Lotus Technology (LOT) FY 2026 earnings call transcript

I would now like to hand the conference over to your first speaker today, Ms. Michelle Ma, Head of Investor Relations. Please go ahead.

Thank you, operator, and welcome to Lotus Technology Inc. First half of 2026 earnings call. My name is Michelle Ma, the Head of Investor Relations here at Lotus. With me today are the CEO, Mr. Qin Fung-Fung, and the CFO, Dr. Danxiu Wang. Our conference call materials were issued today and are available on our investor relations website. We are also broadcasting the call via webcast. Before we continue, please be reminded that today's discussion will contain forward-looking statements. First went to the safe harbor provisions of the U. S. private securities litigation reform act of 1995. Forward-looking statements involve In addition, the company's actual future results may be materially different from the views expressed today. For the information regarding risk present uncertainties, it includes the noted text relevant following with the U. S. Securities and Exchange Commission.

The company undertakes no obligation to update any forward-looking statements, except as required under the 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 re-consultation of these figures in the press release available on our investor relations website at ir. goog-lotus. com.

With that, I'm delighted to turn the call over to our CFO, Dr. Wang Li.

Thank you, Michelle. Good morning, good day, and good evening. Distinguished shareholders, analysts, and media friends, thank you for joining our first half of 2026 earnings release. Again, this is Dachio Wang, the chief financial officer of Lotus. I'm excited to brief you the audited financial results of the company. In the first half of 2026, the company delivered 3,904 units, representing a 39% year-over-year increase, outperforming the reference traditional premium and luxury segments. This solid delivery performance reflects the company's growing market presence and competitiveness, producing in the high-end automotive sectors. Strong delivery growth directly drove revenues up 23% year-over-year to $268 million for the first half of 2026, with strong momentum in the China market. Average selling price dropped slightly by 3% year-over-year, attributable to an increased sales peak of the lower-priced Electronics.

Gross profit rose 47% year-over-year to 26 million US dollars, while gross margin expanded 1.6% to 10%. This improvement was supported by a favorable product mix following the successful launch of Electro-X, the first-ever PHEV in its 78-year history, marking the early validation of our multi-parallel We maintain our discipline cost management trajectory. The operating loss narrowed 63% year-over-year to $97 million in the first half of 2026. This improvement stems from rigorous financial management, better operating leverage, and a one-off license fee refund linked to the product pipeline adjustments. Excluding these one-off items, the operating loss narrowed 26% year-over-year to $194 million. The company's ongoing focus on driving operational efficiency and upholding the strict financial discipline. And in May 2026, we unveiled our Focus 2030 strategy, which Ms. Fung will address in his remarks.

This improved financial outcomes serve as a tangible proof of our progress against core pillars of Focus 2030, namely, our market power trading strategy and commitment to financial discipline, which are translating into measurable operational and financial advancement. In the first half of 2026, lifestyle vehicles deliveries made up of 77% of companies' total vehicle deliveries for the period, Troubled largely by the successful market introduction of the Electro-X in China. China market deliveries grow 60% year-over-year, keeping China as the company's largest market and accounting for 58% of total deliveries during the period. Deliveries outside China rose 17.4% year-over-year, including 45% growth across the markets and 164% growth in ROW. European deliveries fell 17% year-over-year amid intensifying competition in the luxury BEV segment.

In Europe, we will continue to refine inventory management, enhance product value, and enforce pricing discipline to protect residual values and rebuild momentum. Electronics opened for orders across mainland Europe on June 3rd, with customer deliveries commencing in the fourth quarter. UK launches will follow in mid-2027. We expect this new model to fuel delivery growth over the upcoming quarters. China market delivery's expansion outpaced overall growth across China's premium passenger vehicle segment. This result underscores the strong inherent competitiveness of the Lotus' full product portfolio, even amid mounting competition across the border for the auto industry.

Now let's move to the half-year financials. Overall, our first half of 2026 financial performance improved meaningfully versus the prior year period. As already covered deliveries, revenues, and gross margin, I will now repeat them here. In line with revenue, costs of revenues for first half of 2076 stood at $242 million of 21% year-over-year. As a result, gross profits reached $26 million, a 47% year-over-year increase. Operating expenses during the period came in at $127.5 million US dollars, 146% year-over-year, primarily comprising the following. And the expense stood at negative $2 million US dollars in the first half due to the aforementioned one-off items. Shipping out of this specific special one-time adjustment, R&D expenses totaled $96 million, a modest 4% year-over-year U. S. versus $92 million in the first half of 2075, driven by technology investment for the ElectraX.

Selling and marketing expenses increased to $83 million, up 5% year-over-year. The uplift reflects higher sales commissions tied to racing vehicle volumes, alongside marketing activities for the Electro-X launch in China and the pre-launch campaigns in overseas markets. General administration expenses decreased to $46 million, down to 27% year-over-year, as we tightly control travel, agency, and other costs and optimize our organizational structures. With above, even excluding one-off effects, the operating expense to revenue ratio improved from 107% in the first half of 2027 to 84% in first half of 2026, reinforcing our priority to lift operational efficiency and maintain strict cost controls. Accordingly, operating loss and net loss for the first half of the year narrowed 63% and 52% respectively.

Our net gap adjusted basis adjusted EBETA loss for the first half of the year narrowed 57% to $104 million, compared with the $240 million loss in the same period last year. Beyond high-land metrics, I would like to emphasize that we have delivered a SaaS-Pen operating expense reduction through the value-driven initiatives. This reflects our continued focus on cost optimization and operational efficiency.

Looking ahead, we aim to advance towards profitability and create long-term shareholder value by maximizing product positioning, expanding margins via optimized product mix, and executing rigorous cost reduction actions. With that, I will hand over to Ms. Feng.

Thank you very much. Good day, I am Feng Qingfeng, CEO of LotusTec. Thank you for joining us in the LotusTec's first half of the 2026 earnings call. In the first half of the current year, we delivered improvements across all our core operating metrics, and steadily rolled out the Focus 2030 strategy on WELD earlier of this year. I will now walk you through the details.

We will start with recent development highlights rooted in our British heritage of track-bred performance. We continue to strengthen our brand DNA while seizing new opportunities in emerging markets and product segments. Following its official launch in the Canadian market, the all-electric hyper SUV ELECTRA arrived in the country in July, marking the first time Chinese make luxury EVs in the Canadian market, and representing a significant milestone in the Lotus efforts to expand its North American footprint.

Our first hybrid offering this year, Electro-X, known in China as 4Me, has received an easiest response since its domestic release. The model has helped lift the Lotus market share in China. Passenger vehicle segment priced above RMB 500,000 to nearly 2% in the second quarter. In June, we opened orders for the Electro-X in the EU market, with deliveries scheduled to commence in the fourth quarter.

We will now turn the call over to management for a short-term care. We continue to refine and roll out the limited edition sports cars in May. For instance, we introduced the Emira 420 sports edition, widely held by enthusiasts at the cornering. With a power boost and a 25kg weight reduction, the Emira 420 delivers even sharper cornering points. In July, we launched the EMEA Skura Limited Edition in China, a tribute to the Exige Skura from 17 years ago, with only 9 units allocated to China and 60 to North America. The entire run sold out immediately. Under the Focus 2030 strategy, we will unveil the Type 135, a mid-engine with 8 hybrid hypercar in 2020.

In July, EMEA set a new EVO lab record at Malaysia's Seapai International Circus, surpassing the previously publicly recorded Foddy's EVO lab by a significant margin, yet another testament to Lotus performance credentials.

I will now turn the call over to management for the Lotus Technology Inc. and the real-world access to organization within the luxury mobility space.

Now, let me turn to the recently unveiled Focus 2030 strategy, designed to adapt to an evolving external landscape. This strategy redefines Lotus' core strategic positioning, which rests on four pillars.

First, entering our brand heritage in 78 years of track-hound driving dynamics. Second, adopting a multi-powering strategy to flexibly address diverse global customer preferences. Third, leveraging the one-lotus integration and the Gilead ecosystem synergies to further drive cost efficiencies and operational effectiveness.

Fourth, optimizing financial performances to achieve profitability at an annual sales volume of 30,000 units, delivering a lean-yet-productive sustainable growth model. FOX 2030 pillar 1 strengthening and passing on our brand heritage Lotus is rooted in the British racing pedigree and powered by Goliath global leading technology together enabling the pure driving engagement for enthusiasts Thank you. On this very foundation, we have tailored brand activation strategies for each of our core global regions. In Europe, we are capitalizing on Lotus Track Horn brand premium, reinforcing our presence through a multi-power training product portfolio. In China, we are tapping into the rising demand for premium new energy vehicles, positioning Lotus as a brand that embodies both high performance and intelligence in the luxury EV segments.

In America, our focus remains on horse cars, while the Electrolounge in Canada serves as our entry point into the North American lifestyle vehicle segment. We are also concurrently expanding our sales network across South America. In other regions, we continue to broaden sales channels, step up brand building efforts, and reach new customer segments. As of June 30, Lotus has established a well-balanced global sales network with 217 retail locations, which break down into 60 stores in Europe, 65 in China, 53 in the Americas, and 39 across the rest of the world. China and Europe remain our two core volume contributors, while North America stands as our largest market for sports cars.

So we have to adjust the strategy to make the current and current. And we always keep the current and current. Back in 2018, Lotus was the first luxury brand to commit to full electrification. However, we have since recognized that the global transition to electrification is far from uniform. In response, we have adjusted our strategic direction in a timely manner, In the last year, we have the first hybrid model, the Fumi, made in a different manner, choosing to pursue pure electric, hybrid, and internal combustion power trays in parallel. Every one of our products remains uncompromisingly driver-centric. In the product, we will now turn the first hybrid car in China. The fourth year, we will also turn the heat in the Eau.

We will now turn the next generation of the Tepo 135. This is also a hybrid product. We have two V6 and V8. Our first hybrid model, the Fumi, made its Chinese debut this March with European deliveries scheduled for the fourth quarter.

Looking ahead, we are focused on developing our next-generation HyperCard Type-135, and also a hybrid, available in both V6 and V8 Hortrain variants.

Type 135 will be a key to the technology market. We hope this product can become a product of the product of the company's overall ability. The Type 135 will fill the gap between the Emira and the Evaya, preserving the emotional connection Emira owners have with the Lotus mechanical handling while leveraging V8 hybrid technology to approach the technical benchmark set by the Evaya. This creates a nature product upgrade and elevates the brand upwards. Through a combination of lightweight design and chassis responsiveness, the Type 135 will demonstrate that Lotus still has what it takes to be a technical benchmark in the next generation of high-performance sports cars. We envision this model as our flagship, one that will enhance the company's overall profitability.

Good morning, I'm going to turn the call over to management for a great deal. We will also have a 50,000W of the engine, which usually is 75-95kg, but we can use F1 to make it 20kg. We will also have the whole force and the whole body of the POS together with the 8DTT. The weight is less than the size. In the car series, as mentioned earlier, we have improved products like Inera 30, and also improved products like Inera's core. We will continue to improve Inera's core, and improve Inera's core as the last one of the last car's last-genre-carbless products.

The Type-135 has already generated tremendous excitement among Lotus fans worldwide. After 22 years, we are bringing back a mid-engine V8-powered motor with over 1,000 horsepower, while targeting a total weight of around just 1.5 tons. Lightweight engineering is both our greatest strength and our biggest challenge here. Achieving that target with an 800-voltage architecture, a hybrid system, a V8 engine, and electric motors all within just 1.5 tons is not easy. To put that in perspective, while a typical 150-kilowatt motor weighs between 75 and 95 kilograms, we have leveraged the Formula 1 technology to bring it down to just 20 kilograms. We are also co-developing an 8-speed DCT with force, designed to handle high torque while keeping weight to a minimum.

On the sports car front, as mentioned earlier, we have introduced the Emura 420 and special editions such as the Emura Skrurl. We will continue to roll out the new Emura Springs going forward, reinforcing its value as Lotus' final pure-combust transport car. In the life style vehicle category, we are also introducing the ELECTRO 900 Gold Edition and EMEA 900 Gold Edition. Available for pre-order starting August, we will keep refining the product's competency in this segment. The launch of the Electro-X has given the mainstream luxury vehicle buyers more choices, and will further expand the Lotus market reach and customer coverage.

Focus 2030, Pillar 3, Deepening Ecosystem Synergies with Partners. Our ecosystem synergies are built on two core pillars, Lotus integration and deeper collaboration with the Gile ecosystem. We have already completed the final product of the Lianhua in the 21st of the Lianhua. Last Friday on August 21st, we formally completed the acquisition of the Lotus UK, and we are now accelerating the comprehensive integration process. This integration combines Lotus U. K. 's trackbread racing ENA with Lotus Technology's cutting-edge technologies. Further, sharpening Lotus' distinctive positioning in the luxury automotive space.

We are committed to the one-lotus strategy on three fronts. Brands. We will maintain a globally unified premium ultra-luxury brand identity, ensuring that the Lotus brand image, product experience, and customer perception remain consistent across every market. Governance. Our governance structure will be further streamlined to enable more efficient decision-making, agile resource allocation, and faster responses to market shifts, allowing us to channel greater focus into product development and customer experience enhancements. Synergy, through coordinated efforts in technology sharing, supply chain integration, and unified management, we will eliminate redundant investments and fragmented resource allocation, delivering a dual uplift in brand value and operational efficiency.

We will also continue to deepen synergies with the Gilly ecosystem. The Gilly Group provides Lotus with systematic competitive advantages that other independent luxury brands could find hard to replicate, including advanced technologies. Across pure electric hybrid and intelligence solutions, Gilead's platform enabled us to stay at the forefront of electrification and smart technology while reducing cost and shortening the go-to-market duration for new technologies. By leveraging Gilead's shared platform, Lotus can concentrate its R&D efforts on signature technologies such as lightweight engineering, aerodynamics, and chassis tuning. Mature supply chain, with access to Gilead's global procurement scale and supplier network, we can secure high-quality components at more competitive costs, effectively hedging against the raw material price, volatility, and geopolitical risk.

Flexible manufacturing, Gilead's global distributed flexible production system helps Lotus to accelerate product launches, scale-up operations, and build cost advantages.

Thank you. Such collaboration is bi-directional empowerment, Lotus proprietary know-how, extreme handling, aerodynamics, lightweight engineering, and chassis tuning, based back into the CILI ecosystem in return, driving technological advancements across the broader group. Our Lotus Engineering division, in particular covering 12 service domains, including design engineering, Weeco Dynamics chassis and lightweight solutions have been providing engineering service to the world since its founding in 1952, empowering not only Gilly, but also the wider industry. We maintain ongoing joint development programs with Gilly's R&D teams to ensure that Lotus' unique driving DNA is fully preserved.

Focus 2030戰略的第四大支柱是財務優化。 Focus 2030 Pillar 4 Financial Optimization. Under the Focus 2030 strategy, we place greater emphasis on quality growth. As our product portfolio matures, we target annual sales of 30,000 units and sustainable profitability. Thank you. The Lotus Technology Inc. earnings conference call. Our path to achieving these objectives rests on three key drivers.

First, delivering steady volume growth through brand building and portfolio expansion. With the launch of the ElectroX in 2026 and the Type 135 in 2028, we are fully leveraging the flexibility of our multi-power chain strategy to capture differentiated demands across different markets, continuously expanding product portfolio for volume ramp-up. We expect a compound annual growth rate of 36% in sales volume from 2025 to 2030.

Second, driving sustained growth margin improvements with a target of exceeding 20% by 2030. On the revenue side, we will raise average selling price and margins through brand strengthening new model laundries and customization offerings. On cost side, we will leverage loaded integration, daily supply chain, and product synergies and economic scale to effectively optimize cost control.

Third, adopting strict expense discipline based on the first two drivers, we are implementing rigorous cost control costs at GNA and R&D, with the goal of reducing their combined share of revenues to below 25 by 2030, enabling our EBITDA to turn positive.

In summary Focus 2030 provides a clear and actionable profitability roadmap drive volume growth through product extension lift growth margin through brand premium and cost discipline and deliver positive earnings through integration synergies and the lean operation Our first top 2026 business performance already reflects our firm commitment to moving points in this direction Thank you all Thank you.

At present, Fumi deliveries are primarily concentrated in China as of June. The 30th cumulative orders of Fumi in China stood at 2200 units. with deliveries exceeding 1,800 units, largely in line with company expectations. EU deliveries are scheduled to commence in the fourth quarter, with markets in the Middle East and other regions to follow in December. As a hybrid model featuring a smaller battery pack and lower farm cost, the FOMI commands a higher gross margin than our pure electric vehicles. In addition, the model benefits from deeper collaboration with Fili, leveraging platform sharing and economical scale, which further sports a healthy margin profile. Production and self-performing are still in the ramp-up phase, and we are confident that margins will continue to improve as we should steady state volume.

The Lotus Technology Inc. earnings conference call. In the first half of 2026, the Chinese Passenger Week market price above RMB 500,000 We call it a south of 185,000 units, down 12.8% year-on-year. However, new energy penetration in this segment climbed to 40.2%, driven primarily by a sharp rise in PHAF penetration, from 0.9% in 2005 to 21.6% in the first half of 2026. PHAF sells surged more than 24th year-on-year to 40,000 units, overtaking range extenders at the largest new energy sub-segment. Using this opportunity, Lotus launched the 4Me in late March, lifting our market share in China's above RMB 500,000 passenger vehicle segments to nearly 2% in the second quarter. The customer profile of the 4Me have also been highly encouraging.

To date, 63% of buyers are new to the Lotus brand, and over 70% of customers have opted for the higher spec variant. In the second half, we will sustain momentum through integrated test drive experience events and ongoing word-of-mouth marketing to maintain product buzz and sales cadence. With the addition of hybrid models, Lotus dealership footprint in China has been further optimized, particularly in the northern region, with trends in the northeast and northwest, opening up new markets for future sales growth. In the past, the last year we have launched Electro-X. We will now turn the call over to management for a long time. In Europe, we formally commenced the order taking for the Electro-X in the first half, adding a fresh growth driver for the second half and beyond.

In the first half of 2026, EU SUV sales above €70,000 reached 160,000 units, with new energy penetration remaining high at 52%. Within that, PHEV SUVs accounted for 58,000 units, representing nearly 70% of the new energy mix. We conducted multiple rounds of marketing pre-launch activities in Europe during the first half, generating positive market feedback and establishing a solid foundation for the product rollout. In parallel, we have been advancing our digital marketing strategy across Europe, building a customer pipeline to support order conversion in the second half, and further expanding our prospect base. Our EU marketing strategy will gradually shift from brand awareness to self-conversion, leveraging diverse in-depth experience events and sustained digital engagement to strengthen customer relationships and improve conversion rates.

The introduction of the Electro-X has effectively enabled us to access market segments and niches that our pure electric offerings alone could not cover. As such, we are equally confident in the incremental volume that the Electro-X will deliver following its European launch and deliveries. Thank you.

Teph 135将填补 Imeria 合一, Ivaria 之间的产品段层,形成 Imeria 燃油入门跑车, Teph 135 混动旗舰超跑, Ivaria 收藏及极致性能的 HyperCard 完整跑车矩阵。 引领莲花品牌向上, Imeria 有 GT4,我们会参加 GT4 比赛,也取得了一些成绩,比赛,澳门的格林匹治打完去 GT4。 The Type 135 is a critical high-performance hybrid product for Lotus in the next phase of our development. As mentioned earlier, the Type 135 marks the return of a mid-engine V8 model after 22 years. Leveraging Lotus's expertise in aerodynamics, lightweight engineering, and chassis tuning, the Type 135 will establish a new technical benchmark for high-performance sports car, reaffirming to the market our ability to translate track-bred engineering into extraordinary job-dreaming experience. And the first is for dilifying the Lotus brand air source and image. The Type 135 will bridge the product gap between the EMEA and the EVA, creating a complete sports car portfolio that spans the EMEA as an engine-level combustion sports car, the Type 135 as a hybrid flagship hypercar, and the EVA as a collectible ultimate performance hypercar, positioning the Lotus brand for its decisive upvalley.

On the motorsports front, the Emiro already competes in GT4 events, where we have achieved notable results, including podium finishes at the Macau Grand Prix Greater Bay Area GT Cup. With the Type 135, we will take the next step forward and enter GT3 competitions. Beyond its brand-boosting effects, the Type 135 will also elevate our lifestyle vehicle lineup, complementing the Electro-X luxury hybrid SUV, the all-electric electric enterprise sedan EMEA. This multi-power-train strategy coverage will income-friendly definition and appear across our lifestyle vehicle portfolio. From the market, the market market market market market. The Lotus Teechnology Inc. earnings conference call. I will now turn the call over to management for a market demand perspective. Sales of our core sports car competitors have been impressive, with a compound annual growth rate of 7% to 9% from 2022 to 2025.

Global sports car sales reached 150,000 units in 2025, with the addressable market expected to pick up at up to 190,000 units in 2028 and 220,000 units by 2030. In the United States, above U. S. 600,000 sports car segments have shown 30 year-on-year growth, but the premium above U. S. 600,000 sports car market in both Europe and the U. S. is seeing a clear trend towards hybrid transition, with the hybrid share rising from 26% in 2025 to 35% in the first half of 2026. Cool sports car enthusiasts in Europe and the U. S. place high value on the risk of appeal of internal combustion engine, sound, and mechanical driving telecom. Pure electric supercars constrained by battery weight and charging infrastructure have structure to win over traditional performance buyers.

The Type-135 hybrid V6 plus V8 approach offers the ideal solution, delivering compliance with global emission regulations while preserving the essential Lotus DNA of lightweight engineering, aerodynamics, and extreme track-focused driving dynamics, filling a clear gap in the market.

On the Technology front, our Lotus is a great idea of the technology. Over Lotus more than seven decades of history, limited in-house power train capabilities have been our most significant handicap. We have traditionally relied on outsourcing. This time, with Gilead's strong support and technology enablement, we are co-developing a high-performance power train with HOOS. This collaboration allows us to leverage Lotus' core strength in lightweight engineering, aerodynamic design, and sophisticated chassis tuning, while tapping into Gilead's resources, global supply chain, and scale advantages, meeting the Type 135 power requirement, while balancing R&D investments and per unit cost. This technology will be applicable to future generations of the ElectroX. WL35 will continue to be the most fundamental principles of the Lotus brand.

As the product remains in the development phase, further technical and product details will be disclosed at an appropriate time in the future. Thank you.

Thank you. We have developed different strategies and plans for different regions For example for China market first we are going to maintain the market momentum and launch cadence over the four weeks through an integrated test drive experience program sustaining the sales cadence established in quarter two Second, we have also introduced the Lotus Emira 420 sports and the Lotus Electra and Emira 900 gold edition. These high-performance new products will elevate brand awareness, reinforce our value proposition, and motivate market engagements.

Third, strengthen customer engagements and increase the customer referral rate. And fourth, leverage hybrid models to enhance our sales network footprint in northern China, upgrading distribution network in high-potential markets to convert market opportunities into tangible sales results. In Europe, we will first start with the launch of Electro-X, which will progressively unlock initial market demand. And second, in the second half, our marketing strategies will shift from brand exposure to sales conversion, with a sharpened focus on high-conversion channels and customer relationship management.

Lastly, we will continue advancing channel development in key markets, further optimizing the dealer network and retail operational capabilities. As for the American region of Brazil, our third largest volume driver in the American region after the U. S. and Canada were officially commenced deliveries in the second half. Besides, with the introduction of the EMEA 424 and the Model Year 27, we will reinforce the EMEA driver-centric positioning centered on driving engagements, captured demands created by the discontinuation of the Porsche 718, and accelerate order conversion at the dealers while generating new pre-orders. The other region is the most important thing that is when the PhEV product is now. The project will be launched in the ELECTROX. The EMEI-420 will continue to enter the market market.

The EMEI-420 will be in the world market. The EMEI-420 will be able to increase the market market. We will continue to do the network of the EMEI-420, For the rest of the water market, the most significant milestone for the second half is the official market launch of the PHAP product in the Middle East, with the Electro-X scheduled to arrive in the region by year-end to drive water growth. Additionally, as the ERA 420 rolls out to global markets, we expect it to contribute incremental sales in the Middle East, Australia, and other countries and regions. We will also work on continued network expansion, including the Caucasian regions and the Middle East regions. Thank you.

The Lotus Technology Inc. earnings conference call. I will take the privilege to answer your first question and leave the second question to our CFO. We have strong confidence in our medium- to long-term operating targets, underpinned by the following pillars.

First, the brand. Through global motorsports events, for example, Lotus Cup and Lotus Driving Academy, and the launch of the hybrid flagship HyperCart Type 135, we will continue to reinforce Lotus' 78 years' performance DNA and elevate brand value.

Next, channels. As of June the 30s, we operated a total of 217 retail stores across Europe, China, and the rest of the world, with new market entries into Brazil, Paraguay, El Duroa, and other South American countries. We will sustain global channel expansion, continuously optimize and upgrade our existing network, strengthen customer engagement, and improve conversion rates.

Finally, product by 2030, we will establish a comprehensive product portfolio covering the entire luxury performance spectrum with both plug-in hybrid and pure electric high-volume models to address diverse customer needs across different markets. Our sports cars will showcase those driving DNA running through tracks to roads and in-house brand premium. We have already launched the Electro-X, with deliveries underway in China and the 6 overseas markets. EU market entry is scheduled for the fourth quarter, Middle East deliveries by year-end, and the EU market launch planned for mid-2027, all of which will contribute to world growth. In 2028, we will also introduce the flagship hybrid Hypercar Type 135, providing an additional boost to self-hike. Thank you.

Thank you to Michel for your questions. I will complement the first question with my views on the financial part, and I will answer your second question. The first question is focused on the theory. On the financial side, to lower the cost, we will focus on driving synergies across multiple stakeholders.

First, supply chain collaboration and manufacturing scale with Gidi. For lifestyle vehicles, all 50% of components are shared with Gidi. Leveraging Gidi's centralized procurement and skill advantages, those gains access to a broader pool of high-quality global suppliers, deliver the meaningful cost reductions. And secondly, R&D platform shared with Gidi. In the last few months, the full in-house development of vehicles and architectures, like the company alone, may require over $1 billion investment. But building ITDs underlying platforms and embedding Lotus-specific technologies become materially lowered and expanded. And thirdly, the full integration of Lotus UK will allow substantial energy benefits, synergy benefits. And in parallel, we will diversify revenue streams through the high-end customization and the limit addition models. Supporting our target is lifting gross margin about 20%.

Concurrently, we will pursue refined operational management, exercise type expense control, and further unlock operating leverage to deliver the profit positive. And in sum, under our focus 23rd strategy, we prioritize development quality and profitable growth rather than pursuing the sales volume for its own sake. So that's the answer for the first question. I will continue with your second question regarding the collaboration of the synergies with the OneLotus. And as you know, the combined Lotus brand will preserve its global consistent positioning as a high-performance luxury provider. The Hatho UK site will focus on the ice and the PHEV sports car lines. For seeing that differentiated strategy centered on the limited edition modules. The Wuhan China facilities will need PV and PHE last-step vehicles under the volume production strategy.

We will also prioritize opposition of integrations, binding, shared, and dis-manufacturing and supply chain functions with the goal of building Lotus into a globally compacted high-performance auto brand. Integration and synergies across shared and incompatibilities and supply chain corporations will enable the flood cost reduction and efficiency gains for the growth. And financially, we expect top-line growth for two key reasons.

First, emerald vehicle sales in the U. S. will be fully recognized as gross vehicle revenue, and pre-consolidation such procedures were only accounted for under the net revenue method. Second, service revenue from Lotus UK will be consolidated into the listed company, bringing in Lotus UK's vehicle and service. Gross margins will also improve the group's overall gross margin profile. From an expense standpoint, the near-term consolidation of Lotus UK's R&D administrative and other costs may result in wider growth level loss. Going forward, This will strengthen the integration across R&D commercial and support functions teams from both organizations, streamline the organizational structure, adopt lean cost management practices, and lower the operating expense to revenue ratio. Given this is a business under the combination, under the common control pursuant to the financial disclosure rules, the company is required to carry out retrospective restatement for the consolidated financial statement.

This statement for the fiscal year 2025 has been initiated. I expect the stated financial statements to be disclosed no later than the release date of the 2026 annual report. And for this part, please stay tuned with our announcement and public release. Thank you.

Thank you, Brian. I'll take your question. The gross margin improvement was driven primarily by two factors. First, the product needs optimization. The delivery share of the higher margin PGEV modules rose significantly, effectively lifting the overall cost margin. And secondly, the supply chain synergies and economy of scale gradually took effect, with the per vehicle manufacturing costs continuing to decline, supported by the global supply chain system and the flexible production capabilities. And this also marks the first substantive financial validation since the launch of the Focus 2030 strategy. Thank you. And for your second question regarding the pricing volatility of the chips, my understanding is like this. The cheap price volatility alone drew a nearly 2% increase in our bond costs.

In saying that, the cheap pricing did give some pressure on the company's gross margin in the first half of the year. In response, the company has been actively collaborating with the GED group to expand the supplier base and navigating through the volatility smoothly. Plus, they intensified the bottom cost optimization to offset the cheap driven cost increase. Consequently, the company's gross margin in the first half of 2026 improved compared with 2075.

Regarding the pay of chips, the price stabilization, and we believe the car drivers of this round of price increase is caused by the AI server capacity, according to the supply of automotive, grid, drum, and net chips. Based on the upstream warfare expansion schedule and the visibility into our chips supply chain, we expect supply and demand to rebalance around late 2026 and early 2027. with the price returning to a reasonable range. And as the industry cycle eases, the company's gross margin will have further room to improvement. Thank you so much.

And we have no further questions at this time, so I will hand the conference back to Michelle Ma for closing comments.

Thank you all again for joining us today. You will come through the call now. The investor relations team remains available to answer any further questions you may have. Please feel free to contact us through the contact information on our website. Have a good day, everyone. Thank you.