Polestar Automotive Holding UK PLC Class A ADS 2026 Q2 Earnings Call

Hello, everyone. I am 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 am joined by Michael Lohscheller, Polestar CEO, and Jean-François Mady, Polestar CFO, who will comment on the performance, and then we will open the floor to analysts' questions. Before we start, I would like to remind participants that many of our comments today will be considered forward-looking statements under the U.S. federal securities laws and are subject to numerous risks and uncertainties that may cause Polestar's actual results to differ materially from what has been communicated.

These forward-looking statements include, but are not limited to, statements regarding the future financial performance of the company, production and delivery volumes, financial and operating results, near-term outlook and medium-term targets, fundraising and funding requirements, macroeconomic and industry trends, company initiatives, and other future events. Forward-looking statements made today are effective only as of today, and Polestar undertakes no obligation to update any of its forward-looking statements. For a discussion of some of the factors that could cause our actual results to differ, please review the risk factors contained in our SEC filings. In addition, management may make references to non-GAAP financial measures during the call. A discussion of why we use non-GAAP financial measures and a reconciliation 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 condition 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 coupé, which is our best-selling car. This has happened during one of the most challenging and competitive times I have 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 2027 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. 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 coupé, 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 €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. 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 will hand over to Jean-François 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 six months of 2026, operating loss reduced by 43%. In summary, these results were supported by car line mix evolution toward 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 adjustments related to the decision by the U.S. Department of Commerce, Bureau of Industry and Security, the BIS, amounted to an estimated $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 assessment are completed and the full effect of the BIS decision continue to develop. Starting with the result for the first six months of 2026. Retail sale of over 13,400 cars were supported by the continued transition to an active selling model, retail sale network expansion, and Polestar's attractive model lineup.

Polestar 4 coupé remain our best-selling model, and it made up two-thirds 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 of 2026, the U.S. market represented 6% of our retail sale, 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 sale to start in two 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 $1.36 billion was 4% lower year-on-year. The positive effect from volume, car line mix, and foreign exchange tailwinds was offset by significant pressure on pricing, residual value guarantee cost, mainly in the U.S. and related to the BIS decision, and lower carbon credit sale of 52 million versus 72 million last year. In addition, we recognized 4 million of carbon credit sale, booked in other operating income compared to 18 million last year. The decrease in revenue related to sale of carbon credits primarily reflect 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 point as the comparable period result was impacted by net impairment expense of 724 million.