Polestar Automotive Holding UK PLC Q3 FY2023 earnings call

• Third quarter saw record deliveries of 13,976, up 51% y-o-y, with 41,817 delivered in the first 9 months, up 37% y-o-y.
• Polestar 2 2024 model deliveries ramping up, receiving great reviews. Polestar 3 preparations for production progress well, completed hot weather testing in UAE, with production starting in China early next year and U.S. in summer 2024. Polestar 4 start of production in Hangzhou Bay next week, with customer deliveries in China before end of year and rest of world in mid-2024.
• Strong partnership with Google, integrated apps like Prime Video. Reworked business plan to reduce costs, improve efficiency, aiming for cash flow breakeven in 2025. Targeting total annual deliveries of around 155,000 to 165,000 in 2025. Taking actions to improve margins and reduce Opex, including more flexible packs, focused market presence in Europe, joint venture in China, and improving U.S. business profitability.

In the third quarter of 2023, Polestar delivered 13,976 cars, a growth of 51% compared to the same period last year. For the first 9 months of the year, 41,817 cars were delivered, a growth of 37% year-on-year. Revenue in the third quarter was $613 million, an increase of 41% driven by volume growth and the model year 2024 ramp up. Gross profit for Q3 2023 was approximately $4 million, corresponding to a margin of almost 1%, but was impacted by a large inventory impairment charge of $28 million. Selling, general and administrative expenses were $236 million, up $58 million. Research and development expenses were $30 million higher. Operating loss was $261 million compared to $196 million last year. Cash used for operating activities in the first 9 months of 2023 was $1.3 billion. Cash provided by finance activities was $1.5 billion, and cash and cash equivalents stood at $951 million at the end of the third quarter.

• 2023 outlook: Expect to deliver about 60,000 vehicles for the year, full-year gross margin around 2%.
• 2025 targets: Target total annual deliveries of around 155,000 to 165,000. Target gross margins in the high teens in 2025, with more than half the progression from model range rollout. Expect to achieve cash flow breakeven in 2025. Requires external funding of approximately $1.3 billion from the end of Q3 2023 until 2025.

• Demand in certain markets, particularly the U.S., was weaker than anticipated, leading to inventory buildup and inventory impairment charges. - Geopolitical risks that could impact imports of vehicles from China, affecting the business. - Dependence on specific markets and product lines, which could be affected by changing market conditions.

Q: Andres Sheppard asked about 2024 delivery guidance and timing of the remaining $1.3 billion funding.

A: Johan L. Malmqvist said to think about deliveries in 2024 with phasing due to start of production of Polestar 3 and 4, and the $1.3 billion stems from expected accumulated negative free cash flow from end of Q3 2023 through cash flow breakeven in 2025, deducting existing and new financing support.

Q: Alexander Potter asked about China joint venture progress, learnings from it, and leveraging in other vehicles.

A: Thomas Ingenlath said the China JV is progressing well, fruits already seen in Polestar 4 with software designed for Chinese customers, and learnings could be leveraged in other vehicles for the China market.

Q: Dan Levy asked about cost savings in licensing from Volvo and Geely, and demand for Polestar 4.

A: Johan L. Malmqvist said bulk of margin accretion comes from product mix, and working on reducing production costs with partners. Thomas Ingenlath said Polestar 4 has positive reception and expected to have significant volumes.

Q: Tobias Beith asked about cumulative cash flow to breakeven, Capex timing, order book, and volumes for Polestar 3 and 4.

A: Johan L. Malmqvist explained expected cash burn slowdown in 2024, Capex phasing, order book not halved as per timing and invoicing, and Polestar 3 and 4 well positioned to reach volume ambition.

Q: Retail shareholder asked about stock performance, short-term止血, and South Carolina factory production.

A: Thomas Ingenlath said Polestar 3 production in South Carolina starts in summer 2024, which is a big enabler for profitability. Johan L. Malmqvist talked about the business plan actions to stop short-term bleeding. Thomas Ingenlath also mentioned the new product lineup will create shareholder value.