NASDAQ: LOT
Brian Lantier, CFA: Good afternoon, everyone. My name is Brian Lantier. I’m a Senior Research Analyst with Zacks Small Cap Research. Thank you for joining us again for one of our CFO Chats. Today, we’re joined by Dr. Daxue Wang, CFO of Lotus Technology (NASDAQ: LOT). Lotus, for those who aren’t aware, is an iconic brand in the automotive industry. They’ve been building cars for 70-plus years.
They’ve diversified recently outside of straight sports cars into more SUVs, sedans, and additional powertrains, which I think is sort of the catalyst and the reason for our conversation today. The stock is currently trading around $1.25, and I have a $1.80 target valuation on it. I think there are some really interesting catalysts coming up for Lotus, and I’m looking forward to having this conversation. With that, welcome and thank you for joining us, Dr. Wang.
Dr. Daxue Wang: Thank you, Brian.
BL: So recently, last month, the company announced its Focus 2030, a new strategic plan for the company. I think one of the interesting things that I took away from that was the shift away from pure battery EVs and incorporating what market demand has shown you, that there’s a demand for PHEVs and ICE vehicles. Could you talk about what you’ve seen and what drove some of those decisions?
DW: That’s a very good question, Brian. This flexible powertrain strategy is rooted in three market realities we have seen across the global markets today. First, the pure electric penetration in the luxury performance segment remains below 10% globally, and some performance car buyers consistently tell us they want the emotional connection, the wave sound, and the sustained track capabilities that combustion, and also the hybrid powertrains, can deliver. Secondly, the global markets are evolving at a different speed. Some countries or regions are advancing rapidly on full electrification, while others are delaying combustion phase-out and charging infrastructure build-out, so a single technology path would leave half of our global customers underserved. Third, the customer use cases have split. The BEV works perfectly for daily commuting, but for track days and long-distance driving, customers want the range and flexibility of hybrid and combustion engines. So, the point is, this is not a step back from our full electrification strategy. It’s a pragmatic, customer-led transition that allows us to solve every issue, in every market, and for every use case.
BL: That’s a really good explanation, and I think it speaks to the fact that the company is willing to listen to feedback from both customers and the market itself, so that’s an interesting approach. You’ve talked a little bit — and the company has talked about — a long-term goal of achieving 30,000 units of annual sales for the company. That’s a significant improvement from where you stand today. What sort of milestones should we be watching for to make sure that Lotus is still on track to achieve that goal?
DW: So actually, we have measurable milestones to track our progress to these 30,000 units. In 2026, you can watch for three near-term proof points. The first is the successful continental Europe launch of our Eletre X in the fourth quarter. The second is stable annual sales for the updated Emira sports car, especially in the United States. And the third is the completion of our operational integration of the Lotus UK acquisition, driving our sequential operational cost improvements. And for 2027-2028, Eletre X starts to deliver in other markets, the V8 hybrid sports car is unveiled, and other booking slots open. So, the leading indicator to watch is always our balanced regional growth. We expect that no single market makes up more than 40% of our sales at steady state, so I think you can watch the milestones from the above-mentioned models and the market distribution.
BL: I think, again, that it really lays out the pathway to achieving that goal, which is an ambitious goal, but I think it’s achievable. The sports car has historically had a very particular type of customer who’s seeking performance and value, and the styling that Lotus brings to the table. As you’ve embraced some additional designs and new platforms with SUVs and sedans, some of the demographics of the customers you’re targeting might be shifting a little bit. Could you address that and talk about how those new customers are coming to the Lotus brand and how you’re marketing to those customers?
DW: Expanding beyond pure sports cars has given us two clear customer insights. First, our core driver base is growing with us, not leaving; 80% of Emira sports car orders are from our loyal, purist customers, and 30% of them actually also buy our Eletre SUVs or Emeya GT as their daily driver. They wanted a Lotus they could drive every day. Second, we’re also reaching entirely new, high-value demographics and customers — 10 or 15 years younger than our sports car average — with women making up a much higher proportion of these new buyers compared to our sports car base. Plus, we have a 60% family-household and conquest customer base from other luxury brands who wanted authentic driving dynamics over generic luxury. So, in short, we are not diluting our Lotus DNA. We are evolving from a niche second car to a full-line performance brand for every customer and every life stage, while keeping our car-driver-first DNA completely intact. That’s what we’ve learned from the past two or three years of experience in handling our new models.
BL: I think that’s really well said. I agree. I think that’s what you’ve seen with a lot of the other high-end luxury brands; they end up selling multiple vehicles into the same household, so it’s good to hear that you’re achieving that as well. We’ve talked a little bit about the Eletre X entering new markets — or the For Me, as it’s being sold in China — if you’ve received any current consumer feedback from the early deliveries, early market response. What are you hearing about that vehicle and how people are embracing it?
DW: You know, having been watching very closely over the past two months regarding the current status quo for the Eletre — the For Me in China, but it’s called the Eletre in Europe — I think the early customer feedback on the Eletre X is in line with our expectations. We took over 1,000 orders in the first month in China alone, with 70% of customers choosing the higher-spec versions and 20% coming from existing Lotus owners. I think three things stood out as setting us apart from our competitors. First, it eliminates the performance-EV pain points. Second, it delivers true Lotus performance. And third, customers tell us that it’s a performance car that requires zero compromise among daily usability, track capability, and brand heritage, and there is no range anxiety. So that’s the basic feedback from our current customers.
BL: That’s great. Speaking of performance vehicles, you also discussed and announced that there’s going to be a new Type 135 V8 hybrid supercar in the works. I know there’s been a lot of speculation online. Some of the analysts, like myself, have been speculating what this car might look like. Could you talk a little about where you see this car fitting in your product lineup? And do you think it has the potential of being a halo vehicle to draw more people into the brand?
DW: Personally, I think the Type 135 sits at the top of our product portfolio as our halo flagship, at least potentially, above our Emira sports car, above the Emeya GT, and also above the Eletre SUV lines. The expectation is to launch it in 2028. It’s going to be the ultimate expression of our Lotus performance DNA, over 1,000 horsepower, a V8 hybrid supercar built for pure driver engagement. I think this car fills a clear gap in the market today. Personally, I think we are still in the pre-research stage, so I wouldn’t say we have a clear benchmark regarding the competition, but my personal perception today would be that it could beat the Ferrari 296 GTB, and also the McLaren Artura. I think the Type 135 has the potential to deliver more extreme lightweight engineering, more authentic driving feedback, and sustained track performance. That’s what I can tell you, mostly from my personal perception rather than a company benchmark.
BL: Right, well that’s great. One of the challenges that you’re going to face as a luxury provider is always trying to find that niche between high-performance vehicles, which are higher priced, and the more traditional vehicles that are going to be the entry point to the brand. How do you balance trying to have the right mix of products in the marketplace?
DW: I think with the previous years’ experience, I can tell you that this is exactly what Focus 2030 was built to solve. And now I think we have a pretty clear, non-compromising framework for it. For Lotus, it’s not going to be a trade-off. It’s a complementary, three-tier system that makes every line stronger. First, the future Type 135, what we call the halo supercar, for the portfolio. It’s low volume, high margin, and it’s our brand beacon. Second, the Emira sports car, which we currently sell, is our core mid-volume, mid-margin business that protects and celebrates our pure-driver DNA. And last but not least, our lifestyle SUVs deliver the steady, scalable volume and cash flow that fund the supercar and sports car businesses and bring new customers into the Lotus family. So, I would say they reinforce each other, and our 30,000-unit steady-state target is exactly this balance: enough volume for financial stability, and enough restraint to never dilute the luxury performance of the whole brand.
BL: You just announced the UK performance hub where you’re going to be utilizing the Hethel location for your performance business. Can you talk about what drove that decision?
DW: Actually, we are based in Hethel. It’s going to be a very important hub for performance cars. Currently, it’s the manufacturing center and research center for our sports cars, including the Type 135. We’ve already told the public that the put option is underway, and we are also building synergies between the UK and China. We are still on the originally proposed timeline, which we expect to finish this year. We can realize the synergies between the two operations across all angles, not only research, but also supply chain, logistics, and so on. That’s the reason we think the UK remains the most important hub for us, to keep our brand heritage and our Lotus engineering capability. The UK is going to be an indispensable and important part of the company’s future operations. Regarding the timeline and other specifics on this acquisition, I think you can always wait for our earnings release and the public information.
BL: Right, I think, along those lines, we’ve talked about the path to profitability, which is another key focus for investors. What specific measures, as CFO, are you trying to implement to increase your gross margins and improve operating efficiencies at Lotus?
DW: I think we have at least four concrete levers to drive market expansion and improve operational efficiencies, and this is reflected in our Focus 2030 strategy. The first is product mix optimization. We expect hybrid models to deliver higher gross margins than pure EVs. The second is scale leverage. The 30,000-unit steady-state volume fully amortizes our fixed R&D and tooling costs. The third is operational integration. I mentioned we are completing the full integration of Lotus UK and Lotus Tech this year, which lets us eliminate redundant overhead and streamline governance across the companies. And the fourth is supply chain synergies. We can leverage Geely’s global scale to target meaningful component cost reductions across the full lineup of our products by 2028 and beyond.
BL: You sit in sort of an interesting spot inside the Chinese auto market – a luxury brand with European heritage, with most of your manufacturing currently based in China. As the market adjusts a little in China, with some domestic brands moving up-market and some price resistance against existing legacy European brands, how is Lotus perceived in the Chinese market today?
DW: Very good point. Actually, this dynamic is our competitive advantage in China. It’s far beyond a challenge. Of course, it’s a challenge, but we take it as a unique position. I think we are uniquely positioned as the only brand in this market that has both characteristics. One, we have over 70 years of European performance heritage and a global luxury brand legacy that no other domestic Chinese brand can replicate, at least in the near term. And two, we have full Chinese native manufacturing and supply chain technology capability, backed mostly by Geely. I think we can iterate the first real enterprise more competitively and shorten the time to market for our products. So that’s the kind of advantage we gain from the current competitive landscape in China. In short, foreign legacy brands lack the local speed, but domestic brands lack the performance heritage. Fortunately, we have both.
BL: It’s a good position to be in. We haven’t had a chance to talk much about the relationship with Geely. How do you see that playing out going forward? And where do you see the ability to create shareholder value through deeper integration with Geely, be it in manufacturing, supply chain, or technology sharing?
DW: I’ve been asked this question many times. My understanding is that the relationship between Geely and Lotus is mutually beneficial. But, of course, from a shareholder value-opportunity point of view, I think the biggest value is going to come from supply chain and cost synergies, and then Geely’s global scale, which delivers much lower component costs, as I mentioned. We also get access to industry-leading hybrid R&D without duplicating billions of investments. Plus, we can share manufacturing capacity with them, which eliminates fixed-cost risk. All in all, I think the collaboration and synergies between the two groups span all aspects.
BL: Great. Lotus fans love to talk about the history. They love to cite Colin Chapman’s famous quote to “simplify, then add lightness.” You’re building very, very complicated machines today, though, so simplifying them is a challenge, and now you’re also building them with very heavy battery packs. How do you navigate that today, in a world where people want a simplified, light vehicle that’s also a mobile computer with a very large battery pack?
DW: That’s another question I’ve been asked many times. My understanding is that Chapman’s philosophy was never just about cutting weight. It’s about prioritization. We use carbon fiber fabric and advanced materials to offset battery weight in our EVs and hybrids. But more importantly, we simplify the driver experience. We cut out unnecessary gimmicks, and we remove a lot of the distracting technology that’s currently popular in China. We only add features that genuinely improve driving feedback. So, I think that’s something that differentiates us a lot from our peers. That’s the essence of what Colin Chapman, in essence, originally was proposing. We do not build mobile living rooms; we build drivers’ cars. That’s how we honor Chapman today, and as always.
BL: That’s well said. What do you think investors and consumers might be missing about the Lotus story today? If you wanted to tell them where Lotus is going to be in five years, what would you tell them?
DW: I think we try to answer this question in our Focus 2030 plan as well. First, in order to cater to the needs of our customers, we have what we call the full powertrain portfolio. So, for the last few years, we’ve said, okay, we’ll change because the times change and the market evolves. But something that will never change is what makes a Lotus a Lotus. It’s always our philosophy regarding engineering, driver engagement, lightweighting, and aerodynamics; this is something we’ll never change. We want to tell investors and drivers, our clients, that of course we do change and adapt to the current market, but we never change what makes a Lotus car. You can see this from our previous Lotus cars, and you’ll see it in other Lotus cars we make in the future. That’s what I really want them to know. We never compromise on these points.
BL: Right. I would encourage everyone to go out and find a Lotus. There are dealers here in the U.S. Go see the Emira, it’s a beautiful, beautiful car. I’m hoping there will be an opportunity this summer for me to head up to Canada, where I can actually drive an Eletre. I know there have already been some shipments to Toronto to the dealers in Canada, so I’m hoping to make that trip and then report back to investors on how the vehicle is, actually sit in the driver’s seat. I’m looking forward to that.
Thank you, Dr. Wang. I think this has been incredibly informative and a really good conversation about where the company sits today and where it’s going to be over the next five years. I’d like to continue these conversations. I think it’s really helpful for investors to see and hear what’s going on in the company. It’s an interesting time in the company’s evolution. Despite having been around for 70 years, in a lot of ways, it has the feel of a new startup. So, I would encourage all investors, if you haven’t had the opportunity to read some of my research, to reach out to me directly or visit the Zacks Small Cap Research website, where you’ll be able to get access to that, or send me an email. With that, thank you very much, Dr. Wang, and thank you, everyone, for watching and tuning in.
DW: I look forward to that day, and whenever I have a chance, I’ll be there also. Thank you so much.
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