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Good day, and thank you for standing by. Welcome to Lotus Technology Inc's Fourth Quarter and Full Year 2025 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one and one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one and one again. If you wish to ask a question via the webcast, please type it into the box and click submit. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your first speaker today, Ms. Michelle Ma, Head of Investor Relations. Please go ahead.

Thank you, and welcome to Lotus Tech's Fourth Quarter and Full Year 2025 Earnings Call. My name is Michelle Ma, the Head of Investor Relations here at Lotus. With me today are the CEO, Mr. Qingfeng Feng, and the CFO, Dr. Daxue Wang. Our conference call materials were issued today and are available on our Investor Relations website. We are also broadcasting this call via webcast. Before we continue, please be reminded that today's discussion will contain forward-looking statements pursuant to the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual future results may be materially different from the views expressed today. Further information regarding risks and uncertainties is included in Lotus Tech's relevant filings with the U.S. Securities and Exchange Commission.

The company undertakes no obligation to update any forward-looking statements except as required under applicable law. Please also note that our earnings press release and this conference call will include disclosure of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. You can find a reconciliation of these figures in the press release available on our Investor Relations website at ir.group-lotus.com. With that, I'm delighted to turn the call over to our CFO, Daxue Wang, please.

Good morning, good afternoon, and good evening to our shareholders, analysts, and media friends. Thank you very much for joining us for Lotus' fourth quarter and full year 2025 earnings discussion. I'm Daxue Wang, Chief Financial Officer of Lotus Tech. It's my privilege to once again present the company's unaudited financial results. In the fourth quarter, the company delivered 1,908 vehicles, including 1,239 lifestyle SUVs and sedans, and 670 sports cars. For the full year 2025, total deliveries reached 6,520 units. While this represents a 64% year-over-year decrease, these figures reflect a traditional year marked by the impact of tariffs, the phased start of the upgraded models deliveries, and intensified market competition. Total revenues for the fourth quarter were $163 million, a 40% year-over-year decrease.

For the full year 2025, total revenues were $519 million, down 44% year-on-year. Sales of goods fell 48% year-over-year to $463 million, driven by lower sales volume, while services revenue surged 69% year-over-year to $56 million, primarily due to the R&D service revenue. The commercialization of our intellectual properties through technical licensing and other channels has demonstrated significant market recognition of our pioneering technologies. Gross margin improved significantly to 10% in the fourth quarter, compared to -11% in the same period of 2024. For the full year, gross margin improved to 9% from 3% in 2024. This improvement was driven by the global rollout of upgraded model deliveries, a favorable shift in our sales mix, healthier inventory dynamics, and disciplined cost control. We continued our track record of disciplined cost management.

Operating loss narrowed by 65% year-over-year to $66 million in the fourth quarter. Consecutive sequential quarterly reductions in operating losses demonstrate the company's commitment to operational efficiencies. In fiscal year 2025, lifestyle vehicles deliveries accounted for 7% of the total, with sports cars making up the remaining 30%. Deliveries were primarily driven by the China and European markets. Importantly, growth in Chinese deliveries outpaced the broader premier auto segment, underscoring the competitive strength of our product portfolio within China. By region, China accounted for 45% of full-year deliveries, Europe 34%, North America 16%, and the rest of the world 5%. In the fourth quarter of 2025, our sports car deliveries to North America achieved remarkable QoQ growth, even with a 5% local price increases. Earlier tariff hikes hit our Q2 sales hard, but the U.S. adjusting U.K. auto import tariffs down to 10% brought policy clarity.

The recovery of sports car sales in the U.S. during the third and fourth quarters fully demonstrates our strong brand appeal and the price acceptability in the region, driving a dual rebound in sales volume and gross profit margin. Research and Development expenses were $171 million for the full year, down from $275 million in 2024, reflecting targeted prioritization of our technology investments. Selling and Marketing expenses decreased to $153 million from $322 million, and general and administrative expenses declined to $136 million from $227 million. These reductions underscore our strong commitment to enhancing operational efficiency. Together with gross profit increase in 2025, operating loss narrowed 46% year-on-year, and net loss decreased 58% year-on-year. On a non-GAAP adjusted basis, adjusted EBITDA for the full year improved by 63% year-on-year, narrowing to a loss of $356 million from $961 million in 2024.

Beyond these numbers, I would like to reiterate that we have now reduced operating expenses for multi-consecutive quarters through value-added measures. Our improved margin performance in the fourth quarter and full year of 2025 demonstrated our continued focus on cost optimization and operational efficiency, and this was also reflected in our significantly improved bottom line of results. Going forward, we expect the global launch of our PHEV model For Me to drive sales and revenue growth. Additionally, we expect that the combination of focusing on revenue growth efforts, maximizing product positioning, and enhancing margins through strict cost reductions, will allow our business to progress towards profitability and enable us to deliver long-term value to shareholders. With that, I will now turn the floor over to Mr. Feng. Thank you.

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Hello, everyone, this is Qingfeng Feng, CEO of Group Lotus.

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Thank you for joining the Lotus Technology Quarter Four and Full Year 2025 Earnings Conference Call. Last year, 2025, was a really important year for us, a true turning point in our strategic transformation. Even with all the global market ups and downs and higher tariffs, we made solid progress on our core operating metrics by staying focused on smart execution, pushing technological innovation, and tightening up how we run the business every day. I'll walk you through the latest development in four key areas, our recent highlights, market strategy, product lineup, and the progress on our new hybrid model For Me or Eletre X.

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With our 78-year racing heritage, building the Lotus brand has always been front and center for us. In 2025, we scored some real breakthroughs on both the business and brand front.

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In motorsports, we wrapped up the very first Lotus Cup one-make race at Sepang International Circuit in Malaysia back in November last year. 44 race-spec Lotus Emira hit the track, and it was a sensational showcase of the brand's racing DNA. The 2026 season actually kicks off on April 3rd this year, and we will keep using this platform to share our motorsport spirit and cutting-edge tech with fans everywhere.

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In equity financing, we secured a strategic equity investment of $23 million from ECARX, deepening our global strategic partnership through capital ties. Going forward, we will jointly accelerate innovation in next-gen intelligent cockpit ecosystems to deliver AI-driven experiences to consumers and collectively enhance products' competitiveness.

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On the tech side, our Hyper-SUV Eletre became the first and only Chinese-made electric vehicle to earn UN R171.01 certification for highway navigation systems. Lotus is also only the second automaker in the world to achieve this, which is a huge validation of our advanced driver-assistance systems, and opens more doors in the premium European markets.

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On brand development, we teamed up with the House of Automotive for the exclusive IN PROGRESS exhibition at the 2026 Milan Design Week. We showcased our industrial design philosophy and the Theory 1 concept car, proving once again how Lotus blends technology and aesthetics in a way that feels luxurious and forward-thinking.

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For our market strategy, Lotus is continuing to refine our global footprint and make our sales channels more efficient. We now have a well-balanced distribution network across four major regions. As of the end of December, we had 211 sales outlets worldwide, 67 in Europe, 58 in China, 48 in North America, and 38 in the rest of the world.

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In China, we kept expanding and upgrading our dealer network. We opened a new store in the city of Dalian in China and refreshed several others. Dealers have been hiring more staff, adding more outlets and ramping up our online marketing, which has clearly improved both customer acquisition and satisfaction.

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In North America, we plan to grow our Canadian dealer network on the basis of existing channels. Now we have six dealers in Canada. We are expected to expand to 12 by the end of the year, fully leveraging local tariff policy opportunities. The Eletre is the only Chinese-made electric vehicle priced above $80,000 that's fully certified for the North American market. We expect a strong sales growth there. We will start customer deliveries in Canada in May.

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In Europe, we streamlined our organization and ran leaner and gave each region more freedom to tailor strategies to local needs. For example, we introduced the business edition models and Vehicle Value Protection Plan from Germany, and we are expanding corporate and leasing business in the U.K.

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As I previously mentioned in the quarter three earnings conference call, Lotus is staying disciplined on costs. We are closing a few underperforming stores, expanding the high-performing ones, and redirecting resources to the markets that matter most.

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On our product lineup, we are driving product competitiveness by expanding both our product range and the powertrain options, playing to our strengths while fixing any gaps. The expansion and upgrading of the product portfolio were core highlights of our work through the year.

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In 2025, new variants of Emeya, Eletre, and Emira were launched and delivered in major markets, receiving positive market feedback. The sales proportion of new models continued to increase, helping stabilize product sales.

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In 2025, we also focused on hybrid product development. In the first quarter of this year, we launched our all-new hybrid SUV For Me Eletre X. Delivery started just one day after the launch. This hybrid model gives mainstream luxury buyers another great option and lets reach markets that are moving more slowly towards full EVs, like Italy, Spain, and Saudi Arabia. It's also bringing in a broader mix of customers.

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In the future, we will keep strengthening both the sports car and lifestyle vehicle to our lineup, and we will roll out more hybrids built on our new X-Hybrid architecture. This gives consumers real choice, combustion, battery, electric or hybrids, whatever fits their needs.

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Also allow me to share with you the progress of the launch of For Me, which is the first hybrid in Lotus's 78 years. In the E.U., it is sold as Eletre X, like I previously mentioned. It completely changes what the Hyper-SUV can do. For Me was launched in China on March 29th, 2026, and deliveries began on March the 30th.

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Before the launch, we actually invited the dealers and the media outlets from the E.U. to test the ride and to test drive this particular vehicle. We have received wide positive feedback.

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For Me runs on our X-Hybrid architecture, a 900 volt high voltage platform paired with a 70 kWh battery and a total output of 952 horsepower. In CLTC testing, it delivers more than 1,400 km of total range. Fuel consumption is just 0.7 L per 100 km in WLTC. Even when the battery is depleted, it's only 6.1 L per 100 km.

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From 0 km-100 km per hour, Lotus For Me electric only takes 3.3 seconds, and even when the battery is down to 10%, it still hits 3.5 seconds. In other words, performance stays strong no matter the battery level. Braking is equally impressive, 100 km-0 km per hour in just 33.9 m, and the car stays above international standards even after 12 heavy stops in a row. Plus, at high speeds, the four-speed active rear wing can flip into air brake at 170 km per hour, generating 120 kg of downforce to help shorten the stopping distance and keep the car stable, bringing safety protection and driving confidence to drivers and passengers.

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Aerodynamics remains a Lotus signature. For Me carries forward our porosity design language with a low purposeful stance and functional air ducts. Every line has a purpose. Eight race aero ducts use the Venturi effect to boost downforce, and the 26-degree windshield angle cuts drag effectively.

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For Me will be gradually launched to the global market in the second half of the year. Wholesale deliveries in the E.U. start at the end of October. Certification for Emeya will wrap up by year-end, with orders opening in October, official launch in November, and deliveries in December. In the U.K., we expect wholesale to begin in mid-2027.

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Looking ahead, we will keep accelerating product updates and market expansion. On the one hand, we will ramp up for global deliveries and at the same time advance the R&D and launch of new models as planned. On the other hand, we will deepen our channel partnerships and technical collaborations to make the Lotus name even stronger worldwide.

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Thank you again for your time and support. I will now hand it back to the host for your questions.

Thank you. We will now begin the question-and-answer session. As a reminder, to ask the question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again, and if you wish to ask a question via the webcast, please type it into the box and click submit. There may be a short pause while we compile the Q&A roster. Once again, that's star one one for questions. We will now take our first question from the line of Laura Li of Deutsche Bank. Please ask your question. Laura, your line is open.

Hey, thank you for taking my question. I want to ask about the total deliveries of 2025. We actually went down year-on-year by almost a half. What are the main drivers of this volume decline in 2025? How should we think about the potential impact of the geopolitical situation on future sales?

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Yes, I do see there's a decrease, delivery volume decrease year-on-year, and it has been affected by lots of elements. The first one is the uncertainty of the tariffs. It has negatively impacted our production and also inventory. For example, the U.S. tariff to U.K.-made vehicles affected our volumes about 60%. In addition to that, the E.U. and U.S. tariffs against Chinese-made EVs have also exerted a pressure on our pricing in E.U. For the U.S. market, basically, it is impossible for us to enter. Those are influences. They have also affected our inventory management and our destocking progress. We actively started the destocking in 2025 and adjusted our product lineup. After the adjustment, the logistics have also taken some time and leading us to some late entry to some markets.

In 2025, our stock level has been reduced dramatically by 43% to a very healthy level, and it sets a very solid ground for 2026. In addition to that, we've also adopted a lean but efficient organization to help us boost our profit margin.

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Despite the negative impact of geopolitics and tariff, we do see some new opportunities. For example, the tariff between U.S. and U.K. have been settled. U.K.-made vehicles to the U.S. will be charged a 10% tariff and it is beneficial news for our Emira sales. Actually, the Emira sales in the U.S. have been recovered to a normal status. In addition to that, Canada have also announced a policy towards China-made EV. The tariff will be lowered from 100%-6.1%. It is conducive to our exploration in North America. Given we have already certified our Eletre for the U.S., it's a good opportunity to leverage such chance to boost our sales volume. In addition to that, for our PHEV, E.U. at this moment currently kept 10% tariff to Chinese-made PHEV.

This is also a good window of opportunity for us to launch PHEV in October to E.U. markets.

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Despite the challenges that we've seen in the U.S. and E.U. markets, we do see some positive feedback from China markets. Our sales volume has been increased from 2,800-2,900, an increase of 3% year-on-year. Actually in 2025, the luxury market in China priced over RMB 400,000 dropped to 4.4%. In that circumstances, we actually kept a 3% increase. It is a demonstration that Lotus product is very competitive. We can achieve stable increase in such a fierce competition and the brand of Lotus have been gradually recognized in China market.

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In 2026, as we are going to roll out the PHEV in different markets, it will help us to reach a wider market, for example, some markets with a slow adoption of EV such as Italy or Spain. It will also help us to touch a wider customer group who may have a range anxiety about battery electric vehicle. In the future, we are pretty confident that 2026 is going to be a year for Lotus to recover.

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In addition to that, we are also exploring new markets such as South America, Brazil. We've already had a dealer there. The shop is going to be opened in middle this year, and the first batch of the vehicle has been wholesale.

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Again, in summary, despite those negative influence from last year, we see some positive opportunities lying ahead. Thank you.

Appreciate the color. Just to follow up on this volume perspective. After the launch of Lotus For Me, the PHEV model, which should have started deliveries by the end of last month, could you provide an update on the current order intake and delivery progress? Could you elaborate more about the volume expectation and the strategic positioning of the PHEV model? Thank you.

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After the launch For Me on 29th March, the order status is actually tally our expectation. For Me is the first hybrid model of Lotus in the past 78 years. It redefined the Hyper-SUV to cover all scenario. This is one of the reasons that we can reach a wider customer group. Our consumer assets have been increased by five times. On the Douyin, the TikTok equivalent platform, we ranked the 20th on the vehicle consultation targets. On other integration platform for the vehicle priced above RMB 500,000, we ranked the 10th. In other words, those indicates that For Me and Lotus gains greater visibility and exposure and wider brand recognition.

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For PHEV, particularly PHEV SUV priced above RMB 400,000 in China, we see a trend of increasing. In 2022, the total volume of such segment is around 140,000. In 2024, it increased to 280,000. In 2025, we see it is getting closer to 290,000. In other words, for PHEV in China now it is a good time to enjoy the benefits.

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Notice when we helped Lotus to reach a wider customer group. In the past, the customers who are interested in our BEV offerings are most entrepreneurs and business owners. Now the company management actually shows their interest in our product. For our target customer age group, previously, it's a bit younger. Now we reached to a more senior age level.

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Among all those customer group, the owners of the BMW X5 and also Porsche Cayenne shows greatest interest on our products.

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We are going to launch this For Me or Eletre in the second half of the year to E.U. market. For E.U. market per se, the PHEV penetration rate is also getting higher given the emission regulation is getting stricter. The tariff for Chinese-made PHEV in E.U. is 10% and for Chinese-made EV is 28.8%. There's a difference of 18.8%, which means this is a good opportunity that we can leverage.

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In the E.U., PHEV are increasing, particularly from 2024-2025. There's an increase of 7.2% in some major cities, Spain, Italy, and Germany. In 2025, December itself, we see an increase of 30% year-over-year.

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Overall speaking, the PHEV is going to help us to have a well-balanced product lineup and product portfolio and give our targeted luxury consumers more options to choose. The BEV and PHEV from Lotus will help us to acquire more market share and wider market coverage.

Thank you.

Okay, got it. Appreciate it.

Thank you. We will now take our next question from Brian Lantier of Zacks Small Cap Research. Please ask your question, Brian. Your line is open.

Great. Thank you for taking my question. It was really encouraging to see the improvement in gross margin, going up to 9% for the full year and 10% in Q4. Obviously, services appear to have driven a lot of that. How recurring do you think that is? Do you have any guidance for 2026 gross margins?

Thank you, Brian. The company's gross margin improvement in 2025 is driven by three key factors. First, as Qingfeng Feng has just elaborated, we successfully cleared aged vehicle inventories in the first half of the year. The second half saw a higher proportion of new vehicle sales and a significant reduction in overall variable sales subsidies. Second, we continuously reduced material costs through Geely's centralized procurement platform. Third, we increased the share of the high-margin service revenue, which lifted the overall gross margin. Now looking ahead to 2026, despite significant external headwinds such as continued price increase for core components like batteries and chips, which will put pressure on our gross margin, we expect total procurement costs, production costs, and unit D&A to all decline. At the same time, we expect to maintain the overall production pricing at current levels, leading to further gross margin improvement.

In addition, the ongoing merger with the U.K. Lotus Cars is expected to enhance the production and efficiency and further support our gross margin growth. Thank you.

Great. Thank you. That's helpful. Obviously, operating expenses were cut significantly in 2025, which helped to narrow your operating loss. Could you talk about any key cost control measures that you've implemented and whether you feel like they're sustainable in 2026?

Yeah. Thank you. The company's cost control plan consists of structural long-term initiatives rather than these temporary measures.

On the R&D front, the company fully leverages Geely's R&D and resources, enabling us to reduce investment in general-purpose technologies and focus on catalyzing technology development, thereby improving our R&D efficiency. On the marketing front, the company dynamically and flexibly manages marketing spend to enhance marketing efficiency, as Mr. Feng has elaborated. On the management front, the company strictly controls administrative expenses, streamlines the organizational structure, and optimizes the personnel management frameworks to improve operational efficiency. We believe these factors will continue to play a positive role in 2026. Thank you.

Great. That's all I had. Thank you.

Thank you. Thank you very much for the questions. I'll now turn back to the room for questions from the webcast.

Thank you for all the questions via conference call. We will now be answering investor questions via webcast. Our first question is, service revenue grew 69% year-over-year in 2025. What are its core breakdown and the key drivers behind?

Yeah, I'll take this question. The company's service revenue primarily consists of R&D service revenue and vehicle service income. In 2025, R&D service revenue accounted for over 75% of the total, with the customers including first-tier OEM manufacturers. This fully demonstrates the market's strong recognition of the company's R&D capabilities and as well as the company's ability to commercialize our intellectual properties. Thank you.

Our second question from the webcast is, what's the implication that the recent rise in global oil price has on the company?

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Well, I think it's good news overall for new energy vehicle and a good opportunity for us, particularly for PHEV, because For Me, our first PHEV model can be solely driven by gasoline, fuel, or solely driven by battery. It cater all different types of needs from our consumers. Its consumption of both the fuel and electric are very low. As I previously mentioned, the comprehensive fuel consumption is only 0.7 L per 100 km. Even at the depleted status, the fuel consumption is only 6.1 L per 100 km. Overall, this is a good opportunity for us to catch. Especially in the markets such as Middle East, where the charging infrastructure has not been very mature, the BEV adoption rate is slow. In those markets, we believe the PHEV model For Me is going to play an important role.

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Of course, we do see some headwinds given the hikes of oil price. For example, the cost of our supply chain might be increased, and the BOM cost might be also increased correspondingly. Those are some negative influence we may see. Some of these established luxury OEMs may take this opportunity or feel the pressure to accelerate their pace into PHEV arena, such as we see Porsche has been releasing the Cayenne BEV model, and we also see the Volkswagen Group are launching some range extender models. Of course, for Lotus, we would keep demonstrate our spirit to be differentiate and the customization and play a leading role in this front. Thank you.

That's the end of the question and answer session. With that, I'll now hand the conference back to Ms. Michelle Ma for her closing comments.

Thank you all again for joining us today. We will conclude the call now. The Investor Relations team remains available to answer any further questions that you may have. Please feel free to contact us through the contact information on our website. Have a great day. Thank you.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect your line.

Good day, and thank you for standing by. Welcome to Lotus Technology Inc. American Depositary Shares third quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You would then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your first speaker today, Ms. Michelle Ma, Head of Investor Relations. Please go ahead.

Thank you, Amber. Welcome to Lotus Technology Inc. American Depositary Shares third quarter 2025 earnings call. My name is Michelle Ma, the Head of Investor Relations here at Lotus Technology Inc. American Depositary Shares. With me today are CEO, Mr. Qingfeng Feng, and CFO, Dr. Daxue Wang. Our conference call materials were issued today and are available on our Investor Relations website. We are also broadcasting this call via webcast. Before we continue, please be reminded that today's discussion will contain forward-looking statements pursuant to the safe harbor provisions of The US Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the views expressed today. Further information regarding risks and uncertainties is included in relevant filings of Lotus Technology Inc. American Depositary Shares with the US Securities and Exchange Commission. The company undertakes no obligation to update any forward-looking statements except as required under applicable law. Please also note that our earnings press release and this conference call will include the disclosure of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. You can also find a reconciliation of these figures in the press release available on our Investor Relations website at ir.group-notice.com. With that, I'm delighted to turn the call over to our CFO, Dr. Wang, please.

Good morning, good afternoon, and good evening, honored shareholders, analysts, and friends from the media. Thank you for joining us for Lotus Technology Inc. American Depositary Shares Q3 2025 earnings release. I'm Daxue Wang, Chief Financial Officer of Lotus Technology Inc. American Depositary Shares. It is my privilege once again to present the company's unaudited financial results. In the third quarter, the company delivered nearly 1,800 vehicles to distributors. This represents a 35% decrease year-on-year but a 28% increase quarter-on-quarter. As a result, total delivery for the first nine months of the year reached 4,612 units, down 40% compared to the same period last year. These figures reflect a transitional period characterized by the impact of tariffs, gradual destocking activities, and the phased commencement of gradually upgraded module deliveries. Revenue for the third quarter was $137 million, down 46% year-on-year, but up 10% sequentially. Revenues for the first nine months totaled $356 million, down 45% year-on-year. Gross margin improved to 8% in the third quarter, up three percentage points from the previous quarter and five percentage points from the same period last year. This improvement was driven by a favorable shift in our sales mix towards upgraded models reflecting healthy inventory dynamics and continual recovery in our underlying profitability. Gross margin for the first nine months remained stable compared to the same period in 2024, safely in positive territory. Now allow me to break down our sales by category and region. By category, lifestyle vehicles accounted for 77% of the total deliveries in Q3, down from 83% in Q2, contributing 72% of the total deliveries for the first nine months of the year. In terms of regions, deliveries in the US sports car market began a gradual recovery in the first quarter. This improvement came after the initial US, UK tariff disruptions were resolved, with UK vehicles ultimately securing a favorable tariff rate of 10%. Overall, deliveries in the first nine months of 2025 were primarily driven by China and Europe. It's worth noting that our delivery growth in China for the first nine months outpaced the broader premium auto segment in the country. This underscores the competitive strengths of our product portfolio in an increasingly challenging environment. Now let me turn to the key financials. As I already covered deliveries, revenue, and gross margin, I will proceed to other financial metrics. The cost of revenue decreased by 35% year-on-year to $126 million in Q3 and a total of $327 million for the first nine months of 2025. This resulted in a gross profit of $11 million for the quarter and $29 million for the first nine months. We reported an operating loss of $95 million in the third quarter, a 41% improvement year-on-year. The net loss for the quarter was $65 million, a 68% improvement year-on-year. For the first nine months, the operating loss was $370 million, narrowing by 40% year-on-year, while the net loss narrowed to $378 million, down 43% year-on-year. For your reference, on a non-GAAP adjusted basis, the net loss for the first nine months was $2 million lower, primarily due to the impact of share-based compensation. Adjusted EBITDA under the non-GAAP for the same period narrowed by 48% year-on-year to $294 million. Beyond these numbers, I would like to reiterate that we have now reduced operating expenses for eight consecutive quarters through value-added measures. This underscores our strong commitment to operational efficiency. Our efforts in cost discipline and image optimization are reflected in the significantly narrowed loss for both the quarter and the year-to-date. We remain focused on prudent resource allocation and margin enhancement while also preparing for a more dynamic operating environment in the quarters ahead. During the third quarter, we achieved several key milestones amid challenges posed by fierce market competition. We will be unveiling our new PHEV model in the coming months to further expand our electrification product roadmap and to meet consumer demand in diversified powertrain segments. Our CEO, Mr. Feng, will elaborate further on these developments. With that, I will now turn the floor over to Mr. Feng.

Thank you. Good morning, good afternoon, everyone. I'm Qingfeng Feng, CEO of Lotus Technology Inc. American Depositary Shares. Thank you for joining the Lotus Technology Inc. American Depositary Shares quarter three 2025 earnings call. Now I'd like to walk you through the company's latest progress across four key areas: recent highlights, market strategy, product portfolio, and the acquisition of Lotus UK. Zero One Electra, Emira, and Mira. For Lotus, with a 77-year track DNA, it is important to keep enhancing its global image. On September 5, Lotus Technology Inc. American Depositary Shares made a strong appearance at IAA Mobility 2025 in Germany, showcasing the concept car Theory One Electra EMEA, and the Mira, demonstrating a seamless blend of brand legacy, cutting-edge technology, and electric strategy. The 2025 Lotus car one-make racing series kicks off in June, featuring an international lineup of drivers.

The third round concluded successfully in Chengdu, with a season finale set to take place in Sepang International Circuit in Malaysia this month. On September 14, during the London Design Festival, Lotus served as the official automotive partner and opened an immersive exhibition at our Mayfair showroom, exploring the design DNA of the brand and receiving positive feedback from the public.

On November 16, driver Lu Wenlong piloted the Mira GT4 to a third-place finish in the Macau Grand Prix with the Bay Area GT Cup. This marks back-to-back podiums for the Mira GT4 following its first and second-place finishes in the same event in 2023. The Macau circuit is known for its long straights and tight twisting corners, regarded as one of the most challenging street circuits. This double podium not only highlights the driver's exceptional skills but also underscores the outstanding performance and reliability of the Mira GT4. It strengthens customers' trust and enthusiasm for our sports car, carrying over Lotus' racing track DNA.

For market strategy, Lotus Technology Inc. American Depositary Shares continues to optimize our global presence and enhance our retail efficiency. As of September, we had 213 retail stores worldwide, with a well-balanced distribution across four key regions: Europe with 70 stores, China with 54, North America with 49, and other markets with 40. This covers roughly 45 markets globally. Besides the retail channel efficiency improvement, we've also explored other measures to reduce our costs and improve our efficiency. For example, we've implemented prudent cost control measures and optimized our store portfolio. This includes relocating high-cost stores, closing underperforming locations, and expanding high-efficiency outlets. It helped boost our conversion rates while reducing operating costs. In addition to that, we've also relocated our European headquarters from The Netherlands back to The UK, cutting operational expenses and allowing us to focus resources on key markets. Returning to London's birthplace also helps us better tell the brand story and strengthen our reach across Europe and beyond. Such measures further improve our overall efficiency. We are also preparing to enter new markets, starting with Brazil. Brazil is the seventh-largest automotive market in 2024, with total sales of roughly 2 million and a new energy vehicle penetration rate of around 8%. In the first nine months of this year, total sales reached 1.44 million units, with a penetration rate of new energy vehicles increasing to 10.1%. As for our product portfolio, two years ago, we planned on that. Actually, we've already launched our hybrid technology, and we believe that all of you will soon see the fruits. For Lotus Technology Inc. American Depositary Shares, we currently offer two models globally, including the Mira, Electra, and Mira, all of which were updated in 2025. The new versions have all been well received, with their share of total sales continuing to grow. We plan to introduce two additional hybrid models based on our new architecture. The first hybrid model is set to launch in China in the first quarter of next year, with a dedicated technology preview event in January and a European release. The new hybrid also carries over inherited DNA in the following areas. The first is ultimate handling, thanks to Lotus' engineering. It is also equipped with dual-chamber air suspension and an expanded 48-volt active stabilizer. It is capable of a long range and high performance, enabled by the latest architecture delivering over 1,000 kilometers of range and 952 horsepower. It also features an inspired design, with the sensational width-to-height proportion of our hypercar, staying true to Lotus' design DNA.

The introduction of the hybrid model offers more choice for luxury vehicle buyers and will help us expand into broader markets, including regions with slower EV adoption such as Italy, Spain, and Saudi Arabia. It will also help us attract new customer segments. For the acquisition of Lotus UK, we are now making steady progress on the merger or acquisition of Lotus UK, which we expect to complete in 2026. After the acquisition, we will operate under our "One Lotus" strategy. We plan to maintain a consistent global identity as a high-performance premium luxury brand to strengthen worldwide recognition and maximize our heritage. We are also streamlining reporting lines to enable faster, clearer decision-making. A globally aligned governance model, with global standards and regional adaptation, will improve oversight and support medium to long-term strategy execution. For our business integration, we are driving synergy across key areas. In R&D, we consolidate global engineering under one team to improve efficiency, share technology, and accelerate new vehicle development. In purchasing, we leverage shared sourcing to reduce costs across lifestyle vehicles and sports cars. In logistics, we will optimize warehousing and parts distribution to further lower costs. We have also aligned channels and systems globally to eliminate duplication and boost brand value and operational effectiveness. Thank you. We will now open the line for your questions.

Thank you. We will now begin the question and answer session. Press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Translate your questions to English right away. We will now take our first question from Laura Lee from Deutsche Bank. Please go ahead, Laura.

Hey. Thank you for the opportunity. Could you elaborate a little bit more about the key highlights of the upcoming PHEV models? And maybe talk more about the strategic rationale behind those products? Thank you very much.

Thank you for your question. First, allow me to elaborate on the highlights or features of our hybrid model. It features three firsts: it has the best energy-efficient engine, the best performance high hybrid system, and the highest power motor. These three features demonstrate the Lotus DNA from both the handling and performance perspective. As for the details about how to further enhance its handling and performance, as well as the details of our hybrid architecture, please stay tuned to our tech preview event in January. Also, we would like to elaborate on the strategic rationale behind our hybrid model. First, I'd like to start with the market. For the China market, the premium vehicle market in China, including plug-in hybrids and extended ranges, makes up a large and rapidly growing segment among new energy vehicles priced above 400,000 RMB. About 47-70% are plug-in or extended range models, and their growth is a major driver of broader new energy vehicle expansion. The penetration rate of new energy vehicles in this price bracket has also risen quickly, reaching over 40% from January to September. Within that, plug-in and extended ranges accounted for more than 30%. The competition in China's premium hybrid SUV segment is still relatively underdeveloped. The premium hybrid SUV segment means the price is over 500,000 RMB, and the development is relatively underdeveloped compared to the battery electric SUV space. Most current models also lean heavily toward business or off-road use. This creates a clear opening for Lotus Technology Inc. American Depositary Shares to introduce our hybrid models. In Europe, hybrid models represent a large and growing share of the auto market. As emission standards tighten, new energy vehicle adoption is accelerating in Europe, just as it is in China. From January to September this year, NEVs, including battery electric vehicles, plug-in electric vehicles, and hybrid electric models, reached 59-60% of the total market. Among those NEVs, PHEV and HEV together accounted for about 73%. Notably, plug-in hybrid sales have surged in Europe. As of September, PHEV sales have grown year-on-year for seven consecutive months, with EU-wide sales up 65% in September alone. In the premium hybrid segment, Lotus Technology Inc. American Depositary Shares will be the first to introduce such a model in the EU. Last week, I visited the EU, and I heard positive feedback from our dealers when they learned about this hybrid model. In the successive phase, we are going to invite dealers and media to have an in-depth test of our new models.

Thank you.

Okay. The first one is the color.

I'm looking forward to the launch. Our next question comes from Dunlin Ren from CICC.

Hello? This is Dunlin from CICC auto team. Thanks for taking my call, and congrats on your sequential improvements. I have one question about your gross margin. Do you have any guidance on your gross margin for this year and next year?

Hi, Dunlin. Thank you so much for your question. With the recovery of the vehicle gross margin in the second half of the year, our gross margin for the full year is expected to remain at a high single-digit range. Looking ahead, gross margin is projected to further improve, primarily due to the following factors. First, the launch of the PHEV products, which is based on our Luoyang architecture, will further reduce the per-unit vehicle costs and achieve higher gross margins. Second, as BEV fixed-lifted products penetrate global markets, their sales are expected to increase, thereby boosting the gross margins. Third, the implementation of the put option with Lotus UK will further enhance efficiency. For instance, the manufacturing segment's gross profit will be consolidated into the listed companies, and economies of scale resulting from the integration of the supply chain and research and development will contribute to higher gross margins. So I think for next year, we have confidence it is going to be higher than this year. Thank you so much.

Thank you. That's all from me. Very clear. Thank you.

I am showing no further questions at this time. With that, I'll now turn the conference back to Ms. Michelle Ma for her closing comments.

Thank you all again for joining us today. We will conclude the call soon. The Investor Relations team remains available to answer any further queries you have. Please feel free to contact us through the contact information on our website. Have a great day. Thank you.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect your lines.