Polestar Automotive Stock

Good day, and thank you for standing by. Welcome to the Polestar's Second Quarter and First Half 2026 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. 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 second quarter and the first half of 2026. 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 of 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.

Thank you, Anna. Hello, everyone, and thank you for joining us today as we present our second quarter and first half 2026 financial and operational results. I am pleased with the commercial progress we have achieved in light of the market conditions, which remain challenging. We delivered a record first half with retail sales of 30,423 cars. This growth has been supported by the continued transition to our active selling model, the expansion of our retail network and a stronger contribution from Polestar 4 coupe, which is our best-selling car.

This has happened during one of the most challenging and competitive times I've experienced in the automotive industry and delivering record sales in this environment confirms that customers want our cars. At the same time, we are realistic about the challenges we face. Competition in the EV market continues to intensify. Pricing pressure remains significant and geopolitical developments continue to impact the industry.

We have also seen regulatory headwinds, particularly in the U.S., which affected our performance during the first half. This, combined with factors mentioned above, further impacted our financial results. As was announced in late June, the U.S. Department of Commerce denied Polestar's application for an authorization under the current connected vehicle rule to sell vehicles in the U.S. from model year '27 onwards. In light of all this, we have updated our full year volume outlook to low to mid-single-digit growth. This reflects the continued market pressure across our industry as well as portfolio transition.

Polestar 4 SUV customer deliveries will start in the fourth quarter and ramp up into next year. Our focus remains on building the right product and channel mix and strengthening the underlying performance of the business. The most important thing is that the operational improvements we have been implementing are beginning to show results. Our reported operating loss improved significantly compared with the first half of last year, which included substantial impairment charges. At the same time, cost discipline measures contributed to lower general and administrative expenses.

When I joined Polestar 2 years ago, we had to address a number of structural challenges. For the past 2 years, we have worked to build a leaner, more focused and more resilient company. We are not trying to be everything, everywhere, all at once. Instead, we are concentrating on the areas where we can create sustainable value, improve profitability, CapEx allocation and position Polestar for long-term success. We are doing the right things, and we are beginning to see the benefits of those actions.

A key part of that transformation has been our shift from an online-first model to a retailer-led commercial sales model. Today, we work with 235 sales points and 178 retail partners across 28 markets, and our retail footprint has expanded by 39% year-on-year. But this transformation is about much more than opening new locations. It's about working more closely with our partners, improving the customer experience and giving retailers a business model they can invest in with confidence.

We have also continued to strengthen the company's financial foundations. During the first half, we have enhanced our capital structure through new external equity funding, debt-to-equity conversion with Volvo Cars and Geely Sweden and the extension of the remaining Volvo Cars shareholder loan. These actions have increased our financial flexibility as we execute our strategy and prepare for upcoming launches.

Yesterday, we opened the order books for the new Polestar 4 SUV. As a sibling to our best-selling Polestar 4 coupe, it brings everything customers already love about the car to a broader audience. With vehicle-to-load capability, Google Gemini integration, one of the lowest carbon footprints in our portfolio and the price starting at EUR 57,900, it is a very compelling addition to our product range.

Over 900 cars are already on their way from the factory in Busan, South Korea, and customer deliveries will begin in the fourth quarter. We are also preparing for the imminent first customer deliveries of Polestar 5. Feedback from journalists who have driven the car has been exceptional. As our halo car, Polestar 5 embodies everything the brand stands for: design, performance, technology and sustainability. Simply put, it is a Polestar brand on wheels.

So while market conditions remain challenging, our priorities are clear. We are growing our retail business. We are improving our operational performance. We are strengthening our financial position. We are launching the strongest product portfolio in our history. The transformation of Polestar continues, and we remain focused on disciplined execution and building a stronger company for the long term.

With that, I'll hand over to Jean-Francois and look forward to taking your questions. Thank you.

Thank you, Michael. Good morning, good afternoon, everyone. Looking at the financial results for the first 6 months of 2026, operating loss reduced by 43%. In summary, these results were supported by carline mix evolution towards higher-margin models driven by Polestar 4, positive adjustment of net realizable value of inventory, except in the U.S., continued cost discipline measures and lower headcount spend and the net impairment expense recognized in the first half of 2025 with no impairment expense recognized in H1 2026.

These positive developments were offset by a number of adverse factors in the period, mainly continued pressure on pricing, lower sale of carbon credits, adverse foreign exchange movement, positive one-off in first half 2025 and material adjustments related to the U.S. restructuring measures. The U.S. material adjustment related to the decision by the U.S. Department of Commerce, Bureau of Industry and Security, the BIS, amounted to an estimated USD 130 million.

The impact regarding the U.S. operation is mainly recognized in the following areas: residual value guarantee cost within revenues, net realizable value of inventory within other cost of sale and organizational changes, impact on investment and suppliers, which are included in other operating expense. These are based on current estimates and information available as of the reporting date. Additional costs and charges may arise as further assessments are completed and the full effect of the BIS decision continue to develop.

Starting with the results for the first 6 months of 2026. Retail sales of over 30,400 cars were supported by the continued transition to an active selling model, retail sales network expansion and Polestar's attractive model lineup. Polestar 4 coupe remained our best-selling model, and it made up 2/3 of the volume. By geography, we saw particularly strong performance in Europe, led by the U.K., Germany and Southern Europe and in Asia Pacific by South Korea. Europe delivered 78% of our total volume.

Our U.S. business continued to be affected by higher tariffs and changes in the regulatory environment. In the first half 2026, the U.S. market represented 6% of our retail sales, down from 9% in the same period in 2025. In the period, we were active in 28 markets worldwide, including 17 in our key region of Europe. We launched sale in Estonia at the end of June with sales to start in 2 more Baltic countries, Latvia and Lithuania imminently.

In cooperation with our partners, we opened 24 new sale points and signed up 20 new retailers in the first half of 2026. Most of this expansion was in Europe. Revenue of USD 1.36 billion was 4% lower year-on-year. The positive effect from volume, carline mix and foreign exchange tailwinds was offset by significant pressure on pricing, residual value guarantee costs, mainly in the U.S. and related to the BIS decision and lower carbon credit sale of USD 52 million versus USD 72 million last year.

In addition, we recognized USD 4 million of carbon credit sale booked in other operating income compared to USD 18 million last year. The decrease in revenue related to sale of carbon credits primarily reflects the increased competition in EU, while the decrease in other operating income is mainly driven by regulatory changes in U.S. Gross margin was a negative 8% in the period, an improvement of 41 percentage points as the comparable period result was impacted by net impairment expense of USD 724 million.

Adjusted gross margin was a negative 9%. The key drivers impacting profitability negatively were lower revenue, growth in cost of sales due to higher production costs associated with the carline mix, EU and U.S. tariff impact, limited product cost reduction due to higher raw material costs and 2025 one-off positive item, which did not repeat in 2026. The profitability was further impacted by material adjustments included in the reported results, specifically adjustment of inventory to net realizable value in the U.S. related to the U.S. restructuring.

These negative key drivers were, however, partially offset by positive margin development due to the carline mix attributable to Polestar 4 and positive adjustment of inventory to net realizable value, excluding in the U.S. market. Selling, general and administrative expenses of USD 431 million were flat year-on-year. Savings in general and administrative expenses driven by continuous cost discipline and lower headcount spend were offset by higher sale agent remuneration and increased marketing activities following the launch in France in June 2025 and to the launch of the Polestar 5 in different markets.

Research and development expenses were USD 15 million, down from USD 31 million due to reduced headcount and spending on new program with higher capitalization rate compared to the prior period. Operating loss of USD 629 million and net loss of USD 842 million narrowed year-on-year, respectively, by 43% and 29%, mainly due to net impairment expense of USD 724 million recognized in the prior period. This development was mainly offset by factors previously mentioned and by foreign exchange headwinds and costs related to the U.S. restructuring related to the U.S. Polestar organizational changes, investment and suppliers impacting the other operating expenses.

Other operating income were as well impacted by lower sale of carbon credit, and H1 2025 positive one-off impact driven by the commercial termination of our operation in China in Polestar Times Technology Company. Higher finance expense and net foreign exchange losses on financial activities were further factors contributed to net loss.

Adjusted EBITDA loss for the first half of 2026 of USD 521 million increased year-on-year despite margin improvement due to model mix driven by Polestar 4 due to adverse evolution of profitability with adjusted gross loss in the period, which included the impact of the U.S. restructuring measures, H1 2025 positive one-off, unfavorable foreign exchange movement and negative other income effect, as previously mentioned.

If we look at the results of the second quarter, retail sales were close to 17,300 cars, a decrease of 4% year-on-year. Revenue was USD 727 million, down 8% year-on-year on lower volume, pressure on pricing, lower sale of carbon credit and residual value guarantee costs in the U.S. connected with the U.S. restructuring measures. Sale of carbon credit amounted to USD 36 million in Q2 2026 versus USD 42 million in Q2 2025. In Q2 2025, we also recorded USD 19 million of carbon credit sale in other operating income. Carbon credit sales are expected to follow the same pattern with revenue weighted towards the second half of the year.

Gross margin was negative at 13%, representing an improvement from the last year result of a negative margin of 97%, which reflected the net impairment expense of USD 724 million recognized in the second quarter 2025. Adjusted gross margin was a negative 13% from negative 6% last year. The lower margin was predominantly a result of lower revenues, adjustment of inventory to net realizable value in the U.S. due to the U.S. restructuring measures and Q2 2025 positive one-off impact. These were, however, partially offset by positive margin development due to the carline mix driven by Polestar 4 and positive adjustment of inventory to net realizable value, excluding in the U.S. market.

Net loss for the quarter was USD 459 million, an improvement of 55% compared to net loss of USD 1.027 billion a year earlier, mainly due to the fact that no impairment expense was recognized in the reporting period compared to a year ago. Adjusted EBITDA loss of USD 286 million compared to adjusted EBITDA loss of USD 206 million in the prior year period was due to adjusted gross loss results explained earlier, unfavorable foreign exchange movement and negative other operating income item.

These impacts were offset by lower selling, general and administrative expenses driven by cost discipline and reduced headcount despite higher sale agent remuneration due to the carline mix and lower net research and development expenses due to the reduced headcount and spending on new program with higher capitalization rate compared to the prior period.

On the funding of our operation and liquidity, we provided a detailed update at the full year results in April. Since then, Geely Sweden and Volvo Cars completed the conversion of approximately USD 640 million of loan outstanding to Polestar, including accrued interest into equity. In the meantime, Volvo Cars extended the maturity of its remaining shareholder loan of USD 660 million to December 2031. This transaction further strengthened our capital structure, reduced leverage and enhance our financial flexibility. It demonstrates as well the continued support of our key shareholders.

Also, Polestar was in compliance with all its covenants at the end of the second quarter 2026. Our cash position at the end of June 2026 was USD 888 million from USD 1.159 billion at the end of 2025. The change in cash position was primarily driven by operating cash outflow of USD 850 million, mainly reflecting the operating loss net of noncash adjustment, financial interest expense and a negative movement in working capital driven primarily by negative change in trade payables, partly offset by favorable movement in inventory and trade receivables.

Within investing outflow, capital expenditure amounted to USD 211 million and within positive net financing inflow of USD 769 million, primarily driven by the new equity proceeds of USD 700 million previously announced and a net increase in borrowing, partially offset by repayment of debt financing.

To conclude, I would like to reiterate our priorities in this challenging environment. First, driving growth through the active selling model, expanding sales network and by leveraging our attractive and broadened model lineup. As Michael mentioned earlier, we continue to make progress with Polestar 5 and Polestar 4 SUV. We have updated our volume guidance to low to mid-single-digit volume growth to reflect current market conditions, portfolio changes and our focus on quality growth.

Second, continuing to reduce losses and improve profitability through as well cost discipline, efficiency measures and a relentless focus on operational execution. Third, maintaining financial flexibility through disciplined working capital management, improved cash conversion and prudent capital allocation. Finally, continuing to strengthen our capital structure and securing appropriate sources of future funding.

Now I will hand over back to the operator.

[Operator Instructions] We will now take our first question from the line of Josh Young from Barclays.

Josh Young on for Dan Levy, Barclays. So first off, it's great to see the early looks at the Polestar 4 SUV. Are you able to share any early indications on how demand is trending as well as any learnings or maybe some enhancements this might translate -- how this might translate to other models and variants? And then similarly, what are the latest reads for the Polestar 5?

Yes. Thanks, Josh. Michael here for the question. Let me talk a little bit about the Polestar 4 SUV, which obviously we started with the launch yesterday and very, very good feedback. Why is it so positive? It's actually very simple. First of all, SUV trend is very strong, right? With that, the Polestar 4 really goes into the mainstream and where the big segment is, right? The coupe is always a bit in the niche, right? So that's a big, big improvement car, very well received, especially by fleet people, but also private demand.

But again, we just start with this, right? So early days, but very optimistic because the coupe was a little bit in the niche. Now with SUV, we go right into the sweet spot of the market. So very, very important car for us and early days, right? Polestar 5, also just at the beginning, obviously, very, very different segment, right? Also the role of the car is different. It's about positioning the brand. But also there, we get a lot of attention and start to deliver now the first cars and people obviously want to test drive the car, right? It's very unique. It's a very specific car, but both cars are, I see off to a very good start.

Okay. Great. And then as a brief follow-up, while it remains early, are you able to share volume expectations for 2027 or maybe just some broad puts and takes there?

Yes. Obviously, as we highlighted during this call, we have changed the guidance for 2026 because market conditions are slightly different, right? Obviously, for '27, we work through this. I mean the reason why we are cautiously optimistic for '27 is because the product lineup is different. As we have announced in February of this year, we obviously launched the Polestar 4 SUV as we were just talking about. But in addition to that, also the Polestar 2 successor. Both cars go right into the big segments of the market. The profit pools, the volume potential is much, much bigger and also both segments are growing.

So more to come on this, what that means in precise volume numbers. But obviously, it's a big shift from where Polestar was very much into niche segments, going into much bigger segments. Also there, we are doing the right things. Now it depends obviously on the market conditions, and will update on this further when we come to '27. But again, I want to highlight the importance of those 2 cars, which go right into the sweet spot of the market.

We will now take our next question from the line of Andres Sheppard from Cantor Fitzgerald.

I wanted to maybe follow up on one of the last questions there. As we look into next year now with the Polestar 4 SUV and Polestar 5, can you give us a sense of how are you thinking about unit mix for next year? Any kind of expectations there that you can mention?

Yes. Needless to say, Polestar 4 is our best seller. Also, if you look at the data for the first half of this year, increasing trends. Polestar 4 gets more and more the dominant role in terms of our portfolio. Now we add another variant to it. So you have the SUV and the coupe. Obviously, Polestar 4 will play the dominant role next year.

Then Polestar 2 to successor will also play a key role, obviously, then depending on the launch and the ramp-up and so on, which will be in the second half of the year. But clearly, then Polestar 2 will take a prominent role, whereas obviously, the Polestar 5 is very important for the brand and the positioning, but will be less important in terms of overall volume. Clear feedback, Polestar 4 with the 2 variants and Polestar 2 will be the dominant volume drivers in 2027.

Got it. That's super helpful. And maybe as a follow-up, just on liquidity. So now with the USD 888 million as of Q2, just can you remind us how are you thinking about capital needs and cash runway?

Yes. Thanks, Andres, for the question. As you know, we have set up at Polestar a record in terms of raising equity as we have raised USD 1.2 billion over the last 15 months. We have completed as well the debt-to-equity conversion from our shareholders for USD 640 million at the end of June. We have as well extended the maturity of a loan from one of our shareholders until 2031. During the first 6 months of 2026, we have renewed or increased USD 1.7 billion of banking facilities. Of course, it has contributed to increase the robustness of our balance sheet, improving the capital structure and also improving our liquidity position.

When we are looking at H2, as mentioned by Michael, so the Polestar 4 coupe and SUV will play a pivotal role, especially in terms of profitability as those are not only volume maker, but those are the most profitable car. When you look at the cash flow evolution, that will help in terms of net cash in, in addition to have a very strong working capital. But also I would like to point out the fact that in terms of CapEx spending, we have cut about 1/3 our CapEx spending.

So we should expect entering H2, I would say, a significant reduction in terms of cash burn, which has been quite driven by seasonality, especially coming back to Q1 2026. We are doing everything to cut our losses. We have a very exciting product launch addressing segment with the biggest volume, but also profitable pool. We are accelerating to cut those losses, reducing our needs. Of course, we are exploring any opportunity to improve our capital funding. But so far, there is nothing to call out on this matter.

Got it. Very helpful. If I could squeeze maybe one last one. Just on the U.S. restructuring and the decision by the Department of Commerce's Bureau of Industry. Is there an opportunity perhaps to appeal this decision or to -- is there an opportunity to perhaps have this decision change at all? Or just curious how you're thinking about it? Or is this now kind of final and moving on from 2027 onwards?

Yes. Thanks, Andres, for the question. We will not appeal and accept this decision. That means like we will sell model year '26 now in the U.S., but are not able to sell model year '27. Obviously, we'll continue with service and used car business in the U.S. We'll stay there, but we will not appeal that decision.

There are no further questions at this time. I would like to turn the conference back to Michael Lohscheller for closing remarks.

Yes. Thank you, everybody, for joining for this conference call in terms of Q2 and H1 results. Keep in touch and wish you a wonderful day. Talk to you soon. Bye-bye.

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

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 first quarter 2026. I am 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.

Thank you, Anna. Hello, everyone, and thank you for joining us today as we present our first quarter 2026 select financial and operational results. Looking at the first quarter, I'm pleased with what the team has delivered in terms of volume growth. In a very challenging market, we grew our volumes in the first quarter by 7% to over 13,100 cars, a record first quarter number for Polestar.

In Europe, we grew by 11%, and that now represents 78% of our total sales. It's especially encouraging that we are doing well in key markets such as: the U.K., where we grew by 20%; Germany, where we grew by 35%; and Sweden, where we grew by 17%. We also saw strong growth in South Korea and Australia, 2 markets where we enjoy a strong brand position and where Polestar 4 is proving to be a success. In the U.S.A., the EV market as a whole has been impacted by the removal of incentives, but the launch of Polestar 4 across North America has started well with strong media reviews and growing interest amongst customers, both in Canada and the U.S.A.

The last time we met, I referenced what we are all aware of: that the world around us continues to throw up challenges. This is reflected in our results for the first quarter: headwinds in the form of market conditions becoming more challenging, the impact of EU and U.S. tariffs and the overall seasonality of the quarter more than offsetting the steps we have taken to improve our cost base. Facing this reality, we have accelerated our business model transformation, changing our commercial setup by increasing retailer locations, evolving to a single group architecture, consolidating our manufacturing footprint to the regions in which we operate and creating a leaner organization.

The commercial transformation we started 18 months ago isn't just about growing our number of dealers. It is also about how we work with them. As an example, we have recently changed our setup with dealers in Germany. As a result, we now have more flexibility in how we operate in Europe's largest market. We have dealers with a clear incentive to sell more cars and agreed plans to grow our number of sales points in Germany from 12 to 30 by 2027. In total, we expect to end 2026 with approximately 250 sales points globally, up from 150 just over a year ago. This is a significant step for a young brand to take.

Expansion is, of course, an important element here, but equally important is a shift in locations. We are moving from smaller, often city center-based spaces to fully fledged dealerships located where customers go to test drives, making it easier for more people to experience our great cars and providing a natural destination for new car sales, service and pre-owned sales.

Since I joined, we have taken a lot of steps to reduce complexity in the organization and reduce our overall cost base. In total, these steps have resulted in a reduction in staff of about 25% to just approximately 1,700. We will continue to realize activity-based savings across the organization by identifying and implementing further leaner ways of working.

We are also working hard with our partners to realize efficiencies in our sourcing and manufacturing processes. The planned consolidation of Polestar 3 production in South Carolina, moving from 2 to 1 factory, will support these efforts further from the latter part of 2026. The same focus on efficiency gains is in place for Polestar 4, and adding a new variant to the lineup to be produced in the Busan, South Korea factory will further support those efforts as volumes continue to grow.

Regionalization of manufacturing is probably the most significant shift happening in the industry right now and one of the most important for our future success. This is why our decision to produce Polestar 7, the compact SUV, in Europe is so important. Rest assured that as market conditions continue to become more challenging, so will our focus on these topics.

Last week, we started the global media test drive for Polestar 5, and the reaction and feedback I got from my discussions with journalists confirms what a unique car this is. By having journalists drive from Sweden to the Sahara, we are really showing what this electric car can do. It's a real head turner with clean Scandinavian design, performance and sustainability that simply put, no one else offers.

The next step on our model offensive after the summer is the launch of the Polestar 4 SUV, followed by the all-new Polestar 2 successor early next year, addressing much wider segments with more customers and bigger profit pools. Our product offensive is in full swing.

With that said, I'll hand over to Jean-Francois and look forward to taking your questions in a few minutes. Thank you.

Thank you, Michael. Good morning, good afternoon, everyone. Our retail expansion is continuing, as Michael stated, driving the retail sale volume growth of 7% in the first quarter. Remember, we enjoyed strong quarterly growth last year, and so the comparison is harder this time, not least because of tougher pricing environment amid intensified competition.

If we look at the result of the first quarter, retail sales exceeded 13,100 cars, an increase of 7% year-on-year. Revenue was USD 633 million, broadly stable year-on-year. The key positive drivers were higher volume driven by Polestar 4 and positive foreign exchange impact from appreciation of pound sterling and euro against U.S. dollar. These positive drivers were, however, offset by pressure on pricing, the car line mix, which included fewer high-priced Polestar 3 cars, 9% versus 20% a year earlier, but higher contribution from Polestar 4 cars, 67% of the volume versus 49% a year earlier, and lower carbon credit sales in the quarter.

Carbon credit sales amounted to $21 million in Q1 '26 versus $29 million in Q1 2025. Carbon credit sales are expected to follow the same pattern as last year, with revenues weighted towards the second half of the year. And as mentioned during the full year results call, we expect carbon credit sales in 2026 in line with 2025 for the full year.

We continue to grow the proportion of Polestar 4 cars in the sales mix, and in line with our expectation, it supports profitability of our operations. Despite this continued development in the right direction, alongside volume growth and continued product cost reduction, gross margin was negative 3.2% and adjusted gross margin was negative 3.3%. The lower margin was predominantly a result of: pressure on pricing, EU and U.S. tariff impact, lower carbon credit sale in the quarter and Q1 2025 included positive one-off impact.

Net loss for the quarter was USD 383 million compared to net loss of $166 million a year earlier, mainly due to factors impacting gross margin and foreign exchange impact related to Chinese yuan movements in Q1 2026 on other operating and financing liabilities. At the same time, we continue to exercise strict cost discipline across SG&A. However, in the period, SG&A expenses were higher as sales agent remuneration increased proportionally with growth of volume and due to one-off personnel-related costs and timing of marketing events, while R&D costs were stable year-on-year. Adjusted EBITDA loss of $235 million compared to adjusted EBITDA loss of $96 million in the prior period was due to adjusted gross margin result explained earlier, increase in SG&A expenses and mainly negative foreign exchange movements on operating liabilities.

On the funding of our operation and liquidity, we provided a detailed picture at the full year results. We will report to the market in due course on the debt-to-equity conversion by Geely Sweden of approximately $300 million expected later this quarter, followed by the second debt-to-equity conversion by Volvo Cars of approximately $65 million. Polestar was in compliance with all its covenants at the end of the first quarter.

Our cash position at the end of March 2026 was approximately USD 676 million. The change in the cash position was primarily driven by higher adjusted EBITDA loss, net negative movement in working capital and net repayment of financing facilities. These elements were offset by equity proceeds in the first quarter of 2026. On the working capital movement, while inventory level reduced, this positive impact was more than offset by cash outflow from settlement of payables.

To conclude, I would like to reiterate our priorities in this challenging environment, which is made more difficult by expectation for lower economic growth and continued inflationary pressure due to recent geopolitical developments that are shaping consumer spending. First, driving growth through the active selling model, expanding sale network and by leveraging our attractive and growing model lineup, and we continue to make good progress on this front.

Second, improving processes, streamlining the organization and realizing further operational synergies. Structurally, Polestar is in significantly better shape today than 18 months ago, but there is still work to do. Third, extracting efficiencies and sustaining cost-cutting and financial discipline. We see tangible progress on product cost reduction and disciplined SG&A control, although this is a continuous drive across both the organization and in our engagement with suppliers and partners. And last but not least, focusing always on cash conversion, cycle management and exploring sources of future funding.

Now I will hand over back to the operator.

[Operator Instructions] We will now take our first question from the line of Anand Balaji of Cantor Fitzgerald.

This is Anand on for Andres at Cantor. Congrats on the quarter. So I was wondering, as you expand to the 250 sales points by the end of the year and you ramp up Polestar 4, maybe how should we think about the ASP and the mix trends throughout 2026, especially given these tariffs and intensified EV competition that you talked about on the call?

Yes. Thanks, Anand, for the question. So first of all, on the retail location, I think it's a linear development. We add every month, kind of the same number of locations, which is helpful because that brings us closer to the customer. Especially on the private retail channel, we want to improve.

And obviously, timing is very good because with the launch of the Polestar 4 SUV in the second half, we have then a much, much better footprint, right, going into this important part of the year. And maybe Jean-Francois, on the ASP level, you want to comment?

So yes, to complement, I think it's fair to say that those sales points are going to mature over the time. And with the current pump anxiety that we are seeing now, the private sales channel will develop. And we all know that this private sales channel, sorry, is less consuming in terms of discount. So normally, the average ASP should improve, so the profitability. And it should be even more true with the launch of the new Polestar 4 SUV, which will happen at the end of the year, which will be a new product with even less discount when it will be launched.

Got you. I appreciate the color. And maybe as a quick follow-up, as we look at the financials, can you talk a little bit about the balance sheet? Given the cash on hand and the burn, can you walk us through how you see the capital runway and the milestones on the path to free cash flow positivity?

Yes. So as we mentioned during the last call, so we had a cash burn in average of $120 million in 2025, showing a little progress versus 2024. But we mentioned that structurally, we are improving because profitability is improving. We are cutting the EBITDA loss. And we are improving the working cap, reducing the inventory. We did it significantly in 2025 compared to 2024. And as well in terms of CapEx, we mentioned that last year, we had some legacy CapEx cash out, which should reduce significantly entering 2026.

Now in terms of cash consumption and reduction of the cash balance at the end of Q1 '26, so this is under different effects. So first, the EBITDA loss, which is mostly driven by the seasonality. As you know, Q1 is usually a low quarter in terms of volumes, so it is not [ hope is ] to develop profitability. Then we had as well, some cash out payable. More important in Q1, driven by the activity we had in Q4. We had as well, some net repayment of some financing, but which has been offset as well by the proceeds of the new equity that we got.

But for me, the positive point still in Q1 is that when you're looking at the working cap, we are still making progress on managing the cash flow and inventory, which are reducing, and we're also optimizing the collection of our receivables. So it's going into the right direction. And looking for the next quarter with the seasonality, which will be more in our favor, profitability improving, our level of cash burn should improve.

[Operator Instructions] We will now take our next question from the line of Winnie Dong of Deutsche Bank.

I was wondering if just for the quarter itself on gross margin, can you help us dimensionalize the impacts from pricing pressure the EU and U.S. tariffs? And then there has been a number of tariff changes recently, including the IEEPA decision, which had credited that OEM some tariffs that were previously paid. Just curious if that's something that you would be benefiting from? And then overall, can you just remind us what is Polestar's tariff mitigation strategy as of late?

Yes. Maybe I start. Winnie, thanks for the question with the tariff mitigation because that's obviously a key topic, lots of uncertainty. And the principal idea is that we want to manufacture regionally, right? So where our customers are, best example is the U.S., right? So where we can use the Volvo plant in South Carolina and Charleston, manufacture cars there. Same obviously for Asia, and also our product strategy going forward with the Polestar 7 coming to Europe. So that's the best way to mitigate this, right? And obviously, this takes some time to set it up, but we try to be as flexible and agile as possible. Maybe then, Jean-Francois, a few comments on the tariffs?

Yes. Maybe some color regarding the evolution of the gross margin year-on-year. So indeed, as you know, the competition has significantly increased all over during the year 2025, so the pressure on the pricing. So when you compare the gross margin and the impact of the discount year-on-year, so it's really impacted the level of our gross margin.

When it comes about tariff, so we started the year 2025 with a high level of inventory, which was already custom clear. And for the cars that we sold in Q1 2025, the new tariff, which has been put in place late in 2024, was not impacting our sales in Q1 '25. But now that we are in a steady state, so it reflects as well, another impact.

Also, we had some negative impact due to less CO2 credit sales. But as we mentioned during the last call, so CO2 credit sales are expected to be in line with 2025 total sale of more than USD 210 million. So this is just, for me, a timing difference. Also, we should not forget that this Q1 is impacted by low seasonality. And then when we are comparing Q1 to Q4 2025, so this seasonality is impacting us, considering that Q4 '25 was quite heavy loaded in terms of CO2 credit sales for USD 88 million.

Okay. Got it. And then just a follow-up on the retail expansion. You're obviously going through a ramp right now. So I guess just curious, how maybe that's opening up the sales channels? And could this represent some upside to your low double-digit growth volume guidance for this year? Or is that more or less sort of embedded within that original outlook?

Yes. Thanks, Winnie. So we have considered that, obviously, in our volume projection because it's important to be closer to our customers. And the increased number of retail locations has two big important benefits. First one, we are closer to our private customers, right, because they want to go to physical stores, but also to smaller fleets, right? So this is really embedded and also one of the reasons in addition with our product lineup, which obviously is going to be much better and much more competitive going forward. But these two elements are embedded in our volume guidance we gave in February of this year.

[Operator Instructions] I'm showing no further questions. I'll now turn the conference back to Michael Lohscheller, CEO of Polestar, for his closing comments.

Yes. Thanks, everybody, for joining. I wish you a wonderful day, and obviously, speak to you very soon. Thank you, everybody.

Good day, and thank you for standing by. Welcome to the Polestar Fourth Quarter and Full Year 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. 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 fourth quarter and full year 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 option 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 as we present our full year 2025 results and provide an update on recent developments across the business. As you are all aware, world around us continues to throw up challenges, but we are making good progress, and we are focusing on delivering against our strategy. I want to update you on the most recent developments within technology, our financing situation and future model lineup expansion.

But before that, a few words on the year that just passed. 2025 was a record year for Polestar in terms of retail sales. We delivered over 60,100 cars during the year, in line with our guidance of 30% to 35% growth and a new record for our young brands, an achievement to be proud of given the competition and market conditions. 2025 was also a year in which we took significant steps to adapt our commercial strategy and footprint. An important foundation for our future growth and journey towards profitability.

We accelerated the expansion of our network of retailers by 50% from 140 to 210 retail sales points and have worked hard to improve our operational efficiency, whilst also preparing for the company's largest ever model offensive which we presented in February. During the fourth quarter, we made several announcements that reinforce our position as a technology leader in the EV segment. The upgraded model year '26 Polestar 3, which is being tested by the world's leading automotive media in the U.K. this week has received several upgrades, including an 800-volt architecture, this means our flagship SUV offers customers charging speeds of up to 350-kilowatt up to 500 kilowatts of power and 6% better efficiency.

It also has an upgraded NVIDIA processor, taking its computing power from 30 to 254 trillion operations per second. The same upgrade is also being offered to all existing Polestar 3 customers. We are the first OEM to integrate Google's Live Lane Guidance in our cars. It's already being rolled out to Polestar 4 for customers across the U.S. and Sweden with more to come. Further evidence of our strong relationship with Google came in November when we demoed Google's AI-based Gemini assistant in Polestar 5.

This service brings a whole new level of interaction and experience to our cars and it will be rolled out via over the air updates to existing Polestar customers. We have made solid progress on securing additional financing in the last month. Starting in December 2025 through a series of the 3 equity financing rounds, we have raised $1 billion of new external equity with the support of Geely Sweden Holdings. These placements strengthen our balance sheet and widen our shareholder base.

Concurrently, we have announced agreements with Volvo Cars and Geely Sweden Holdings for the conversion of approximately $640 million of shareholder loans to equity. These conversions once completed, will reinforce our liquidity profile and maintain Volvo Cars ownership in Polestar at approximately 19.9%. Both the equity finding rounds and the debt-to-equity conversions are a clear sign of the continued support that we enjoy from our major shareholders.

In February, we presented the details of our largest ever model lineup expansion with four new cars planned in the next 3 years. Polestar 5, our 4-door GT, which was presented during the end of last year is expected to start deliveries in the summer. This car sets a whole new standard in EV Performance segment, combining design, performance and luxury in a way that has never been done before. Later this year, we will bring a new variant of Polestar 4 to the market.

Our global best seller, which represented 65% of our deliveries in the first quarter of this year will bring even more versatility to an already incredible car. This will help us to address a wider segment and offer more customers an alternative based on their lifestyle and needs. First deliveries are expected to start in fourth quarter, with production for all markets taking place in Busan, South Korea.

Our next model will be the next-generation Polestar 2, the car that built Polestar's brand with over 190,000 Polestar 2 on the road, this car already has a huge following end customer base, which we have an opportunity to capitalize on. completely redesigned with the latest in drivetrain, battery and UX technology, Polestar 2 will play an important role in our future success. Our compact premium SUV Polestar 7, provides an attractive entry point to the brand, offering a level of performance and design that this segment lacks today. The pace at which we are developing and bringing those models to market is a testament to the value of our asset-light model.

Our ability to work in close collaboration with partners and the sign of our underlying ambitions for more profitable growth, targeting wider, more profitable segments. Before handing over to Jean-Francois for the financial details, I'd like to just spend a moment reflecting on the first quarter of this year 2026. Our sales team has worked incredibly hard to carry over our record performance in '25 into the start of this year.

Our retail sales in the first quarter totaled some 13,100 cars a record number for a first quarter, translating into a year-on-year growth of 7%. Europe remains our largest region, and we saw particularly strong sales increase in some of our most important markets, including the U.K., which grew by 20%, Sweden, which grew by 17% and Germany, which grew by 35%. Outside of Europe, we performed well across several markets, most notably in Australia and South Korea, two established markets that delivered strong growth.

In the U.S., changes to government policies have had a negative impact on EV demand in general. But the launch of Polestar 4 across North America is off to a good start with strong media reviews and good customer feedback. Growing at near double digits in the current market, given our relatively young age compared to the competition shows what's possible when you have an engaged and growing network of retailers, an established service network in great cars. Interest from existing and potential regional partners remains high, and we expect to grow our network to reach approximately 250 sales points by the end of this year, a growth of 20% compared to the end of 2025.

Market conditions are becoming more challenging amid ongoing geopolitical developments. But as I've said before, we are fully focused on proactively handling the issues and challenges that are within our control and building the stronger poster.

I'll hand now over to Jean-Francois and look forward to taking your questions in a few minutes. Thank you.

Thank you, Michael. Good morning, good afternoon, everyone. 2025 was a year of record retail sale for Polestar, as Michael highlighted. And consequently, we achieved substantial revenue growth and a near breakeven adjusted gross profit. We also made meaningful progress on cost discipline and organizational efficiency. And we improved our capital structure profile and liquidity position. This performance was delivered despite a challenging market, exerting pressure on pricing and a geopolitical environment that led to higher tariffs and duties in 2025.

Looking at the financial results for the full year 2025 and as preannounced, retail sale exceeded 60,000 cars. This represented an increase of 34% year-on-year in line with our growth target of 30% to 35%. The growth was driven by the continued transition to an active selling model and consequently, an accelerated retail sales network expansion, leveraging our attractive model lineup. Polestar 4 groups, best-selling model and it made up just over half of the volume.

By geography, we saw particularly strong performances in Europe, led by the U.K., Germany, Belgium, and the Nordic region and in Asia Pacific with South Korea. Europe, including the Nordics, delivers 78% of our total volume. Throughout last year, our U.S. business was challenged by higher tariffs, regulation and policy changes. For example, changes in regulation meant that value of compliance credits used by company to offset lower efficiency fleet decrease.

Furthermore, at the end of the third quarter, the tax credit for EV purchase expired. This market represented 7% of our retail sale, down from 14% in 2024. We operate in 28 countries worldwide, including 17 in our key regions of Europe. In cooperation with our partners, we opened 71 new sales points and sign up 54 new retailers in 2025.

Most of this expansion was in Europe. Volume growth and our offer of three models translated into significant revenue growth of 50% year-on-year to surpass $3 billion. The increase in revenue of over $1 billion was driven by higher volume effect of $559 million, higher revenue per vehicle as a result of favorable mix development of $271 million. Carbon credit revenue were higher by $181 million, under the new EU pool agreement.

However, these positive factors were partially offset by pressure on pricing. Of the total sale of carbon credit of $211 million, $192 million is booked in revenue and $19 million is booked in other operating income. We have achieved the target of a 3-digit million dollar amount in 2025 as we guided in January 2025 and expect a similar level in 2026. Gross margin was a negative 35% in 2025 due to impairment expenses of USD 1.1 billion for Polestar 2, Polestar 3 and internal development projects, which include Polestar 5. The key factors driving the impairment on changes in regulation and policies and tariff leading to higher production costs, mounting pressure on pricing and slower demand in the upper EV premium segment and competitive dynamics

Overall, adjusted gross margin, which excludes the impairment expenses and other unusual items, improved to a near breakeven level of negative 0.7% from a negative 12.5% a year ago. Positive developments contributing to the improvement of the adjusted gross margin were: first, a growing share of Polestar 4 and the improvement of geographical sales mix. Secondly, increase in carbon credit revenue of $181 million. Finally, continuous product cost reduction is being delivered through commercial negotiation and decompensing initiative, driving lower cost of material, contents and batteries.

Cost of sales, excluding impairment expenses increased in line with higher volume and related production. There was further impact of higher duties and tariffs. Selling, general and administrative expenses improved by $34 million compared to 2024. Headcount reduction of almost 25%, optimized marketing and administrative spending and overall cost discipline resulted in cost saving worth USD 100 million, a 12% decrease year-on-year.

However, this saving with SG&A expenses were partially offset by higher sales agent remuneration, which increased by $65 million, in line with higher sales volume. Research and development expenses were $78 million, up from USD 38 million in the prior year, driven by additional spending on new programs with a lower capitalization rate. In 2025, net loss results primarily reflect the impairment expenses. Adjusted EBITDA loss of $783 million narrowed by 27% or close to $300 million of improvement as we reached the near breakeven adjusted gross profit and optimize SG&A.

If we look at the result of the fourth quarter, retail sales exceeded 15,600 cars in the quarter, an increase of 27% compared with the fourth quarter of 2024. Revenue was USD 887 million, up 54% year-on-year, supported mainly by higher volume, a favorable model and channel mix evolution, carbon credit sale of USD 88 million, lower adjustment of residual value guarantee related to the North American markets and positive foreign exchange impact, partly offset by pressure on pricing.

Gross margin improved in the quarter year-on-year by 109 percentage points, but remained still negative at 38%, largely due to significantly lower impairment expenses of $340 million booked in the fourth quarter of 2025 compared to $622 million booked in the fourth quarter of 2024. Adjusted gross margin improved to a positive 2% versus negative margin of 39% in the comparable period, supported by a favorable product and geographical sales mix with proportion of Polestar 4 in the sales mix at 66%, of which 84% of Polestar 4 cars was sold in Europe. Higher carbon credit sale of $88 million versus $11 million in the comparable period and lower residual value guarantee adjustments related to the North America market.

The positive effects were partially offset by pressure on pricing and higher duties and tariffs. The net loss for the quarter was USD 799 million, an improvement of 32% compared to the prior year period, mainly due to factors explained earlier and lower impairment expenses in the quarter. Adjusted EBITDA improved substantially to negative $223 million compared with negative $470 million in the fourth quarter of 2024. This improvement was driven by adjusted gross profit turning from negative $224 million in the fourth quarter of '24 to positive $17 million in the fourth quarter of 2025.

On the funding of our operation and liquidity with strong support of Geely Holding, Polestar secured in total USD 1.2 billion of new equity investment from existing investors and external financial institution from June 2025 to March 2026. In June 2025, we raised $200 million of new equity from PSD Investment and existing investors and an entity that is controlled by Mr. Li Shufu, Founder and Chairman of Geely Holding Group. Since December '25, we have raised a further $1 billion from a number of institutions over 3 rounds. The share price at which these investments were raised was $19.34. Through this transaction, we broadened our shareholder base and improve our free float to over 40%.

Moreover, our partners, Geely Sweden and Volvo car agreed to convert into Polestar equity, approximately $639 million of the respective outstanding shareholder loan owned by Polestar under relevant agreement, of which Volvo car converted the first tranche into Polestar equity and the maturity of the remaining balance of the shareholder loan was extended to December 2031. Geely Sweden is expected to convert about $300 million into Polestar equity later this quarter.

After this event, Volvo car is expected to convert a further $65 million to maintain its shareholding in Polestar at 19.9%. This transaction, raising equity from existing and external sources and debt-to-equity conversion by our partners a major step towards enhancing our capital structure and liquidity position and helping Polestar to strengthen its balance sheet. We are grateful for the continued support shown by Geely Holding and their confidence in Polestar vision.

In terms of loan facilities in 2025, we secured about $1.6 billion worth of new 12 months term facilities and renew about $3 billion of existing 12-month term facilities. These facilities allow for efficient funding of Polestar operating and investing activities. Our cash position at the end of December 2025 was approximately USD 1.2 billion. We continuously engage in a constructive dialogue with our club loan lenders. Polestar exited the year in compliance with all its covenants and the club loan members agreed to amend covenants for 2026.

In terms of guidance for 2026, we reiterate low double-digit growth rate for retail sales volume with progress through the year and in line with seasonality. The sales mix will continue to evolve to include a greater share of Polestar 4 group. Our best-selling model and later in 2026, the new Polestar 4 variant, Polestar 4 SUV.

To conclude, our priority remain: first, driving growth through the active selling model and our expanding sales network and leveraging our attractive model lineup. Second, improving processes, streamlining the organization and finding further operational synergies; third, extracting efficiencies and sustaining cost cutting and financial discipline. And last but not least, focusing on cash conversion cycle management and exploring sources of future funding.

Now I will hand over back to the operator.

[Operator Instructions] We will now take the first question from the line of Andres Sheppard from Cantor Fitzgerald.

This is Anand on for Andres. Just to kick us off, maybe I was wondering how much of a headwind do you expect from tariffs and geopolitics given the significant manufacturing in China? And do you expect the plant in the U.S. and South Carolina to offset this a little bit? Can you give us some color there?

Yes. Thanks, Andres. So obviously, it's a time of uncertainty. That's fair to say, right? But I think the manufacturing footprint we set up is quite good because, obviously, as you know, we produce also in North America, also now in South Korea and in China, but there is uncertainty. And obviously, we'll make sure we try to balance this as best as we can. And that's also why then in the midterm, we want to localize more here in Europe, as we outlined, right?

The Polestar 7 as a compact SUV car coming then into a European facility. But I think we do the right things. We have flexibility and that's also why we consolidated the Polestar 3 in Charleston, right, to have one manufacturing footprint for the Polestar 3, but it's fair to say it's a time of uncertainty.

Got you. I appreciate the color. And separately, with autonomy really becoming a significant theme in EVs. I was wondering if you could talk to us about how you view the space and maybe remind us of what your autonomy plans are with Polestar?

Yes. I mean that's an important topic for us because obviously, we stand for innovation. We have documented several times, right? We brought innovations early to our cars. For example, the Google build in was one element. But autonomous driving is an important topic. It will not come overnight in steps. And that's why, for example, the partnership with Mobileye but also the access to the Geely ecosystem is important. So obviously, we will go to Level 2, Level 2+ and then go step by step.

But it's obvious a topic for the future because it makes life easier for consumers we see that, but it comes gradually. So not overnight and also not from Level 2 to Level 4, but it's something we are very focused on. And the good thing is that we have access to the technology through various partners, right? And it's a very dynamic field. And obviously, we also want to take a leading position there.

We will now take the next question from the line of Dan Levy from Barclays.

It's Josh on for Dan Levy. So I have one and then a follow-up. First question for you after the head count initiative last year. Can you just walk us through the latest cost initiatives and maybe the cadence of those?

Okay. So thanks, Dan, for the question. So indeed, we have achieved quite significant fixed cost reduction when it comes to head count in 2025. So we have decreased headcount by 25% which is a significant achievement. On top of that, we have optimized our marketing and communication spending. But I will say that we will continue as well to look at for more synergies moving forward.

But when it comes to cost reduction, also, I just would like to stop a bit on the product cost reduction where we have achieved also some relevant results in '25 compared to '24%, especially on the Polestar 4 where we have reduced the product cost reduction by low double-digit level year-over-year, which is a great achievement, not only in material but also in battery.

And of course, we don't want to stop here. We'll continue focusing on those product cost reductions through commercial negotiation, but also decontenting of our product while not compromising on the premium positioning. So I would say we are continuing marching. For us, it's very much important to improve, I would say, our cost, not only the product cost, but also our fixed costs. So we are well oriented entering 2026, but more to come on those two topics.

Great. And then just in terms of the latest outlook for monthly cash burn. Could you walk us through the puts and takes there and what we should keep in mind for this year and then going forward?

Yes. So in 2025, the level of cash burn is on average around USD 120 million per year. So I will say it's very similar to 2024. So one could say that we're not improving, but structurally, the cash burn is improving in a sense that we are improving our operating results. We have cut the losses when it comes to adjusted EBITDA by USD 300 million year-over-year, when you look at also the working capital, we have decreased significantly the level of inventory by around 7,000 new vehicle year-over-year.

However, this positive impact has been compensated by higher activity when it comes to receivable due to the increase of volume, but also higher cash out when it comes to our payables due to 2024 payable entering 2025. Also, it is fair to recognize that when you look at the level of indebtedness, we have a heavy weight in terms of financial interest. And also looking at the cash out related to our investing activities, we still had in 2025, a tail of cash out related to legacy program.

But entering 2026, so we are going to continue improving the operating results with all the actions that we have put in place with the improvement of the volume, sales mix but also offer action on the cost, as we just discussed, but also fair also to comment that due to the restructuring of our capital structure with the recent debt-to-equity conversion, the weight of financial interest in our operating cash flow will reduce.

Same as well for the CapEx cash out during the last Strategy Day on the 18th of February we reiterate the fact that we wanted to move on the unique platform strategy, and we wanted to rely also on Geely Group technologies. And of course, that's going to help us, I will say, to reduce CapEx cash out moving forward. So we are confident that the cash burn in 2026 should improve versus 2025.

There are no further questions at this time. I would now like to turn the conference back to Michael Lohscheller, Polestar CEO, to conclude the call.

Yes. Thanks, everybody, for joining, and we'll be in touch as we will review the Q1 results in 3 weeks' time together. So I wish you a wonderful day and talk to you soon. Bye-bye.

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

Hello, everyone, and welcome to this Strategy Update From Polestar. My name is Stephanie Johansen. And today, I'm joined by key members of the Polestar management to walk you through what is the company's biggest product offensive ever announced today, but already in full swing.

[Presentation]

So Michael, performance is what you deliver at Polestar. We sat together about a year ago, you laid out your plans for the company. How has 2025 gone?

2025 was a very exciting year a year of dedicated execution at Polestar. And we are doing the right things as Europe's only pure EV player, we deliver electric performance cars. The future is fun, beautiful and sustainable. And there are many customers appreciating our young Swedish brand. In a difficult environment, Polestar delivered the best sales year ever.

Globally, we grew by 34%. And in our home market, Europe, we grew over 50%. That is a very big success for our small team of less than 2,000 people working in 28 markets. I think we are the David of automotive industry competing with many Goliaths. So in conclusion, in 2025, we created a strong base from which to continue to build upon.

And I know changing your entire sales model and really building on your sales -- your retail sales network. That's been a huge focus area this year. How has that gone?

We, at Polestar, we deliver premium cars. This means customer experience is of highest importance. And dealers play a key role for our success. They are the face of our unique brand to customers. We transform from showing to active selling. More and more dealers invest into Polestar want to participate in our growth. We grew from 140 to 210 sales points in 2025, and we grow by 30% in 2026. And we have another big advantage to many of the EV competitors. Our Polestar customers have access to over 1,200 service points through the Volvo Cars service network.

And the next step on this journey, obviously, are the cars, the model lineup that's in store. So tell us about that.

Yes, at Polestar, it's our mission to deliver the performance cars of the future. And today, we already have over 230,000 cars on the road. That is a lot for a young brand from Sweden. But of course, we want more. And today, we announced the biggest product offensive in our history. Forecast plan within 3 years, more models, addressing wider segments, larger profit pools at record speed.

So let's go through one by one. Polestar 5, our four-door GT, our halo car deliveries expected to start this year in the summer. Polestar 4, our global bestseller with over 40,000 cars delivered in the last 2 years. Now we bring a new exciting variant to launch later this year and deliveries are expected already in the fourth quarter of 2026.

Polestar 2, the sedan that we built our brand up on lives on through completely redesigned successor planned to launch in early 2027. Polestar 7, our compact SUV planned to come in 2028. Polestar has the strongest model lineup of all EV brands, and I'm super excited. We will share later with our Head of Design, Philipp Romers, a few more details and teaser of the upcoming cars.

So looking then a little bit more into detail into the near future. You've talked about the changing sales model. We just heard about -- briefly about the new cars coming. What will the near future look like?

First off, we will continue to grow in a disciplined way. With this approach, we are targeting low double-digit volume growth in 2026. We expect to see improvements in channel and product mix. When we come to report 2025 full year results, we will speak about financial outlook using the 2025 results as a reference point, of course, and setting direction.

And Polestar is a very young brand. It's a fast-changing market. How big is this opportunity for you? And what position will you take in this EV transition?

It is a very big opportunity. There was never a better time to challenge the status quo in the automotive industry. And there are huge changes, electrification, software-defined vehicles, autonomous driving, AI features. We are really witnessing a historic disruptive time. We challenge the old industry with our Swedish design, our performance DNA and our uncompromised commitment to sustainability.

Many legacy brands sell cars to people who might buy already their last car. Polestar sales cars to customers who will shape the future. With an average age of 45, our customers are around 10 years younger than the ones of many competing premium OEMs. We are already outselling performance brands with over 75 years of heritage in EVs in Europe. And of course, that's just the start. With our product offensive, we make our premium brand now more accessible. Polestar is the future, and it happens right now.

It will be an exciting journey to follow. Thanks, Michael. Let's now move on to our next chapter, sustainability.

[Presentation]

Welcome, Fredrika.

Thank you.

As we just saw in the film, it all starts with sustainability at Polestar. But is that still true given everything that's going on in the world right now?

It's never been more true. Yes, there are powers who are trying to cling to the past and hinder progress. But this is really a sign of the transformation that is happening. And like Michael said, it's disruptive. We're seeing facts that can support this. I mean, renewable energy, renewable electricity overtook coal power last year. Right now, in Europe, there's more electrified cars sold than petrol ones. And there's also a global support among people all over the world for these solutions. There's a silent majority that we often talk about who wants us to take climate action.

So we are really here for them to show that we are sticking to what we have set out to do and that we can deliver clear solutions to them. And the solution that we, of course, want to talk about is electric cars. This is an impactful climate solution that we should all accelerate.

And how would you say all these ambitions are reflected in the cars themselves?

So that's when it gets exciting for us at Polestar because, of course, we love design. We're a design-driven company and a tech-driven company. So what we do in terms of sustainability is to really capture this in the car -- in the design of the car and the technologies in the car.

And it's also really important for us as a young growing company to show that we can decouple our growth from climate impact. And over the last few years, we've actually been able to cut emissions per sold car with 25% and this all comes down to the solutions that we make for our cars, for example, bringing in low-carbon metals, more recycled materials, also showing that we can open up our supply chains and make them more transparent through traceability. And all of this we want to show to our customers, this is relevant and important to them. So our focus is really on the cars.

And we at Polestar show what's possible. We create highly desirable performance cars. And you know what, you don't have to regret anything. The future can be fun and sustainable at the same time. And yes, some politicians and companies are scaling back on sustainability. Another reason for us at Polestar to accelerate.

Our brand has clear values and customers appreciate it a lot in a more and more confusing world. Customers want this and especially our younger customers. Sustainability is key in the private and even more in the fleet business. It's also an important differentiator when we recruit talent. We at Polestar are highly committed. It's our purpose to contribute to a sustainable future. And big thanks to Fredrika and her team, but also to all Polestar's out there. We are doing the right things.

And the company, I know had announced plans earlier to produce a climate-neutral car, the Polestar 0. What's the status on that?

So this is a very important project for us. And to my knowledge, it's a world unique project where we, as a car company, research and develop climate-neutral materials to be able to produce climate-neutral cars and in the end, reach our target that we have set. In 2040, we will become climate neutral as a company. And it's not only important for us in that sense, it's also really important for the industry as a whole. This will be the materials that we will use in a climate-neutral world.

And what we're doing right now is that the project is now housed within something that's called Mission 0 House. So we've opened up and created a more collaborative space where other partners can join in. We have 11 companies and organizations and institutions joining us now in the research. There are very hopeful things coming out. For example, SSAB, the Swedish steelmaker, who has been a part of the project for a long time, has actually put a close to climate-neutral steel on the market, SSAB Zero.

So this is what we want to do with the project. We want to create these solutions that we can use today, also really sharing hope that this is realistic and can be done. And we've also secured funding, USD 10 million that will enable us to do this work in the coming years. But in the end, we need more. We need more partners joining us. This is really a collaborative project. We cannot do it alone. So I really welcome others who want to participate and join in.

So you're well on your way, but collaboration is key to make this happen.

Yes.

Thank you so much, Fredrika.

Thank you.

Now let's move on to our next chapter, design.

[Presentation]

Welcome, Philipp. So just a little over a year into this new job. What can you tell us about the future design language of Polestar?

First of all, I'm super excited to be here today. But let's start with '25. In the first half, we thought about the strategy, how to move forward. And in the second half of '25, we executed already. And quite soon, we came to the conclusion that we aim for a bold evolution rather than a revolution for certain reasons. Polestar is still a quite young brand. It's all about brand awareness and consistency here. And so that's why we really aim for a bold evolution, but standing still is no option here. We want to emphasize a little bit our performance topic, of course, accompanied our other core values, design and sustainability.

So what does that mean then in practice?

I mean we have 4 areas in design, exterior, interior, color and trim and UI and UX. Starting with exterior design. Today's cars are quite robotic and characterful, which is good. And we aim for characterful cars, no question. But at the same time, we want to become a little bit more emotional, sensual, dynamic to express the topic of performance. That's one thing to go. And then also one area on exterior design is quite worth to mention here is the front because the front is a face of the car. And we have already our dual blade headlights in place, and that's quite a strong graphic.

And we will keep it, but we will integrate them differently into our front end. So you will clearly see that's the next generation, but at the same time, it's a Polestar. So that's exterior design. And then on the cabin side, we are well known for our clean Scandinavian interior design language, and we will keep it, of course. But in the same time, we want to become a bit more driver oriented in order also here to express the topic of performance. We will also bring back some buttons here in order to have the perfect balance between the digital and physical world.

Then, of course, the cabin is super dependent on materials. And we are well known here for our sustainable, innovative yet sophisticated materials, and we definitely will keep track here. But we want to make it a bit more expressive and colorful. That's the way forward in both interior and exterior design.

And then last but not least, UI/UX. We won lots of awards because we have such a straightforward customer experience here, and we don't want to overcomplicate here. But at the same time, we aim for a bit more personalization here and there and also latest technology, AI-driven brings some new ideas here. So overall, we have a plan also on this field. Yes, to sum it up, I'm super excited and also convinced that we have a very, very good plan. And this plan happens right now, and the cars are coming quite soon already.

Yes. And so let's talk about all these models that are coming. And as you mentioned earlier, Michael, Polestar 5 is the first one to hit the market. And I'm curious to know kind of what the reactions have been and what your thoughts are on this car.

Well, on the Polestar 5, we had fantastic reviews so far. Car experts literally fall in love with this performance GT. And of course, that includes myself, too. It is literally our brand on wheels because it combines what the Polestar brand absolutely stands for, design, performance and sustainability. And this car brings the Polestar brand to the next level.

And the next car to come, we're going to talk about the Polestar 4. There's a variant coming on it. It's already a global best seller. So what are your thoughts on this model?

The Polestar 4 coupé is a very big success. It has a very unique design language, great performance, and it has our lowest CO2 footprint with only 19.4 tons. The car won numerous awards and is our global best seller. With our new variant based on the same, intuitive technology, we will once again set new standards.

Philipp's design team and the product team did a magnificent job. Sweden is world famous for estates, and its SUVs are also world class, and we will combine the space of the estate and the versatility of an SUV with a dynamic performance that is Polestar. There is no car like this on the market, and we bring it in record speed. Produced in South Korea, designed in Sweden, launched later this year. Deliveries are expected already in the fourth quarter of 2026. And I am absolutely convinced this car will attract many new customers to our Polestar brand.

And the next car, we're going to talk about already coming in early 2027 is Polestar 2's successor, Philipp. And I'm so curious to know, is it just a facelift?

Oh, no, it's an entirely new car. And I would even say it will set new standards in its segment. I would say it's a perfect embodiment of the design philosophy I was just talking about. Maybe small story here. One of the first cars I drove at Polestar was a Polestar 2, and even in the BST version, so this was a special limited performance version. And of course, it impressed me heavily on its driving dynamics, but the overall look and feel was just quite stunning.

And overall, Polestar 2 is a very, very iconic car with its 3-box shape and the successor will be a super modern incarnation of this iconic car. And just to give you here also some hints already, of course, on the front, you will see for the first time our new face. Then of course, the car itself will be quite characterful yet sporty, and the interior will offer lots of driver orientation. So overall, it's really, really a good product, and it's happening quite soon.

Philipp and the team have done a great job. Since the day I joined, the ambition was to bring a Polestar 2 successor. And why is that? Because we delivered over 190,000 Polestar 2 so far. This car wrote history and not just for our brand, it was the first car with Google built-in. This car made our brand known to the world. It has a very enthusiastic community. We will deliver the current model until the end of this year.

It was very clear. This successor needs to be very special. So we worked incredibly hard to bring in a successor as fast as possible. From the decision till launch under 30 months, that is absolutely record speed. The launch is planned already beginning of the year next year 2027. I would summarize it. The first Polestar 2 made us known, the Polestar 2 successor will play a key role for our future success.

And there's more to come. We have one more model to talk about today, which is Polestar 7, Michael. So what role will it play in the lineup?

Polestar 7 plays a very important role in our lineup. And why is that? What cars are most customers searching and buying? The answer is compact SUVs. No segment is growing faster on a global scale. And we at Polestar, we don't build cars for ourselves. We want to create sustainable impact for our customers. We are convinced that we can offer something very special to this customer group.

Our teams are working on a stunning premium compact SUV, which will challenge many competitors in their backyards with our Swedish design, our performance capabilities and sustainability DNA, and it will be built in our home market Europe, planned to be launched in 2028.

Enough teasing from my side. I guess, Philipp, you want to tease a bit more?

Of course, I'm also excited to tease something here. I mean, applying our design language on this segment is super exciting. You mentioned it, Polestar 7 will be a quite special characterful yet good-looking compact SUV and the perfect embodiment of our class-leading driving dynamics, both in exterior and also interior. Of course, you can imagine drive orientation next level here with latest technology. So probably more on that next time.

So we look forward to that.

Okay.

So summing up then, Michael. 4 models in just such a short period of time. How will this position Polestar?

We are Europe's only pure EV player in pole position for success. We have strong retailers for a premium customer experience and will further extend our sales points. We have a world-class service network around the globe, thanks to Volvo cars. We have access to the most innovative technology in record speed. We already have software-defined vehicles on the road, getting better through over-the-air updates. Also in the areas of battery, AI or autonomous driving, we will bring leading technology very fast. We have strong support from our shareholders, and we just delivered the best sales year ever in a challenging environment and are aiming to deliver another record year.

Our young Swedish brand built around design, performance and sustainability is challenging the status quo. Brand awareness is rising fast. We have an international top management team here in our headquarters in Gothenburg from U.K., France, Germany, China and Sweden. I live now in Sweden for 1.5 years. And yes, sometimes it's a bit dark and cold, but I learn a lot. It's a big advantage to be based in this innovative environment. And I understand today much better where this country is so successful in building sustainable businesses and at the same time, keeping its society much happier than other countries. This is a very unique mindset.

Sweden is well known for challenges, and I don't just mean personalities like Pippi Longstocking or Zlatan Ibrahimovic. There are many Swedish challenger brands, which worked very hard, open-minded for innovation and competition and ended up as global success cases. And I tell you, Polestar will be the next on this list. With that, thank you very much.

And thank you, Michael, and thank you, Philipp. That brings us to the end of our strategy update. We're going to move on to the Q&A. So please place your questions in the chat. But first, we'll begin with our analyst Q&A. Please take it over, operator.

Hello, everyone. I'm Anna Gavrilova, Head of Investor Relations at Polestar. Before we start the Q&A session, I would like to remind participants that some of our comments during today's strategy update may be considered forward-looking statements under the U.S. federal securities laws and are subject to numerous risks and uncertainties that may cause actual results to differ materially from what has been communicated. These forward-looking statements include, but are not limited to, planned vehicle launches, estimated sales growth, sales channel and volume mix and target expectations, 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.

Now I turn the event to the operator to open the Q&A session.

[Operator Instructions] Our first question comes from the line of Giacomo Reghelin from Bloomberg Intelligence.

I have 2 quick questions. One, the first 1 is about Polestar 7. In this in this environment of rising competition, I was wondering what is the expected volume contribution of the Polestar 7? And if you can give any guidance on the pricing point of the car. And then the second question is if you can comment on the development of the plant in South Korea? And give any color on the production capacity, especially the capacity expected to be exported in Europe?

Thanks for the question. So let's start with Polestar 7. As we discussed, the biggest segment, probably in the market and also the fastest-growing segment. So the likelihood that this car will do very well in terms of volume is very high. But the same is true also for the cars we also unveiled and announced today the Polestar 2 successor and also the Polestar 4 variant.

So we think the segment size is big. And obviously, we want to get our fair share. In terms of pricing. Obviously, too early to announce detailed pricing at this stage, while the car comes in 2028. But we see that this car has a clear role as it is the entry into our brand, right? So it's a good start for the brand, so it will have an attractive pricing. And again, the SUV, the compact SUV segment is one of the largest profit pools, and that's why we are so excited to go right into that. And the same is true for Polestar 2 successor and Polestar 4.

In terms of manufacturing plants, South Korea, obviously, as you know, we have a global manufacturing footprint we produce in the U.S. in the Volvo plant. We produce in China, and we also produce in South Korea, and we already produced today, the current version of Polestar 4 for the North American market. This factory is super competitive in terms of efficiency, but also in terms of quality. So we feel very good about the launch of the new variant of Polestar 4 than going to the different markets. And we are very flexible and very agile. So those are the 2 feedbacks on the Polestar 7 and the manufacturing question.

We'll now move on to our next question. Our next question comes from the line of Camille Obeid from Bank of America.

I hope you can hear me, Camille Obeid from Bank of America here. So I have 2 questions, please. The first 1 is regarding to -- with every single model, there are new advancements, I suppose the FDV with the Polestar 3, and now you had the return of physical buttons that was announced recently. So with that in mind, what are the main developments going forward? How do you reconcile them? And what are the CapEx implications of those?

And my second question is the main message that I hear here is volume growth. It's the key. And with that in mind, what would be the volume breakeven point, which I think you mentioned at our conference back in September would be around 100,000. Did that number changed? And to reach that number did -- what are the new advancements you expect with the changes of regulations that have been going on in recent months?

Yes. Thanks for the 2 questions. So first of all, in terms of the direction with regard to our product, I think, first of all, it's to highlight again, we focus very much on software-defined vehicles because that is the future. You can do many things once you have a core compute, you can do over the updates, customers very, very much love that. So that's the digital side, and I think that's really the future. At the same time, we want to find the optimal balance in terms also with physical buttons because we want to make sure that customers really feel at ease while they are sitting in the car.

And it's important that we find that balance, and that's why Philipp quite rightly highlighted, we will bring some buttons back, and that is being based on customer research and feedback. And of course, with regard to the overall product strategy, the fact that we go on group architecture makes us more efficient, right? And that's a very big benefit for us going forward because we can always then use group architectures as a basis while we then combine it with a Polestar DNA.

In terms of volume, yes, it is correct that I did say I feel better being above 100,000 then below, but that is not with regard to the breakeven we will guide separately then when we come to closer events on that side. But of course, we go now right into the big segments of the EV market. That is a big difference and a big new chapter for Polestar, right? And that's why, obviously, volume growth is important. 2026 is the first step. But then, of course, more to come. But I think it's very, very good news for Polestar that we go now right into the sweet spot of the EV market in the segments which are the biggest and also have the fastest growth rates in particular here in Europe.

We'll now move on to our next question. Our next question comes from the line of Andres Sheppard from Cantor Fitzgerald.

It's Anand, on for Andres. I was wondering as we see autonomy emerging as more of a theme in EVs. My question is, are there any plans to ramp up this technology with Polestar and monetize it?

Andres (sic) [ Anand ], thanks for the question. It is a key aspect of our business, and I think a key trend in the industry. And customers really appreciate that because it has to do with convenience but also safety. And it fits also very well because on the one hand, we say quite rightly, we are performance brand and our cars absolutely demonstrate that. But there are occasions for customers where, let's say, a higher level of autonomy is very helpful is desired.

And especially on our best-selling car, the Polestar 4, we have a cooperation with Mobileye as just one example. It shows we put a lot of focus on that, and we will share more details on that when we come closer to the launch of the new cars, but please understand that we don't want to talk about that already now. But autonomous driving is a key topic for us going forward.

Got you. And as a follow-up, as you ramp up and roll out these new models, I was wondering if you can remind us on your liquidity status, cash burn and run rate? And what are your near-term capital needs in order to get these models going?

Yes. So first of all, I mean, I'm sure you saw that we raised [ 700 million ] now in 2 rounds in '25 and '26. I think a great signal of support from our shareholders. And obviously, we are executing on our plan while we go in this quarter and the next quarter, and we will give more color when we come to next events and obviously, when we also highlight the financial results for '25.

There are no other audio questions at this time. So I'll hand the call back to Stephanie for any written questions.

Thank you so much. Operator, let's now go to the questions from the chat.

We have a question from Denmark for Fredrika and Michael, and this is about greenhouse gases. You've delivered a 25% reduction in greenhouse gases per car over 5 years. What are the next major steps that could drive a similar reduction.

So I mean, I've been talking about Mission 0 house and what we need to do to get to net-zero, but I really want to share with you a very hopeful message that we can cut the emissions right now. I'm not saying that it's not challenging, but we can do it. And it boils down to really understanding what are the major levers when you produce a car.

So we've been focusing on aluminum and the batteries, securing renewable energy to the production of those components and materials. Going forward, we know there is a huge potential in steel and also increasing recycled content throughout the car will have a major benefit for the -- for our greenhouse gas emissions. Beyond that, we also need to see a greening of the charging grid. And here, we see a positive trend to say the least, on all of our markets, which really fits into our company's greenhouse gas emissions.

So this is where we, of course, want to support that trend with vehicle-to-grid, this is a technology that we are exploring, which will have an amazing impact. And I usually say that while an e-fuel car would suck the energy out of the grid, electric car with vehicle-to-grid capability really supports electricity system going forward. So a lot to do now that we can take action on.

And I think if I may add to Fredrika's point. I mean, super exciting to work on these innovations like vehicle-to-grid just one example, right? I mean this could change so many things. And we see our customers appreciate that a lot. It's very relevant, especially for fleet customers, but also for private. So we continue and execute, right? While everybody else is maybe talking somewhat differently, we accelerate our efforts and we get a lot of positive feedback from our customers.

Okay. Michael, next one to you. There hasn't been any mention of Polestar 3 today. So what role will that car play for you in the future?

Very important role. And I think it's fair to say, we have launched the car successfully. Now we come to a model year update, where we actually bring new technology into the car. The 800-volt technology is a very prominent example. So Polestar 3 plays a key role in our portfolio because it's absolutely a sports premium SUV. It has established itself in the segment. It's globally an important car.

And of course, now also with model year new technology, we can go to the next phase, right? So many new things come into this car and it's exciting, right? And the reason why I haven't talked about this today because I mean, we have so many new cars, but Polestar 3 is really the heart of the premium positioning of Polestar and gets more popular everyday.

Okay. And the next question, a technology question. Will you continue to use Android automotive in your future car models?

Yes, that is what we have planned for the future models. And yes, we will continue with that.

Okay. Next one. We've got a few questions from 3 separate outlets on the Polestar 2 successor, maybe start with you, Philipp. How recognizable will the interior design be compared to the predecessor?

I mean maybe it's too early to talk here in details. But I mean, already today, the Polestar 2 is quite driver oriented. And I mean you can be sure that the successor will take the next steps here, really enhancing the topic of performance. So we aim for really making progress here on this quite iconic elements of today's Polestar 2. You can be sure, in both exterior and interior.

And Michael, then to you about the Polestar 2, will it be the new best seller? Or do you think Polestar 4 will continue to be your best seller throughout 2027 is the question?

Well, I think we have actually 3 good candidates for the best seller and all presented today. It is the Polestar 7 we talked about earlier in the discussion. It can also be the Polestar 2 and obviously, it can also be the Polestar 4. I don't know, customers will decide, but while we laugh a little bit about it, the serious message and the important message is, again, we go right into the big segments, the big profit pools where the growth is, and that's the new direction of Polestar, and I think we will benefit a lot from that.

Just to give you a few data points, which are easy to remember. So today, Polestar is operating in 25% of the entire BEV market. In future, with the cars we have presented today and will launch now within the next years, we will have a segment coverage of 55%. So that is more than double. That actually shows we go into the key segments of the market. And therefore, we think that we can grow and we can grow in a very profitable way.

And this is about sales. We'll continue here. Nearly 80% of your sales come from Europe. Will that be the same in 2026?

I think it's very likely that it continues in this directly because what we do in Europe is very successful, a very prominent example is we just set up the business in France. We have 13 new dealers in France, all Volvo dealers, they also do the service. And we can replicate the success from other countries quickly in other European markets.

And all forecast institutions show that the BEV market in Europe continues to grow. So it's likely that European sales will continue to do very well. But the U.S. is also in North America, it's a big chance for us because we are just -- while we speak, launching the Polestar 4, which is coming to the market, early indications give very good feedback. So while Europe is our key market, North America will stay important. And then also, we have other markets like Korea, Australia, which do exceptionally well. So in total, we have 28 markets, but yes, Europe will stay the key market for us.

And a question from the U.K. media for you, Michael, a follow-up question about sales, but about the retail sales points. What total number of retail sales points are you targeting?

Yes. So as we said this today, so we came from 140, we went to 210 by the end of '25. We target another 30% growth in '26. But overall, I would think we come up to 350, 400 points globally. And it depends market by market, and it's not the sheer number, it's the quality and really the performance of the dealers.

I would highlight one more time, it works extremely well working with Volvo dealers because for them, it did an additional franchise, they can do the service together. There's very little cannibalization between the 2 brands because they are very well positioned, very well separated. But there are other markets where I think we will grow the number of sales point sharply. For example, Germany is a good important market. very competitive market, very high number of premium customers. And there, we will increase the number of sales points a lot.

But I think overall, we will see further growth, but at the end of the day, it's about the quality and the performance of the dealers.

Okay. And I see we're running out of time. So let's have as a final question then to you, Michael. How will you make sure to keep the Polestar driving characteristics in your future models, given that you're working more and more with development partners.

Yes. I think we saw that very clearly in Philipp's fantastic presentation, starting with the design, what we really want to have, what is our Polestar DNA. And obviously, we make sure that we integrate that in our platforms, right? That includes chassis tuning, the whole driving dynamics, and this works exceptionally well.

The Polestar 4 is the prime model documenting that we can do this very, very well. That's our DNA. We will continue to do that. But we don't have to do everything ourselves, right? And I think that's also the future of the automotive industry, and we will lead the way here.

Great way to finish off. Thank you so much to all of you today, and thank you to all of you for joining us today for this Polestar Strategy Update.

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 9 months of 2025. I'm joined by Michael Lohscheller, Polestar's CEO; and Jean-François 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. 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. 9 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 9 months of the year.

The pace of retail expansion remains high. And in the month 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 9 months of the year. Revenue grew by 36% in the third quarter and by 49% in the first 9 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 9 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 coupe 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.

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 9 months of 2025 demonstrate strong commercial performance at the top line. However, significant external headwinds, notably tariff and pricing pressure, continued to impact profitability, including in the third quarter.

Looking at the financial results for the first 9 months of 2025, retail sale volume as preannounced 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 APAC, led by South Korea. The U.S. market remained 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 9 months of 2025 from 16% in 2024.

We operate in 28 countries worldwide, including now in France launched 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 sale points. As a result, revenue grew by 49% to about USD 2.2 billion in the first 9 months of 2025. The drivers were: first, higher sale volume and a growing share of higher-priced model, Polestar 3 and Polestar 4 in the sales mix. Second, carbon credit sale amounted to $104 million under the new EU pooling agreement versus sale of below $1 million for the same period in 2024. Another $19 million is booked in other operating income.

In this context, we have already hit our target of a 3-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 incurred costs related to the residual value guarantee in the North American market. The adjusted gross margin improved by 0.3 percentage points to a negative 1.8%. The evolving product and geographical sales 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 residual 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 Geely 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 sales agency remuneration linked to growing sales volume. Briefly touching on the reported figures. Gross margin of negative 34% and net loss of USD 1.6 billion 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 priced Polestar 3 and Polestar 4 model in the mix and carbon credit sale. This was partially offset by pressure on pricing and residual 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 negative 6%, a deterioration of 5 percentage points was a result of: first, pressure on pricing; second, tariff; third, adverse mix effect from the 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 residual 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 were only partially compensated by a reduction of SG&A expenses. On the funding of our operation and liquidity, during the first 9 months of this year, we raised $200 million of new equity from PSD Investments Limited, an entity that is controlled by Mr. Eric Li, Founder and Chairman of Geely Holding Group. And 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 covenants as of 30 September 2025. With the support from Geely Holding 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 depository shares to ordinary share, which is currently 1:1. 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. And last but not least, securing new equity funding.

Now I will hand over back to the operator.

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

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 a pressure on pricing. So I wonder if you can just give us some -- a bit more detail on the puts and takes.

Winnie, so thanks for your question. So I think that you want to bridge the walk between Q3 gross margin and Q2 gross margin. So the result of Q3 has been clearly disappointing for us. So first, we are continuing suffering pricing pressure on our vehicle in addition to have higher cost of production due to the duties. But in addition to that, also 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 compensating part of those negative impacts by continuing reducing product cost reduction, but also reducing fixed costs.

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 mix -- 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.

Okay. And then second, 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.

Yes. So I will not comment into the detail about Q3. But as you know, so we realized quite significant decrease of our fixed costs, especially at the end of H1 compared to last year at around minus 10%. Those decreases are coming, I would say, from two main levers. The first one, this is the optimization of our marketing expenses, which is coming from, I would say, less also production. But also the second lever is mainly driven by the reduction of the headcount. So we are still marching in consolidating our organization, realizing some efficiencies and synergies. We started the year with 2,500 headcount, and we still have the objective to reach 2,000 headcount by the year-end. And I would say that looking at Q3 and looking at Q4, so we want to accelerate on those levers. And I think that we have a good momentum entering Q4 now.

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

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.

Sure. Happy to do that, Tobias. So 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, because we try to localize as much as we can. At the same time, also parts then from Mexico, for example, have duties. So it's a good setup, but obviously 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. And that, I think, 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? But it's a complicated world, as you say, because duties change quite a bit. But we feel with the 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. So I hope that answers your questions.

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

Yes, that is an opportunity for us as well. At the same time, we also have opportunities to produce it in China. And 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.

Okay. Understood. 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?

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

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

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

Our next question comes from the line of Andres Sheppard from Cantor.

I was wondering maybe we could get an update on capital needs and liquidity. If you can 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?

Okay. Thanks, Andres, for the question. So in term of cash burn and as I commented it in H1, so for the first semester, we have a monthly cash burn of around USD 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 or cash out related to legacy CapEx. But clearly, compared to last year, if I'm looking at the normalized cash burn, so 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. So we demonstrated at the end of H1 that we have collected the level of inventory at 40,000 units for more than 22,000, 23,000 units at the end of December.

And 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. So I think that we are in a good track to improve the level of cash burn, but still, unfortunately, we are burning more cash as planned because we have faced so the increase of tariffs, more challenging market context, which has deteriorated our profitability.

Now when it comes to, I would say, our funding needs. So as you are aware, so we have raised USD 200 million new equity coming from PSD Investments Company, which is owned by Mr. Li Shufu, who is the Founder and Chairman of Geely Group. And based -- and following to this new equity, we are working actively and always with a positive mindset with Geely 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 Geely Group about supporting Polestar, but also the willingness that further will come.

So we are completely aligned with Geely 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.

Wonderful. That's very helpful. I appreciate all that color. And maybe one for Michael. I'm wondering if you could 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?

Yes, 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. So I mean, our customers are really performance drivers in general. But of course, we can combine these two things, right, and have 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.

So 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. So more to come on that. Thanks for the question.

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

Yes. Thank you, everybody. So this concludes our earnings call. So thank you for joining. Wish you a wonderful day, and keep in touch. Thank you, everybody.

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 and Polestar 3. Like its siblings, Polestar 4 benefits from regular over-the-air updates, improving the car and adding new features on a regular basis. Polestar 3 recently set a Guinness World Record traveling 935 kilometers on 1 charge around Southeast England, reaffirming our view that there is no reason for range anxiety. Polestar Charge now offers access to over 1 million charge points across Europe, making owning and driving a Polestar even easier.

The next big thing is Polestar 5. This car is our brand shaper. It showcases what Polestar is all about. And we are very excited about the launch on September 8 at IAA in Munich. I can tell you that we have completed the first VIP media test drives in the past weeks. The reactions of the journalists speak for themselves. With this car, we can compete with legacy performance brands. Let me tell you, this car is amazing, a 4-seat Grand Tourer with amazing power, precise handling and sustainable materials. For those of you coming to IAA, make sure to visit our booth so you can experience this incredible car for yourself.

Looking slightly further ahead, we have recently announced that our next model Polestar 7 will be manufactured in Kosice, Slovakia together with our manufacturing and development partner, Volvo Cars. More to come about this in the future, but for now, this is a very important milestone for us, being able to manufacture a car in Europe. This compact SUV targets the fastest-growing segment in our industry and is expected to launch in 2028.

Looking back at the last few months, I am pleased with the operational improvements and developments that our team have delivered in a very challenging market. In light of these conditions, we have identified further actions to accelerate our strategic journey, finding additional efficiencies and improvement. The ambitions set out in the strategic plan announced in January are reliant on 3 main components: increasing our sales through a transformation of our commercial operations, enhancing our operating efficiency and cost discipline and improving our cash position.

Our active selling model is now implemented with existing and new partners across all major markets. Compared to the end of Q2 last year, we have grown our number of sales points excluding China, by 40% to 169, and this number will continue to grow during the coming months into the next year. We still offer our cars online which some customers prefer, but our growth ambitions would not be attainable without growing our network of dealers. In summary, despite the well-known geopolitical and market challenges, our financial results for the first half of the year show that we are on the right track and doing the right things.

We grew our retail sales by 51%. Our revenue was up 56% to $1.4 billion. Our adjusted gross margin, excluding the announced impairment is positive and has improved year-over-year. Our CO2 sales for 2025 are up and expected to be in line with our announced target. Thanks to commercial initiatives and lower material costs, including for batteries, we are seeing a reduction in production costs. Marketing spend has been optimized in line with planned activities and workforce and organizational structure changes are being made. There is still a lot to do but we are successfully implementing our plan and doing the right things.

With that, I'll end my opening remarks and hand over to Jean-Francois.

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 grew by 56% to USD 1.4 billion in H1, driven by higher sales volume and a growing share of higher-priced Polestar 3 and Polestar 4 models. Carbon credit sale amounted to $90 million from almost no sale a year earlier under the new EU pooling agreement and sale in the U.S. Of $90 million, $72 million is booked in revenue and $80 million is booked in other operating income. Committed carbon credit sales are reasonably derisked for the second half of the year. And clearly, we are on track to achieve a 3-digit $100 million amount in 2025 as we guided in January.

Gross margin was negative at 49% in the first half of the year due to an impairment expense of $739 million for Polestar 3 assets booked in the second quarter. The key factors driving the impairments are an increase in production costs resulting from new tariffs on parts for cars to be assembled in the U.S. and mounting pressure on pricing. These factors significantly impact current and forecast volume and profitability of Polestar 3.

Overall, the adjusted gross margin, which excludes the impairment expense, improved to a positive 1.4% in the first 6 months from a negative 2.6% a year ago. Despite higher tariffs year-on-year, a growing share of Polestar 3 and Polestar 4 in the geographical sales mix contributes to gross margin improvement. In addition, continuous product cost reduction delivered through commercial initiatives and the lower cost of material and batteries contribute to offset partially external headwinds. The carbon credit sale contributed positively to Polestar's profitability.

Selling, general and administrative expenses, excluding the sale agency remuneration decreased by $49 million year-on-year, that is to say by 12%, reflecting mainly optimized marketing and advertising costs and reduction in administrative costs resulting from cost discipline and organizational restructuring with reduced headcount. Research and development costs were higher by $7 million year-on-year due to a lower capitalization rate in the period.

For the first 6 months of 2025, net loss results primarily reflect the impairment expense. Adjusted EBITDA loss of $302 million narrowed by 30%, reflecting the improvement at the top line and adjusted gross margin as well as enhanced operating efficiencies and cost discipline and higher other operating income, including positive FX impact. If we look at the result of the second quarter, the quarter-on-quarter development merit explanation when looking at the revenue and the adjusted gross margin.

Retail sales grew by 47% compared to the first quarter. Revenue increased 25%, driven mainly by higher volume, partially offset by mounting pressure on pricing and a different sales mix. The sales mix compared to the first quarter was affected by 2 factors: first, more Polestar 2 cars were sold reflecting demand; and second, the channel mix with more internal sale vehicle to promote Polestar 3 and Polestar 4 and to support the expansion of our retail network. Sales of carbon credits were $41 million in the second quarter and $31 million in the first one.

Gross margin include impairment expense. Adjusted gross margin was a negative 5.7%, lower by 16 points quarter-on-quarter. First, we faced an intensifying competitive pricing environment. Second, we sold more Polestar 2 cars due to demand. Third, the cost of sales increased due to tariffs. And finally, there was a negative adjustment to inventory net realizable value. Net loss in the second quarter is primarily a result of the impairment expense. Adjusted EBITDA loss of $216 million increased compared to the result in the first quarter, mainly due to negative evolution of the adjusted gross margin. Entering the second half of the year, we are focusing on the following measures: rebalancing the product and channel mix, leveraging, for example, the launch of Polestar 4 in North America, targeting further cost reduction, especially in product cost and capitalizing on further sale of carbon credits.

On the funding of our operation and liquidity, we are pleased to have raised $200 million of new equity from PSD Investments, an existing investor and an entity that is controlled by Mr. Li Shufu, Founder and Chairman of Geely Holding Group. In terms of loan facilities, we succeeded in securing about $1 billion worth of new 12-month term facilities and renewed about $1.1 billion of existing 12-month term facilities. These facilities allow for efficient funding of Polestar operating and investing activities. Our cash position at the end of June was $719 million.

We continuously engage in a constructive dialogue with our club lenders. Following ongoing discussion, Polestar agreed amended covenants with club loan facility banks and quarterly and annual testing for the remainder of 2025. Regarding its debt level, Polestar remained compliant with its loan covenants.

I will finally touch upon the cash burn rate for the first 6 months of 2025. We have made good progress on unwinding the new inventory from last year from 23,000 units to now 14,000 units, which had a positive impact on the working capital. However, the increase in receivable at the end of June due to high retail sales volume, combined with a high level of payment to our related party distorted our normalized cash burn management performance. We will continue in the second half of the year to enhance our working capital management, still focusing on optimizing the inventory level and our CapEx spending while expecting an increase in cash used for investing activities during the second half of the year due to Polestar 5, the [ model ] years and our manufacturing activity in Busan, South Korea.

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; and last but not least, protecting the cash and securing new equity funding. We are making progress and Polestar is energetically transforming, but it is fair to recognize that the external environment is very different since Michael and I started with Polestar. But we will continue to focus on what is under our control and protect the company in the face of external headwinds.

In terms of guidance, we will not be issuing any financial guidance at this time other than reiterating the target compound annual retail sales volume growth of 30% to 35% over 2025 and 2027. Now I will hand over back to the operator.

[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.