factory in Busan. Now looking forward on 2026, normally, this level of cash burn should improve with the improvement of our profitability, but also less CapEx spending.

Wonderful. That's super helpful. I really appreciate all that color. Maybe as just a quick follow-up. With the Polestar 5 now becoming available, curious how should we think about the ASPs, the blended ASPs and the gross margins for the rest of the year? What kind of demand might you expect from the Polestar 5? And how might that impact margins and ASPs for the second half of the year?

Yes. Thanks, Andres, Michael here. Let me take that. So obviously, first, I mean, the Polestar 5 is a very, very unique sports car, right, GT, high performance, a lot of technology in there. And it's really -- it stands for what the Polestar brand is all about, right? It's summarized in this car. From a financial perspective, I don't think this is a volume model, right? This is a brand halo, this is a brand shaper. Of course, we will sell it strongly, but this is -- the point is not like this is high volume. This is really what the Polestar brand as a premium brand stands for. Once we then bring it to the market, obviously, we will have launch events. We will do this in a very, very unique way, what this car deserves, right? And then ASP will follow accordingly. Of course, we will have positive margins with this car. But as the volume is limited, I wouldn't expect like major, major changes. This is all about what the Polestar brand stands for. The Polestar 5 is not an absolute volume car. And I think that's important to keep in mind. I don't know, Jean-Francois, if you want to add a few things from your side.

No, nothing to add. That's fully aligned, Michael.

[Operator Instructions] And the question comes from the line of Dan Levy from Barclays.

6 I wanted to just start with a question on your U.S. presence. If you could just remind us, I know you said you're primarily European focused on the volumes at this point. But if you could just remind us what your U.S. exposure is and what the strategy will be after the EV tax credit goes away.

Thanks, Dan. Michael again, here. I take this, and maybe Jean-Francois will add a few financial figures. But first, if you look at Polestar H1, 77% of our sales are in Europe, 8% in the U.S., right? So I think those are strong numbers. So we are clearly focused on Europe. This is where we make a lot of progress. I mean there's a reason why we're up 51% in H1. I mean those are strong growth numbers, and they're absolutely driven by Europe, right? We are very, very successful in Europe, in particular in the U.K. and the Nordics. Germany is picking up nicely. We go into new markets. So I think we have a very, very big success story in Europe going on. Now the U.S. is also important, and I think we have a very good setup. We can use the Volvo plant in Charleston, South Carolina. I think localization is important. But I will say very clearly, we need to find the right balance between volume and profitability, right? While tariffs is a burden for our financial results, and Jean-Francois has illustrated this in the prepared remarks very well. We will have to optimize volume and profitability and find that right balance, right? I think the setup is good with the local factory. We bring now the Polestar 4 also to the U.S. This will also be very helpful, but we will not grow in the U.S. at any cost, right, because the financial exposure is then too high. But of course, even after the disappearance of the tax credit, the U.S. will stay an important market for us. I also do believe that eventually, the market will price for cost increases, right? I've never seen in many, many years in automotive that cost increases have not led to price increases. Unfortunately, at the moment, the price environment is pretty competitive, but we will continue to operate successfully in the U.S. That's a good summary. I don't know, Jean-Francois, anything you want to add.

No. Maybe just to add that it is true that Polestar being the only one car models sold into the U.S. and being under significant pressure due to tariffs due to the fact that tax incentive will disappear. So as you mentioned it, Michael, indeed, I think probably the market will price this disappearance of the tax incentive. But at the same time, I'm waiting for Polestar 4. We are continuing working with our partners. So Volvo in order to relocalize some parts and components, which are currently subject to tariffs. We are working as well continuing working on the reduction of the cost of our product. And over the last 12 months, we had good results. The average cost of our product has decreased by 8% in average. Polestar beneficiated from this decrease. And among those cost reductions to be mentioned that the cost of the battery, which is a key component of our car also decreased in average by 10%. So all those actions that we are monitoring, which are in our hand should help to improve the profitability of the Polestar 3 in the U.S. And of course, with Polestar 4 coming from Korea very soon, the profitability will increase further.

Okay. Great. As a follow-up, I know you've withdrawn your guidance, but maybe you could just conceptually remind us of the items that you'll need to do to eventually get to EBITDA breakeven. I mean if you could just walk through maybe conceptually, what types of volumes we need to see? What has to happen on mix? And what are the mitigants now to what seems to be what you're talking to a tougher pricing environment, tariffs and what seems to be a tougher channel mix. So if you could just conceptually walk through the items that need to occur to get to EBITDA breakeven.

We are still currently, I would say, assessing all the external headwinds that Polestar is facing, so including tariffs, but also change in policies and regulations. We are also looking at further what is under our control. So -- and we are also investigating in some further synergies and cooperation. But it's too early to come back to you. So we are working on a new business plan. And as soon as everything will be validated, we will come back to you with a clear guidance.

There seems to be no further questions, I would like to hand back for closing remarks.

Thank you, operator, and thanks, everybody, for joining our call. So I hope we gave you a very clear overview of our financial performance in the second quarter of this year, but also in the first 6 months. And as we said in our opening remarks, we do the right things, but there are obviously several things which are not in our control. But thanks for joining, and let's stay connected and hope to see you soon. If you can make it, as I said, come to the IIA in Munich, and you will see the most beautiful car Polestar ever did, the Polestar 5. With that, let's stay in touch. Thanks for joining. Have a wonderful day.

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