Polestar Automotive Holding UK Plc Q2 FY2024 earnings call

• Thanked Thomas for his contribution to Polestar and welcomed incoming CEO Michael Lohscheller.
• Financially, Q2 vs Q1 saw volume and revenue growth, with SG&A costs managed tightly. Compared to Q2 2023, revenue decreased due to lower volumes and higher discounts, but SG&A expenses were down, and R&D decreased mainly due to Polestar 2 IP amortization being capitalized.
• Operationally, there was a significant uptick in Q2 deliveries, Polestar 4 started deliveries in Europe, Polestar 3 production began in South Carolina making it the first Polestar manufactured on two continents, and European markets are adopting non-genuine agency models to increase efficiency.

In Q2 2024, global vehicle sales were 13,150 cars, up more than 80% compared to previous quarters. Revenue reached $575 million, an increase of nearly 70% from Q1. The gross result was a small negative at $4 million. The improvement in gross result was due to Polestar 2 volume growth, initial deliveries of Polestar 3, and normalization of revenue recognition at the China JV. However, the underlying gross profit was still affected by higher discounts on Polestar 2 in a competitive market and before full ramp-up of Polestar 3 and 4 deliveries. In terms of revenue contribution, Polestar 2 and Polestar 3/4 are key segments with Polestar 2 still contributing significantly but with a shift towards the premium SUVs like Polestar 3 and 4 in the future.

• Anticipates stronger volumes in the second half, especially in the fourth quarter with deliveries of the two premium SUVs. Aims to achieve double-digit gross margins by the end of the year.
• Expects third quarter to be better than previous quarters and fourth quarter to be even higher in terms of volume.

• Tariff risks in the U.S. and Europe, such as potential tariff increases in Europe from July to November and existing high tariffs in the U.S.
• Challenges related to working capital sustainability during the ramp-up of new models as historically volume ramps can be a working capital headwind.

Q: Could you provide more detail on the sequential improvement in COGS per external unit?

A: We are working on cost reductions. Partly due to mix shifts to Polestar 2, improvements in battery raw material prices, and working with Volvo and Geely on cost negotiations.

Q: Were there any exceptional impairments or releases in Q2 vs Q1?

A: As of knowledge, there were no exceptional impairments or releases outside normal operations.

Q: Could you describe if Polestar 3 and 4 are sold out for 2024 in Europe and U.S.?

A: Polestar 4 deliveries in the U.S. are scheduled late in 2024, and while there are large order books for Polestar 3 in Europe and U.S., more orders are expected as test drives ramp up.

Q: Could you give color on deliveries for the second half and delivery mix between Polestar 2, 3, 4?

A: Third quarter will see more Polestar 3 deliveries, fourth quarter will have higher Polestar 4 deliveries as it starts being delivered in the U.S., with Polestar 2's contribution decreasing over time.

Q: Could you talk about capital needs and recent $300 million external funding?

A: We had a need for $1.3 billion last year, secured $950 million club loan early this year, and recently secured $300 million in debt financing which is not fully drawn down yet, with trade financing facilities largely undrawn for now.

Q: Could you quantify the benefit to gross profit from impairment release and revenue recognition normalization on sales to China JV?

A: Main drivers include inventory impairment releases, revenue recognition adjustments between quarters, and amortization shifts of Polestar 2 from R&D to cost of goods sold.

Q: Could you give color on Polestar 4 sales in China and benefits of working with Geely?

A: Polestar 4 was well received in China, benefits include cost base from China production, aligned R&D activities, production in South Korea for U.S. and other markets, and plan to launch Polestar 3 and 5 in China later.

Q: How sustainable is working capital strength against ramp of new models?

A: Working closely with retail partners to speed up sales and delivery processes, changing sales models in Europe, producing Polestar 3 in U.S. for closer to customers, and having undrawn trade financing facilities provide levers to balance.

Q: Could you talk about tariff situation and impact on gross margins?

A: Tariffs in U.S. and Europe pose risks. U.S. tariffs can be handled by Polestar 3 production in South Carolina and Polestar 4 in South Korea. Europe has potential tariff increases delayed to November, with ongoing dialogue to mitigate impact. Aim is to achieve double-digit gross margins by end of year despite tariffs.

Q: What measures are leadership taking to ensure NASDAQ compliance and avoid delisting?

A: Filed audited results for 2023 on Form 20-F to clear reporting deficiency with NASDAQ. Monitoring share price below $1 threshold closely and focusing on business improvement through sales growth and brand exposure.

Q: What are current plans to increase share value?

A: Focus on business improvement through demonstrating sales growth, expanding geographical footprint, doing targeted marketing campaigns, and increasing test drives to expose the brand to the right consumers.

Q: How to expose the brand more, sell more cars and keep stock value up?

A: Do more targeted marketing, expand geographical footprint into new countries and regions, increase test drives to let people experience cars, and engage with investors and retailers through changed sales models.