Executive Summary / Key Takeaways

• Lotus Technology (LOTWW) is strategically transforming its iconic sports car heritage into a formidable luxury electric vehicle (EV) and plug-in hybrid electric vehicle (PHEV) brand, underpinned by proprietary Hyper Hybrid EV technology and advanced AI-driven autonomous driving solutions.
• The company is aggressively pursuing its "Win26 strategy," targeting positive operational cash flow and EBITDA by 2026, driven by the launch of new performance-oriented PHEV models, the expansion of its high-margin Lotus Robotics ADAS business, and a "ONE LOTUS" brand consolidation.
• Lotus's 900-volt Hyper Hybrid EV technology, boasting over 1,000 km combined range and industry-leading dual hypercharging, along with its intelligent chassis system, offers a significant technological differentiator in the luxury performance segment, particularly appealing to markets with slower BEV adoption.
• While recent financial performance for the first half of 2025 shows declining revenues and gross margins due to strategic destocking and tariff impacts, management anticipates a "V-shape" recovery in gross margin and improved profitability as new Model Year '26 vehicles and PHEVs launch, and high-margin ADAS revenues grow.
• Lotus is positioning itself for market share leadership in China's ultra-luxury EV segment and leverages its unique performance DNA globally, but faces intense competition from established EV players and traditional luxury brands, alongside ongoing liquidity needs and geopolitical trade tensions.

A Legacy Electrified: Setting the Scene for Lotus Technology

Lotus Technology Inc. (LOTWW) is embarking on a transformative journey, leveraging its storied British sports car heritage to carve out a significant presence in the burgeoning luxury electric vehicle (EV) and plug-in hybrid electric vehicle (PHEV) markets. Incorporated in August 2021, the company's core business encompasses the design, development, and sale of luxury battery electric lifestyle vehicles, alongside its traditional distribution of sports cars globally. This strategic pivot is not merely an adaptation to industry trends but a bold redefinition of luxury performance through electrification and advanced intelligence.

The automotive industry is in the throes of a profound shift towards electrification, yet the path is not uniform. While battery electric vehicle (BEV) penetration in the premium segment has not met all expectations, interest in plug-in hybrid electric vehicles (PHEVs) is gaining considerable momentum. Lotus Technology's overarching "Win26 strategy" directly addresses this dynamic, aiming for positive operational cash flow and EBITDA by 2026. This strategy is built on a foundation of technological innovation, operational efficiency, and a unified brand identity, exemplified by the "ONE LOTUS" consolidation. The company's foundational strength lies in its performance DNA, which it is meticulously integrating into its electrified future.

Technological Innovation: The Hyper Hybrid and Intelligent Edge

At the heart of Lotus Technology's investment thesis lies its differentiated technology, particularly the groundbreaking 900-volt Hyper Hybrid EV technology. This is not a conventional hybrid system, but one designed to deliver an electric vehicle driving experience complemented by an engine, ensuring ultimate performance across all scenarios. The technology aims to provide a combined driving range of over 1,000 kilometers, addressing a key concern for EV adoption.

A critical differentiator is the "industry-leading dual hypercharging technology." This includes ultra-fast plug-in charging, capable of charging the battery from 10% to 80% within 12 minutes, a speed comparable to battery swap solutions. Furthermore, it features ultra-fast on-the-drive charging, achieving a rate five times the typical power consumption during driving. This ensures uninterrupted electric driving performance, even under extreme conditions like high-speed acceleration or cold weather. The "so what" for investors is clear: this technology provides a compelling value proposition, mitigating range anxiety and charging time concerns, thereby enhancing market appeal and potentially commanding premium pricing, which strengthens Lotus's competitive moat.

Complementing its powertrain innovation is Lotus's intelligent chassis system, set to be equipped in its first plug-in hybrid model. This system offers a "dual mode of driving function," allowing for both comfortable daily use and extreme performance driving. This technological capability addresses the historical trade-off between comfort and performance, offering versatility that appeals to a broad luxury audience.

Beyond vehicle performance, Lotus Technology is making significant strides in ADAS (Advanced Driver-Assistance Systems) and AI through Lotus Robotics, its wholly-owned subsidiary. Lotus Robotics provides intelligent driving solutions with global coverage, serving both Lotus-branded vehicles and external global automotive partners. This includes L2 and L2+ ADAS software and upgrades, with ambitions to deliver Level 4 or Level 5 autonomous solutions. The company has already secured US$130 million worth of ADAS contracts in 2024, with revenue from external customers surging by 450% year-over-year to US$11 million in the first nine months of 2024. This high-margin service revenue stream, with a benchmark margin of approximately 30%, is a crucial "second revenue path" for Lotus, diversifying its income and enhancing overall profitability.

Strategic Initiatives and Operational Momentum

Lotus Technology's strategic roadmap is meticulously designed to capitalize on its technological advancements. The product pipeline is robust, with the Emira sports car seeing a Model Year '26 rollout globally and a significant powertrain upgrade planned for 2027 to comply with EU7 emissions standards, potentially including a V6 engine and alternative hybrid solutions. The Eletre Hyper SUV and Emeya Hyper-GT models also received a Model Year '26 refresh, with deliveries commencing in China in February 2025 and expanding to Europe and other regions in Q2/Q3 2025.

A pivotal launch is the new performance-oriented PHEV model, which is expected to debut at the end of 2025, with deliveries beginning in China in Q1 2026, followed by Europe and other markets. This model will be the first to feature the Hyper Hybrid EV technology. Looking further ahead, a new model, internally coded "Vision X," is foreseen for launch in 2027, contributing to the company's "Vision 80 strategy" of having six models in total.

The "ONE LOTUS" consolidation strategy, expected to finalize by the end of 2025 or Q1 2026, aims to integrate Lotus Cars in the U.K. (sports cars) and Lotus Tech (lifestyle vehicles) under a unified brand. This non-cash transaction, resulting from the exercise of put options by Geely HK (0175.HK) and Etika, is expected to drive significant efficiency improvements and technology synergies, with Lotus U.K. benefiting from Lotus Tech's Hyper Hybrid solutions.

Lotus's global market strategy involves strategically phasing out underperforming retail outlets while broadening urban coverage, developing customized pricing and product strategies, and prioritizing tariff-advantaged and premium EV markets. The company is actively exploring U.S. localization plans, including potential manufacturing, to mitigate the impact of U.S. tariffs on its China-produced lifestyle vehicles. Despite an expected sales loss of 200-300 sportscars in the U.S. due to tariffs, the U.S. market remains a strategic priority.

Brand building remains a core focus, with initiatives like the official return to the Goodwood Festival, the introduction of Chapman Bespoke services, and the Lotus Champion Driver program. Operationally, the company has demonstrated a strong commitment to cost control, achieving operating expense reductions for seven consecutive quarters by Q2 2025. This "Lean" approach, coupled with leveraging Geely's global ecosystem for shared EV architecture and cost efficiencies, is fundamental to achieving the Win26 targets.

Financial Performance: A Transition to Growth

Lotus Technology's financial performance in the first half of 2025 reflects a period of strategic transition and external headwinds. For the six months ended June 30, 2025, total revenues decreased by US$179.8 million (45.20%) to US$218.3 million, down from US$398.1 million in the same period of 2024. This decline was primarily attributed to the impact of tariffs, gradual destocking activities, and the phased commencement of upgraded model deliveries. Sales of goods revenue decreased by US$185.4 million (48.40%) to US$197.5 million, with both BEV lifestyle models and sports cars experiencing significant reductions.

Gross profit for the first half of 2025 fell to US$17.9 million from US$50.9 million in 2024, resulting in a gross margin decrease from 12.80% to 8.20%. This was largely due to decreased vehicle sales volume, destocking efforts, and a shift in product mixture. However, service revenues showed resilience, increasing by US$5.6 million (36.90%) to US$20.8 million, driven by growth in automotive design and development services provided to OEM customers. The gross margin for service revenue was notably higher at 55% in the first nine months of 2024, compared to 28% in the prior year, highlighting the profitability of its technology-related income.

Despite the revenue challenges, the company demonstrated improved operational efficiency, with operating loss narrowing to US$263.4 million for the first half of 2025, a 40% decrease from US$437.7 million in 2024. This was supported by a 42.40% reduction in total operating expenses, including significant decreases in research and development, selling and marketing, and general and administrative expenses. However, a US$51.5 million impairment loss on long-lived assets was recorded in H1 2025, attributed to "lower performance results compared to original plans." The net loss for the period decreased by 32% to US$313.0 million.

Liquidity remains a critical focus. As of June 30, 2025, Lotus Technology had an accumulated deficit of US$3.01 million and net current liabilities exceeding current assets by US$1.18 million. Net cash used in operating activities for the six months ended June 30, 2025, was US$150.9 million.

The company explicitly states "substantial doubt about the Company's ability to continue as a going concern exists" and is actively evaluating strategies for additional funding, including reducing expenses, securing new loans, and exploring further equity financing. Recent financing efforts include a securities purchase agreement with ATW Partners for up to US$300.0 million in convertible notes (US$10.0 million issued in August 2025) and a master credit facility framework agreement with Geely Holding for up to RMB1,600 million (July 2025). Additionally, the company completed substantial share repurchases from Meritz (008560.KS) in July and September 2025, totaling US$588.4 million, effectively settling outstanding put option liabilities.

Competitive Landscape: Battling for Luxury EV Dominance

Lotus Technology occupies a niche in the highly competitive luxury sports EV market, positioning itself as a specialized player focused on performance and bespoke design. In China, the company has demonstrated strong competitive traction, becoming a leading model in the premium battery electric SUV segment in Q2 2025. Lotus aims to increase its market share in the ultra-luxury vehicle segment (priced above $80,000) in China from 40% in October 2024 to 50% or even 60%.

Comparing Lotus to its key direct competitors reveals distinct positioning:

• Tesla (TSLA): Tesla dominates with its scale, advanced software, and extensive charging network. Lotus, in contrast, emphasizes bespoke luxury, a rich performance heritage, and unique hardware-driven driving dynamics. While Tesla excels in mass production efficiency, Lotus seeks to differentiate through exclusive, sports-oriented experiences.
• Lucid Group (LCID): Lucid focuses on superior range and efficiency in luxury EVs. Lotus's Hyper Hybrid technology and intelligent chassis aim for dynamic design and handling, potentially offering a more engaging driving experience for sports enthusiasts. Lotus might lead in aesthetic and performance differentiation, but Lucid holds an edge in energy efficiency and established battery technology reputation.
• Rivian Automotive (RIVN): Rivian targets premium electric trucks and SUVs with an adventure focus. Lotus's luxury sports EVs offer a different value proposition, emphasizing refinement and urban luxury. Lotus may lead in performance-oriented features, while Rivian benefits from product diversity and strategic partnerships.
• NIO (NIO): As a fellow Chinese EV manufacturer, NIO competes in premium smart EVs with battery-swapping technology. Lotus's sports models offer superior handling dynamics and a distinct sports heritage, contrasting with NIO's emphasis on connectivity and battery solutions. Lotus aims for design exclusivity, while NIO demonstrates faster innovation in user experience and broader market reach within China.

Lotus's competitive advantages, or "moats," include its deep heritage in sports car design and engineering, proprietary electric vehicle technology (such as the Hyper Hybrid system and intelligent chassis), and a strong focus on luxury customization. These elements translate into tangible benefits like enhanced driving dynamics and a unique brand appeal, potentially leading to stronger customer loyalty and pricing power in premium segments. This technological edge directly counters competitors' strengths by emphasizing hardware excellence and bespoke experiences, which can drive higher average selling prices and improved gross margins.

However, Lotus faces vulnerabilities due to its smaller operational scale and less extensive global brand recognition compared to some rivals. These factors can lead to higher customer acquisition costs and potential supply chain dependencies. The company's strategy to avoid pricing competition and instead focus on increasing average selling prices, coupled with launching limited and bespoke editions, is a direct response to these competitive pressures.

Outlook and Risks: Charting the Path Ahead

Lotus Technology's outlook is anchored in its "Win26 strategy," which projects positive operational cash flow and EBITDA by 2026. This ambitious plan anticipates a significant boost in sales volume to over 30,000 units and a gross profit margin exceeding 20% by 2026. The core assumptions underpinning this guidance are the successful global rollout of its new PHEV products, continued growth in the high-margin ADAS business, and sustained operational cost controls.

Management expects a "much improved" gross margin in 2025 compared to 2024, driven by the conclusion of destocking activities and a better product cost structure. The launch of Model Year '26 products in China (Q1 2025) and Europe/ROW (Q2 2025) is expected to stimulate sales and improve margins. While the company anticipates a sales loss of 200-300 sportscars in the U.S. due to tariffs in 2025, it remains committed to exploring localization plans in the U.S. market.

Despite the promising outlook, several risks warrant close investor attention. The company's explicit statement of "substantial doubt about the Company's ability to continue as a going concern" underscores its ongoing liquidity needs. While new financing arrangements are in place, the ability to access further debt or equity financing on acceptable terms remains a risk in uncertain global financial markets. Intense competition in the luxury automotive market, rapidly evolving technology, and the inherent complexity of global regulations pose continuous challenges. Geopolitical tensions and tariff policies, particularly impacting lifestyle vehicle exports from China to the U.S., represent a significant external risk that could disrupt sales and supply chains. Furthermore, consumer demand and willingness to adopt luxury electric vehicles, especially in a rapidly changing technological landscape, could impact sales trajectories.

Conclusion

Lotus Technology is at a pivotal juncture, transforming its legendary brand into a leader in the luxury electrified vehicle segment. The core investment thesis hinges on its ability to leverage proprietary Hyper Hybrid EV technology and advanced AI-driven ADAS solutions to create a differentiated product offering that resonates with discerning customers globally. The "Win26 strategy," with its clear targets for profitability and sales volume, provides a roadmap for this transformation, supported by rigorous cost management and strategic market expansion.

While the company faces significant challenges, including liquidity concerns and intense competition, its technological leadership in performance-oriented PHEVs and intelligent driving, coupled with a focused brand consolidation strategy, positions it for potential long-term growth. The successful execution of new model launches, particularly the Hyper Hybrid PHEV, and the continued expansion of the high-margin Lotus Robotics business, will be critical indicators of its ability to achieve its ambitious financial targets and solidify its standing in the evolving luxury automotive landscape.