Polestar Automotive - Earnings Call - Q3 2025

Transcript

Operator (participant)

Good day, and thank you for standing by. Welcome to the Polestar Q3 2025 Select Results Conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press Star 1 and 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press Star 1 and 1 again. 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 IR. Please go ahead.

Anna Gavrilova (Head of Investor Relations)

Thank you, Operator. Hello, everyone. I'm Anna Gavrilova, Head of Investor Relations at Polestar. Thank you for joining this call covering Polestar's select results for the third quarter and first nine months of 2025. I'm joined by Michael Lohscheller, Polestar CEO, and Jean-François Mady, Polestar 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.

Michael Lohscheller (CEO)

Hello, everyone, and thank you for joining us today. Our focus in the last quarter has been delivering on our strategic plans, transforming our commercial operations, increasing our retail footprint, and improving our operational efficiency. We are making significant progress across all three of these areas in the face of a very challenging economic environment. Nine months into the year, I am particularly pleased with the progress of our commercial transformation. Compared to last year, we have increased the number of sales points, excluding China, by 54% to 192. Combined with a more active sales model, this is an important part of the foundation for our volume growth of 36% in the first nine months of the year. The pace of retail expansion remains high, and in the months of October alone, we have opened nine new sales points across Australia, Denmark, Sweden, Germany, the U.K., and the Netherlands.

Five of these are new openings. Four of them are strategic moves away from smaller, boutique-style city center locations to larger, out-of-town locations, making it easier for more people to test drive and buy a Polestar. Our expansion in France is also proceeding as planned. Retail sales in the third quarter grew by 13% versus the same quarter last year and by 36% for the first nine months of the year. Revenue grew by 36% in the third quarter and by 49% in the first nine months. Europe remains our main market, representing over 75% of our global deliveries. Our most important European markets delivered strong year-on-year growth during the first nine months. Belgium and the Netherlands grew by 40% and 37%, respectively. Germany grew by 46%. Norway grew by 63%. Sweden grew by 41%, and the U.K. grew by 100%.

Korea remains our strongest performing market in Asia with growth of 430%. At the start of the year, we announced a shift in platform strategy. Moving forward, we will utilize group technology platforms for future models, giving us access to the best EV technology available in the fastest and most efficient manner. The restructuring and refocusing of our R&D operations that this enables started during the second quarter and has continued into the latter part of the year. Last month, we announced further staff reduction of around 230 roles. We will continue to optimize the structure of our operations and expect to end the year at approximately 2,000 employees, down from 2,500 at the start of the year, a reduction of 20%. This process will continue as we take steps to protect our business in the face of industry headwinds.

Last week saw the start of sales of Polestar 4 in North America, with media continuing to give this incredible car high praise for its performance, design, and technology. The Polestar 4s that are set to be delivered to customers starting in Canada are the first Polestar 4s manufactured at the Busan, South Korean factory, making this car even more competitive on the North American market. Having spent last week with our dealers from Canada and the U.S., I'm very excited about the prospects for this SUV coupé in the two very important markets. Our full focus is on ending the year in a strong way, and we expect to provide guidance in the beginning of 2026. With that, I'll end my opening remarks and hand over to Jean-François.

Jean-François Mady (CFO)

Thank you, Michael. Good morning, good afternoon, everyone. With continued growth in retail sales volume and revenue year-on-year, the financial results for the third quarter and the first nine months of 2025 demonstrate strong commercial performance at the top line. However, significant external headwinds, notably tariff and pricing pressure, continue to impact profitability, including in the third quarter. Looking at the financial results for the first nine months of 2025, retail sales volume, as pre-announced, increased by 36% to over 44,000 cars. Polestar 3 and Polestar 4 made up 65% of the retail sale. By geography, we continue to see particularly strong performance in Europe, as mentioned by Michael, notably in the U.K., Germany, Belgium, the Netherlands, and across the Nordic region, but also in NAPAC, led by South Korea.

The U.S. market remains challenging as tariff and policy changes continue to impact profitability, and we need to do more on localization of parts and components to be efficient. The U.S. represented 8% of our retail sales for the first nine months of 2025, from 16% in 2024. We operate in 28 countries worldwide, including now in France, launch in June. Our commercial transformation is progressing at pace with another 11 new retail partners signed up in the third quarter of 2025, bringing the total to 141 active retail partners at the end of September, contributing to the development of our sales points. As a result, revenue grew by 49% to about $2.2 billion in the first nine months of 2025. The drivers were, first, higher sales volume and a growing share of higher price model, Polestar 3 and Polestar 4, in the sale mix.

Second, carbon credit sales amounted to $104 million under the new EU pooling agreement versus sales of below $1 million for the same period in 2024. Another $19 million is booked in over-operating income. In this context, we have already hit our target of a three-digit million-dollar amount to be delivered this year. At the same time, pressure on pricing continues to grow due to the challenging market condition, and we incur costs related to the resale value guarantee in the North American markets. The adjusted gross margin improved by 0.3 percentage points to a -1.8%. The evolving product and geographical sale mix and growing carbon credit sale supported the improvement of adjusted gross margin. Moreover, continuous reduction of cost of material, including for batteries, allows us to mitigate partially higher lending costs. External headwinds, pressure on pricing, and current tariffs were still significant.

In this period, adjustment of inventory to net realizable value and expenses related to resale value guarantee further impacted negatively Polestar's profitability. Selling, general and administrative expense, excluding the sale agency remuneration, continued to decrease at the pace indicated in the first half of 2025. The reduction reflects optimized marketing and advertising costs and lower general and administrative costs resulting from cost discipline and organizational restructuring. We are also reducing headcount, predominantly in research and development, as we have begun to implement our previously announced strategy to make better use of existing architecture from our partners, specifically GD Group, for future Polestar model, as commented by Michael. Adjusted EBITDA loss of $561 million improved by 8%, reflecting first, fixed cost reduction due to optimized marketing spend and a lower headcount; second, carbon credit income; third, positive foreign exchange impact.

These positive elements were partially offset by slightly higher adjusted gross loss and higher sale agency remuneration linked to growing sale volume. Briefly touching on the reported figures, gross margin of -34% and net loss of $1.6 billion U.S. dollars primarily reflect the impairment expense of $739 million for Polestar 3 booked in the second quarter 2025. Now, turning to the results for the third quarter of 2025. Retail sales grew by 13% year-on-year to over 14,000 cars sold. Revenue increased 36% to $748 million, driven mainly by higher volume, higher price Polestar 3 and Polestar 4 model in the mix, and carbon credit sale. This was partially offset by pressure on pricing and resale value guarantee adjustment related to the North American market. Revenue from sale of carbon credit sale was $32 million in the quarter from nil in 2024.

Gross margin at -6%, a deterioration of 5 percentage points, was a result of, first, pressure on pricing, second, tariff, third, adverse mix effect from sale of Polestar 2 and Polestar 3, specifically the sale of Polestar 3 in the U.S. Finally, inventory was adjusted to net realizable value, and we incurred expenses related to resale value guarantees in the North American market. Net loss was $365 million in the third quarter. Adjusted EBITDA loss of $259 million increased year-on-year, mainly because of higher gross loss, higher sale agency remuneration, and negative foreign exchange impact, which were only partially compensated by reduction of SG&A expenses. On the funding of our operation and liquidity, during the first nine months of this year, we raised $200 million of new equity from PSD Investment Limited, an entity that is controlled by Mr. Eric Li, founder and chairman of Geely Holding Group.

We secured as well about $1 billion worth of new facilities and renewed about $2.2 billion of existing facilities. Our cash position at the end of September was $995 million, and Polestar was compliant with its loan covenant as of 30 September 2025. With the support from GD Group, we continue to make progress towards securing new equity and debt funding. Also, we plan to launch a reverse stock split shortly to change the ratio of our American depositary shares to ordinary shares, which is currently one-to-one. Detail will be announced separately. To conclude, our priorities remain. First, driving growth through the active selling model and leveraging our attractive model lineup. Second, improving processes, streamlining the organization and operation, looking for further synergies. Third, extracting efficiencies and cutting costs. Last but not least, securing new equity funding. Now, I will hand over back to the operator.

Operator (participant)

Thank you. As a reminder, to ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. Please stand by while we compile the Q&A queue. Our first question comes from the line of Winnie Dong from Deutsche Bank. Please go ahead. Your line is open.

Winnie Dong (Director of Equity Research)

Hi, yeah, thank you so much for taking my question. I was wondering if you can help us bridge the walk for gross margin a bit more. You mentioned geographical sales mix and reduction of material costs, but then there's also pressure on pricing. I wonder if you can just give us a bit more detail on the pros and cons. Thank you.

Jean-François Mady (CFO)

Hi, Winnie. Thanks for your question. I think that you want to bridge the walk between Q3 gross margin and Q2 gross margin. The result of Q3 has been clearly disappointing for us. First, we are continuing suffering pricing pressure on our vehicle in addition to having a higher cost of production due to the duties. In addition to that, we had some adverse mix effect in the sense that we have sold more Polestar 2 and more Polestar 3 than Polestar 4, as expected, even if at the same time we have successfully partially compensated part of those negative impacts by continuing reducing product cost reduction, but also reducing fixed cost.

On the Polestar 3 adverse mix impact, I just would like to comment that we have realized some tactical sale, especially in the U.S., because this is from where most of this negative mix effect is coming from, because we took the opportunity of the end of the tax incentive in the U.S. in order to destock, I would say, most of the Polestar 3, and this is from where this negative mix impact is mostly coming from.

Winnie Dong (Director of Equity Research)

Okay, thank you so much for the details. I was wondering if you can maybe just comment on the OpEx spending trends in the quarter and how we sort of foresee on a go-forward basis how that would trend into next year. Thank you.

Jean-François Mady (CFO)

Yeah. I will not comment into the detail about Q3, but as you know, we realized quite a significant decrease of our fixed cost, especially at the end of H1 compared to last year at around -10%. Those decreases are coming, I would say, from two main levels. The first one, this is the optimization of our marketing expenses, which is coming from, I would say, less also production. Also, the second level is mainly driven by the reduction of headcounts. We are still marching in consolidating our organization, realizing some efficiencies and synergies. We started the year with 2,500 headcounts, and we still have the objective to reach 2,000 headcounts by the year end.

I would say that looking at Q3 and looking at Q4, we want to accelerate on those levels, and I think that we have a good momentum entering Q4 now.

Winnie Dong (Director of Equity Research)

Thank you very much.

Operator (participant)

Thank you. We'll now move on to our next question. Our next question comes from the line of Tobias Beith from Rothschild & Co. Redburn. Please go ahead. Your line is open. The line of Tobias Beith from Rothschild & Co. Redburn is now open. Please go ahead with your question.

Tobias Beith (Analyst)

Great. Thanks. Thanks for your time. I have two questions, if I may. I'll ask them separately. Michael, since we spoke last, a bilateral trade agreement has been struck between the EU and the U.S. On paper, it seems quite helpful for Polestar's unit profits, particularly on the Polestar 3. I wondered if I could hear your thoughts today on how you and the rest of the management team have or may be thinking about adapting your business plan for the next couple of years.

Michael Lohscheller (CEO)

Sure. Happy to do that, Tobias. Let's talk U.S. a bit more in detail because we have a setup where, on the one hand, we have the local production in Charleston where we join the Volvo factory, which I think is a good basis, right? We try to localize as much as we can. At the same time, also parts then from Mexico, for example, have duties. It is a good setup, but obviously it is also suffering from duties, right? The other thing for the U.S. business model, which is very important to understand, is that we bring now the Polestar 4 to the U.S., and we bring it out of South Korea to the U.S. That, I think, or we feel is a very good setup because that has much lower duties than from Europe or from China and is a good basis, right?

It's a complicated world, as you say, because duties change quite a bit, but we feel with a local setup in the U.S. and then the South Korean factory, we have a good setup in order to then optimize our U.S. business model. I hope that answers your questions.

Tobias Beith (Analyst)

Yeah. Maybe just on that, what about going the opposite way around? There is now an opportunity for you to earn more profits on Polestar 3s exported into Europe.

Michael Lohscheller (CEO)

Yeah, that is an opportunity for us as well. At the same time, we also have opportunities to produce it in China. Obviously, once you have invested into the tooling, into the setup, it's not that easy to change immediately, but as you quite rightly highlight, it is an opportunity which we are also exploring and might use if it is appropriate for us.

Tobias Beith (Analyst)

Okay. Understood. Thanks, Michael. Jean-François, if I'm not mistaken, a substantial portion of Polestar's debt portfolio was renewed in the period and also slightly broadened by, call it, $300 million. I wondered, what is the new go-forward effective rate of interest on Polestar's debt portfolio, and is it floating mostly?

Jean-François Mady (CFO)

I would say that most of our interest rate is based on references, so it is floating, yes.

Tobias Beith (Analyst)

Okay. Did you have a number that you could share for the new effective debt rate on the renewed portfolio?

Jean-François Mady (CFO)

I mean, there is no significant change to call out to the previous one.

Tobias Beith (Analyst)

Okay. Fine. Understood. Thanks for your time, both of you.

Operator (participant)

Thank you. We'll now move on to our next question. Our next question comes from the line of Andres Sheppard from Cantor. Please go ahead. Your line is open.

Andres Sheppard (Equity Research Technology Analyst)

Hi, good afternoon, everyone. Thank you for taking our questions. I was wondering if we could get an update on capital needs and liquidity, if you could maybe give us a sense of cash burn, maybe what it was, what you expect for it going forward, and what is the timing for those additional capital requirements. Thank you.

Jean-François Mady (CFO)

Okay. Thanks, Andres, for the question. In terms of cash burn and as I commented it in H1, for the first semester, we have a monthly cash burn of around $136 million per month. I mentioned at that time that the level of cash burn will increase during the second semester due to, I will say, the spending of cash out related to legacy CapEx. Clearly, compared to last year, if I'm looking at the normalized cash burn, we are improving month after month, and this is due to, I will say, the fact that we are cutting losses looking at our adjusted EBITDA, but also making strong action in order to improve our working capital. We demonstrated at the end of H1 that we have collected the level of inventory at 40,000 units for more than 22,000 units-23,000 units at the end of December.

Of course, we are quite vigilant in terms of the level of receivable and working as well leveraging our payable and the payable from our related parties. I think that we are on a good track to improve the level of cash burn, but still, unfortunately, we are burning more cash as planned because we have faced the increase of tariffs, more challenging market context, which has deteriorated our profitability. Now, when it comes to, I will say, our funding needs, as you're aware, we have raised $200 million in new equity coming from PSD Investment Company who is owned by Mr. Li Shufu, who is the founder and chairman of GD Group.

Based and following this new equity, we are working actively and always with a positive mindset with GD Group in order to further increase, I would say, our funding, as we all know that we cannot only rely on the debt from the bank. We have to fund some new equity, and this new equity in June was clearly a positive sign from GD Group about supporting Polestar, but also the willingness that further will come. We are completely aligned with GD Group in terms of liquidity and funding plan that we are executing, and we will not hesitate to come back to you and to the investment community if there is more to comment as and when required.

Andres Sheppard (Equity Research Technology Analyst)

Wonderful. That's very helpful. Appreciate all that color. Maybe one for Michael. I'm wondering if you can maybe talk a little bit about autonomy. We're certainly seeing a bit of a trend in the automotive business with different autonomous partnerships. Curious if you can maybe talk about opportunities that Polestar might be pursuing here. Is this an area of focus? Anything you can say there? Thank you.

Michael Lohscheller (CEO)

Yeah, sure. Thanks, Andres. So happy to do that. Of course. I mean, it's an important area because it's the future, right? It will increase, and we have obviously various partners already with Mobileye on the Polestar 4. We look at other alternatives in the various regions. At the same time, we want to have the good balance because our brand really stands for performance. I mean, our customers are really performance drivers in general. Of course, we can combine these two things, right, and have a higher level of autonomy when you don't want to drive, right, and use it. At the same time, make sure that everybody understands, look, Polestar stands for design, performance, and sustainability.

Yes, various partnerships like the one with Mobileye highlighted by me, and it's a key focus area for us, and obviously also look very carefully into the overall group possibilities and will absolutely stay a topic for the future. More to come on that. Thanks for the question.

Andres Sheppard (Equity Research Technology Analyst)

Wonderful. Very helpful. Thank you so much. I'll pass it on.

Operator (participant)

Thank you. There are no further questions at this time. I'll hand the call back to Michael for closing remarks.

Michael Lohscheller (CEO)

Yeah. Thank you, everybody. This concludes our earnings call. Thank you for joining. Wish you a wonderful day and keep in touch. Thank you, everybody.

Operator (participant)

Thank you for participating. You may now disconnect. Speakers, please stand by.