Polestar Automotive Holding UK PLC Q2 FY2023 earnings call

Key Operational Highlights

• Record second quarter with 36% growth in deliveries; 27,841 cars delivered in first six months of 2023, up 31% year-over-year.
• Upgraded Polestar 2 deliveries ramped up, with improvements in software, range, and charging, and reduced carbon emissions.
• Polestar 3 available in retail spaces globally, Polestar 4 orders taken at Chengdu Auto Show with production starting in November and first deliveries in China by year-end.
• Joint venture with Xingji Meizu Group for software and user experience, and collaboration with Mobileye for autonomous driving in Polestar 4.
• Expanded retail footprint with new spaces in Portugal, China, US, and plans for new spaces in UK and Canada; adoption of Tesla's charging standard for US and Canada sales from 2025.

Cost Management

• Taking steps to manage costs, including cost-saving measures and looking to improve margins, with more detail to be provided in third quarter results.

In Q2 2023, revenue increased 16% to $685 million, driven by higher Polestar 2 deliveries and price increases, but offset by sales channel mix, product mix, and higher discounts. Gross profit decreased from $61 million to a negative $1 million. Key factors impacting cost of sales included higher contract manufacturing costs, supplier charges for semiconductors and batteries, and inventory impairment, partially offset by positive foreign currency effect.

• Expect to deliver between 60,000 and 70,000 vehicles in 2023, representing annual growth of approximately 16% to 36%.
• Anticipate a full year gross margin of around 4% supported by stronger second half due to easing supply chain disruptions and reducing raw material costs.
• Reaffirmed guidance on vehicle deliveries and gross margin, with focus on improving margins through cost management and product mix.

• Macroeconomic uncertainty impacting sales and margins.
• Supply chain disruptions and raw material cost fluctuations affecting production and costs.
• Funding risks related to ensuring adequate liquidity and managing debt and equity options.

Q: On Hertz partnership A: Five-year contract with 65,000 volume of Polestar 2, with deliveries continuing and Polestar 3 and 4 potentially joining the partnership.

Q: On delivery guidance for second half A: Model year '24 Polestar 2 deliveries in Q3, with volume growth towards peak in Q4.

Q: On capital needs A: Considering both equity and debt for funding, working with owners to address broader funding plan.

Q: On sequential gross margin bridge in Q2 A: Q2 gross margin affected by true-up of costs related to semiconductors, supplier charges, inventory impairment, but in line with first half guidance of low gross margin.

Q: On order intake and balance sheet A: Order book stabilized, with advanced payments from customers increasing $10 million quarter-over-quarter, influenced by FX and market conditions.

Q: On Polestar 4 production and volumes A: Polestar 4 production starts in November with ramp-up, contributing to deliveries in Q4, and benefits from joint venture with Xingji Meizu for software and user experience.

Q: On mix in second quarter and future mix uplift A: Fleet was 70% of sales in Q2, with corporate company car market important in Europe. Launch of Polestar 4 and 3 will bring higher price points and margin accretion in future years.