Q1 2024 Polestar Automotive Holding Uk Plc Earnings Call

Participants

Bojana Flint; Head of Investor Relations; Polestar Automotive Holding Uk Plc

Per Ansgar; Chief Financial Officer; Polestar Automotive Holding Uk Plc

Thomas Ingenlath; Chief Executive Officer, Director; Polestar Automotive Holding Uk Plc

Tobias Beith; Analyst; Redburn Atlantic.

Andres Sheppard; Analyst; Cantor Fitzgerald

Daniel Roeska; Analyst; Bernstein

Dan Levy; Analyst; Barclays Estimates

Presentation

Bojana Flint

Hello, everyone. Bojana Flint here from Polestar Investor Relations. Thank you for joining our results call today covering both our full-year 2023 and Q1 2024 preliminary results.
Per Ansgar, our CFO, will start with the financials update, followed by Thomas Ingenlath, Polestar's CEO. We will then open for analyst and retail investor chat questions.
But before we start, I will cover some of the housekeeping points as usual. I would like to remind participants that many of our comments today will be considered forward-looking statements under US Federal Securities laws and are subject to numerous risks and uncertainties that may cause Polestar's actual results to differ materially from what has been communicated.
These forward-looking statements include, but are not limited to, statements regarding the future financial performance of the company, production and delivery volumes, financial and operating results, near-term outlook and medium-term targets, fundraising and funding requirements, macroeconomic and industry trends, company initiatives, and other future events.
Forward-looking statements made today are effective only as of today, and Polestar undertakes no obligation to update any of its forward-looking statements. For a discussion of some of the factors that could cause our actual results to differ, please review the risk factors contained in our SEC filings.
In addition, management may make references to non-GAAP financial measures during the call. A discussion of why we use non-GAAP financial measures and the reconciliation to the most directly comparable GAAP measure can be found in the appendix of the press release published today.
With that, I would like to turn the call over to Per. Please go ahead.

Per Ansgar

Thank you, Bojana. I would like to welcome you all to this earnings call. Welcome, everyone.
Before getting into our Q1 2024 figures, I want to start by giving my view on the full-year 2023 preliminary results, which we published last week. First of all, it was important to report our figures and to take away some uncertainty that has been out there.
We are working closely with our auditors and looking to file the 20-F in the coming weeks. In the meantime, we are pleased to publish unaudited full-year 2023 figures.
Why did we need some additional time? Firstly, this is our first year of full Sarbanes-Oxley compliance, a significant undertaking for a young company. I have to say.
Secondly, correction of certain errors that largely precede our NASDAQ listing and resulting restatements. I can confirm that they have been corrected and, as guided, with an impact on our net loss of less than 5% positively in 2025 -- 2021 and 5% negatively in 2022. So not really big impact, but still took a considerable amount of work to complete.
Lastly, as you see, we booked a non-cash impairment charge of approximately USD450 million. And I will come back to this.
Okay. Let's now move over to some of the key figures from 2023, starting with the income statement. We saw global vehicle sales up 6% in 2023 to 54,600 cars. However, revenue was down 3% with channel mix and higher discounts.
Gross result was down at negative $415 million, but that included the non-cash impairment charges of $450 million. If we exclude these charges for 2023, we would have been around breakeven for gross profit margin, which is in line with the previous guidance.
SG&A costs were up 14%. This, we addressed already in 2023 as we initiated two rounds of strategic cost and headcount reductions in mid 2023 and then followed up with another one in early 2024. We are starting to see the benefit come through now, which I will cover shortly.
Other operating income benefited from foreign exchange effects on working capital and a gain on disposal of assets held for sale. In summary, the operating loss increased in large part due to non-cash impairment.
And now, moving on to cash flow highlights. Operating cash outflow was around USD1.9 billion, and that was impacted by working capital of about $800 million, negative, driven by higher inventory and settlement of trade payables.
It is fair to say that we ended 2023 with inventory higher than we wanted or anticipated. But we took actions and have seen an improvement already in the first quarters of 2024.
On financing, out of the over USD2 billion, approximately $1.4 billion come from the longer-term shareholders loans from Volvo Cars and Geely. We ended the year with $770 million in cash and cash equivalents.
This leads me on to impairment charges, principally come priced of two parts. First is the inventory impairment, and the second one is asset impairment. Starting with inventory impairment of about USD120 million for the year, up from around $40 million after nine months. This charge takes into account the value of the inventory at year end and also a forward-looking view into Q1 and Q2 2024, where sales and price trends has been reflected to current fair value.
Now over to the impairment of assets at USD330 million. All companies have to assess on an annual basis the value of its asset in relation to its future earnings capability. During the later part of 2023, we concluded that it is more appropriate to do this assessment separately on different car lines or cash-generating units because of the growth in the business, with each of those columns consuming separate assets and generating separate cash flows.
The analysis showed that it's reasonable to adjust down the recoverable asset value of some of the Polestar 2 assets, and that is from primarily due to the following. Polestar 2 generated less margins because of the introduction of tariffs in US a few years ago and, on top of that, our weak performance in China.
Having said this, we will continue to produce and sell Polestar 2 as it is an important car line now and into the future. And again, worth reminding, this impairment has no impact on our cash position.
And now, let's move over to 2024, which is a very exciting year for us. We have guided earlier this year that we expect 2024 to be quite different at the end of the year compared to the beginning of the year.
First half of the year, we focused on selling Polestar 2 and preparing our network for the product ramp up. This included implementing new retail distribution model and successfully launching activities and campaigns for Polestar 3 and Polestar 4. You can clearly see this in our performance in the first half of 2024.
We had a tough start of the year, but then we had a strong improvement in the second quarter. Later, you will hear Thomas giving more color on the actions we have taken.
And now, moving on to financial figures for the first quarter 2024. Revenue was down about USD200 million. This was due to lower volumes, higher discounts to manage inventory, and with the revenue recognition complexities on sales, of course, to our China JV.
Gross profit margin was negative at around 9%, basically reflecting the lower revenue as well as movement of R&D amortization into COGS. SG&A expenses were down 1% despite marketing for Polestar 3 and Polestar 4. We are pleased to see the underlying cost efficiency starting to kick in from the strategic programs implemented, including headcount reductions.
In terms of our cash flow, operating cash outflow of $230 million is mainly explained by the [EBITDA] and early improvements on inventory, offset by payables. As you see from our Q2 sales, we expect to see more working capital improvements in the second quarter and going forward.
Investing cash flow -- outflow was about $190 million, in line with plans and as we continue to invest in Polestar 3, 4, and 5.
Financing cash inflow was a net increase of around $460 million. We have fully utilized the $950 million club loan that we secured in the first quarter. However, we have also made some repayments of other loans and trade financing facilities. Remember, we have a EUR470 million term finance facility, which remains largely undrawn.
Let me finish with the outlook for the rest of the year and into 2025. Sales momentum seen in the second quarter has had a positive impact on inventory levels and cash flow. We remain confident of an even stronger deliveries through the second half of the year, driven by the two premium SUVs.
Though the business has increasing momentum, we see short-term uncertainties from the introduction of import duties alongside continued pricing pressure in global EV markets, including China. In light of these factors and while continuing to target a cash flow breakeven in 2025, we are adapting our business plan, including additional mitigation, and we expect to provide updated guidance later this year.
Thank you, everyone. And with this, I will let Thomas cover the recent business developments.

Thomas Ingenlath

Good morning and good afternoon, everyone. Thank you for joining us at this conference call.
First, I would like to reflect on the Q2 delivery figures. Start of this year was very slow, but we took immediate action. We activated our sales organization, and we accelerated our retail efforts which, I'm pleased to report, resulted in deliveries of 13,000 cars in the second quarter with strong performance in the US, and Sweden, and Norway, and Germany, including very strong development in our retail order intake, up 169% year on year.
This has really energized our teams as well as our retail partners, and it has created a great momentum when we introduce now our two new SUVs with hand-raiser test drive weeks and first handovers to customers. The global media test drive in Spain for Polestar 3 and 4 was a great success, and the global reviews are spectacular. I think it's fair to say that we have created here real winners.
Let me just share two of my favorite headlines. FIRST DRIVE says, Polestar 3 is a stunning looker that fills a unique bridge between premium EVs and premium internal combustion engine SUVs. I think that describes an important quality of the Polestar 3 being able to attract customers from both worlds. And another one, [AutoEV], not only the best Polestar to date, but the best in its class by a country mile. It is sensational.
When it comes to Polestar 4 reviews, they only came out yesterday. The embargo lifted yesterday. And again, really positive headlines, fantastic reviews.
One of them, Driving UK saying, no rear window but a clear vision, taking on the Porsche Macan. So this summer, it is happening. We are turning from a one-car company to a three-car product portfolio.
To harvest this to the full extent, we are adjusting our retail and sales model to drive commercial performance and reach a wider customer base. This work, we have accelerated in the last quarter as we have announced the first shifts to a non-genuine agency model in Europe, starting in Sweden and in Norway.
With this shift, we activate our space partners in the commercial process, going from being a distribution to a real sales channel, contributing actively in conversion and the order intake and making it easier for customers to actually purchase a car directly in this space.
We will also jointly increase significantly our retail footprint in all key markets, including the US. We will also be targeting several new market launches in 2025: France, Czech Republic, Slovakia, Hungary and Poland, and Thailand and Brazil.
Connected to our sales operations, we have made management appointments in key markets during the beginning of the summer. And I'm really pleased that we have brought in senior automotive sales experience to our company.
One of the challenges that we face right now are the announced import duties. Also, all the full impacts are still unclear. What we do know is that we took steps quite some time ago to de-risk and diversify our business. And that's why I made the decision to manufacture Polestar 3 for North America and Europe in South Carolina. And this is on track to start during the end of the summer.
Polestar 4 production initially for the North American market will start in South Korea during the second half of 2025. As Per mentioned in the outlook statement, our ambition of achieving cash flow breakeven in 2025 remains, and we are reviewing our plans to protect this goal in light of these challenges. And we will provide updated guidance later this year.
Polestar is the only European pure EV brand, and that is thanks to Håkan Samuelsson's vision and ambition. On behalf of everyone in the business here, I want to thank him for his work and commitment to us as the Chairman as he enters retirement.
Same time, I'm very happy to welcome Winfried Vahland as our new Chairman following the upcoming AGM. Winfried is with significant experience from the car industry, both executive and at Board level. And it will benefit Polestar greatly as we move forward into the next phase of our development.
Carla De Geyseleer has also chosen to not stand for reelection at the upcoming AGM in order to focus on her full-time executive role. We wish Carla the best in her future career. And thanks a lot to you, Carla.
Subject to approval at the upcoming AGM, we also welcomed two new Board directors: Laura Shen, who brings significant automotive experience from China; and Christine Gorjanc, who brings significant finance and accounting experience and who will chair our Audit Committee in the future.
As I look with confidence ahead based on my belief in our cars, our brand, our strong shareholders, and the resilient position that we have built for our business center. The world around us has changed significantly since we launched our brand, not least in the last few months, with very basic things like global free trade being questioned. But we are prepared for this.
We are one of the only EV startups with a diversified manufacturing footprint planning to include Europe as well in the next step. We have strong momentum as we enter the second half of this year. Our two new SUVs have received stellar reviews, and test drive slots have booked out.
Our retail model shift is an execution, and we have strengthened our sales management team significantly. We expect strong revenue improvement in the second quarter, and we are confident about our business performance in the latter part of the year.
Looking further ahead, our model expansion and increased market presence with seven new market launches to come in '25 will be key growth drivers for us. So operator, please, let's move now to the analyst Q&A. Thank you.

Question and Answer Session

Operator

Thank you. (Operator Instructions) Tobias Beith, Redburn Atlantic.

Tobias Beith

Good afternoon, Thomas, Per, and Bojana. Lovely to chat again. My first question relates to the second-quarter volumes. I must admit it's quite surprising. I was wondering whether you could disclose how many Polestar 4s were sold in the period to your Chinese joint venture like you did in the fourth quarter and the first quarter of this year.

Per Ansgar

Thank you, Toby. This is Per. Thanks for your question. We sold quite some Polestar 4s in the last part of the 2023, and we also sold quite some in the first quarter. In the second quarter, there were very few. I would say around 200 or so.
So basically, all sales, except some deliveries of Polestar 3, is related to Polestar 2, which we are very happy to see. On top of that one -- now we only talk about our deliveries. On top of that, we have a very strong order trend, well, on all car lines, but also including Polestar 2s. So when we move into the third quarter, we are expecting to see continued growth in our sales.

Tobias Beith

All right. Understood. And proportionately, volume of Polestar 4 was twice impactful in the first quarter than it was in the fourth quarter of last year. But the gross margin before impairments seems to have remained negative. Are you able to discuss this for me and outline how it turns profitable?

Per Ansgar

Yes. Obviously, the Polestar 4 is generally very, very profitable car. And you will see that as we move forward here, the larger car is -- and it has better gross profit margin, obviously. In the first quarter, we had a complex situation in terms of revenue recognition related to our Chinese JV.
So we have actually delivered costs in the first quarter that you could not take full revenue recognition for. We see that this will even out over the year here. You cannot really draw any conclusions on the Polestar 4 gross margins out of the first-quarter sales. We should come back and have more discussions around that when we start to see sales in the third quarter ramping up on higher volumes across the world.

Tobias Beith

All right. And a final one from me. I noticed that in certain key countries, the estimated delivery dates for new Polestar 3 or Polestar 4 is before year end. And also, a cheaper, single-motor variant has already been released in Europe. Are you able to comment on demand versus order supply for these models, please?

Bojana Flint

The order book of Polestar 3, Polestar 4s.

Thomas Ingenlath

Yeah, Toby. I don't quite -- sorry, I don't quite understand the question. I just tell you what the journey ahead is with Polestar 3. Because you know that we started now the very first deliveries by the end of this month, June; and we will, in quarter three, now ramp up the deliveries to customers. And of course, we are serving in these months, to start with, the order book that -- half of this for this car.
Rightfully, the single-motor version, we only released now. And of course, this will kick in much later in terms of deliveries. We took the deliberate decision of offering this car already now because we, in a way, want to as well give options to customers that are maybe very, very tempted for this car but see that the car has a single-motor version and with a price tag attached that is more suitable to their purchasing power.
So that is not directly related now for the first six months of deliveries. This is, of course, mainly the dual motor and the order bank that we have to work down now.
And one thing I think I should mention as well, we will, of course now, in the first months of July especially, still be very careful and not pushing out too many cars at once. Because we just simply want to really quality assure those deliveries, make sure that customers have (inaudible) software that we deliver the right experience. And we'll ramp up then according to that August, September; and that will be then, of course, much more getting into the normal flow of what we expect to be able to get out of the months.
So slightly careful ramp up now, but of course, it is a very, very strong and big test drive program that we have. Because all in all, 40,000 hand raisers that we have waiting for quite some time now to get into the car. This is now one of the biggest activities, that we have to give the hand raises the opportunity to get into the car and experience this. And of course, we expect quite a good rate of conversion from these hand raisers.

Tobias Beith

All right, understood. Thanks, Thomas. Just in case, helpful clarification. The point that I was trying to make is that in key markets that you're not sold out for this year, i.e., the order book doesn't extend through to year end but presumably, you've purchased vehicles, that your purchasing quantities spans through to probably sometime next year. So I just wanted to understand that dynamic, but your answer was very helpful. So I'll pass on the line. Thank you, all.
Thank you.

Thomas Ingenlath

Welcome.

Operator

Thank you. Andres Sheppard, Cantor Fitzgerald.

Andres Sheppard

Hi, good morning. Good afternoon, everyone. Thank you for taking our questions. I wanted to start -- maybe Thomas or Per, can you help us just understand the -- maybe help us quantify the impact of the announced tariffs? Just curious how that has been impacting you. And how will that change once the facility in the Carolina is up and running? Thank you.

Thomas Ingenlath

Yeah. The 100% tariff that has been announced some weeks ago for the US. In way, it almost -- and I stress now, almost -- fits perfectly with us actually, introducing the production in South Carolina for Polestar 3. Because of course, on one hand, this is serving the purpose of having, I call it now, a normal tax situation with the Polestar 3, not having 100% import tariffs on the Polestar 3.
And therefore, of course, our acceleration in the US market and everything is catered, of course, around the strong belief that the Polestar 3 is a perfect product for the US and having the production in South Carolina up and running. On top of that, of course, exporting the Europe volume from US in order to actually have then the pool for Polestar 4 import into the US. So that goes hand in hand.
And the effect in the mid and long term of this increase in tariff should be basically completely mitigated by this production in South Carolina. Almost it's about a couple of weeks where, indeed, these tariffs kick in already whilst the production is not yet up and running.
So indeed, we had to work around how many cars we could still import from the initial production in Chengdu into the US before we had to stop this import and the South Carolina production is up and running. This was about a couple of weeks where there was this mismatch.

Per Ansgar

I would add to this. And this is Per here. It is also important to understand that there is a mechanist which we call duty drawback where we can match incoming tariffs versus outgoing tariffs. So the Polestar 3 production in Charleston is very important because we plan to use that for export out to US.
And then we can also have some benefit from that one from a duty perspective. So with the actions we have already taken since long, we are quite well hedged on these topics.

Andres Sheppard

Got it. That's very helpful. I appreciate all that color. And maybe as a quick follow-up, one for you, Per, is, can you just remind us, with slightly less than $800 million in liquidity, what is that -- what do the capital needs look like for this year? And how are you thinking about that in this environment? Thank you.

Per Ansgar

No. Thanks for that question. I must say that I am -- I must say I liked working with cash flow. I think that is very fun. And obviously, it's very important also.
So we are working very intense in the company to improve our cash flow situation. And there's always a lot of things that can be done. And you will see going forward into the second quarter that we are working very hard with working capital and to improve our cash flow situation.
So I think that is very positive from that perspective. And also, as I mentioned, we have basically not utilized our trade financing facility of EUR470 million. So we have basically 90% of that or more than 90% of that one free for time being. So we can use that going forward here.
Clearly then, with the situation right now where we see movements in tariffs and movements in price position, et cetera, there will be a lot of focus for us to adapt our business plan and our projects going forward, as Thomas said, on mitigating the activities and so on. And we will come back later this year on more specific things on how we look at our needs going forward here, if there are any changes to that or not.
What is important to say also is that earlier this year, our ultimate owner, Geely Holding, has also expressed strong support to our business. So we are in constant dialogue with both them and Volvo Cars and others just to let them know our funding position. So I'm very confident around all these things here.

Andres Sheppard

Understood. Thank you very much. I'll pass it on. Thank you.

Per Ansgar

Thanks.

Operator

Thank you. Daniel Roeska, Bernstein.

Daniel Roeska

Good afternoon. Good morning, everybody. Thanks for making time and taking the questions. I apologize for the slight background noise here. You just mentioned your relationship with Geely. May I ask for an update on your negotiations on the revenue covenants, where you stand on that? Thanks.

Per Ansgar

No. Thank you very much. Of course, on our club loan banks, we have several covenants, not only revenue. We have CapEx covenants, and we have other covenants. We follow them very closely.
We have a quite rigid process internally in the company with the credit compliance committee. So we go through this on a monthly basis. So we are following that one as you understand.
From a revenue perspective, which is one of the covenants, we were, as you can understand, a little bit disappointed with the first quarter revenue. We are now seeing that the second quarter revenue is definitely in line with our expectations.
Moving into the third quarter now, as I said before, our order book is building up. So we expect continued increase in our sales performance into the third quarter and into the fourth quarter.
This revenue covenant is done on a yearly basis, so too early to really judge on it. Having said all of that, we are, of course, in dialogue with our banks on different topics, as you can understand here.

Daniel Roeska

Yeah, thanks for that. And I mean if you extrapolate the trends you just mentioned and the higher sales you're expecting for Q3 and Q4, would you say -- would you today say, from today's perspective, that you are on track to hitting the revenue covenant in '24?

Per Ansgar

The second quarter was on track and

Thomas Ingenlath

Already.

Per Ansgar

Sorry? Already, yeah. And the third and the fourth quarter, it's -- we are working, looking good.

Daniel Roeska

Okay. That's great. That's very encouraging. You and Thomas also mentioned the actions you're taking to mitigate the tariff impact. Overall, how has that influenced your view on when achieving cash flow breakeven might be possible?
Do you think it's -- you're able to mitigate the entire impact and still reach cash flow breakeven next year? Or has the tariff situation, the reshifting of global production, has that delayed that by a couple of months?

Per Ansgar

We have said here that we should reach cash flow breakeven sometime during 2025, probably rather more towards the end of 2025, and that is very important for us. And as I said, I'm very much focused on cash flow because I think that is, of course, very important for us and for all companies, by the way.
Having said that, though, of course, we are then trying now to make sure that we adapt our plans in a way that we can reach cash flow breakeven. So we are making all the adjustments we need to do there. So our clear objective is to get to cash flow breakeven by the later part of 2025.

Thomas Ingenlath

And just to add to that, I mean, since middle of '23, we have initiated and worked a lot with cost reductions. You know about the headcount reduction program, which we, from an organization point, have actually concluded and finished. So a big, big chunk has been done there.
And of course, with additional challenges, we just continue on working extensively on cost reduction, being efficient, and becoming a profitable company. That is the ultimate goal for 2025, and we don't give up on that. It just means that we do even intensified work on that.
And there's still lots to be done. And we definitely will update you in the second half of this year on that.

Daniel Roeska

Thank you. And then maybe last one for me, a broader question for maybe both of you. I mean, Thomas, you just outlined the amazing reception the cars have had. I think everybody is looking forward to getting those out to customers.
But more broadly, right, essentially, cash flow breakeven end of next year if all goes well. The liquidity on hand may just be enough, knock on wood. What do you need from markets in the next 12 months, right?
So where do you need support from your non-Geely shareholders? What would you -- what would be your message to them? How can they support you in that journey in the next few quarters?

Per Ansgar

No, I think what we've been quite clear for quite some time was that when we launched our business plan late last year, we talked about a need for more funding, partially by loans and partially by equity injections. So obviously, we are seeking to get external equity into the company because as you can see on our balance sheet, it would help with more equity into the company.

Daniel Roeska

Yeah. And Per, I mean, you hit the nail on the head, of course, perfectly. Could you give us some color on your thinking there? Because external equity comes in many shapes and forms, right? How have discussions with strategic shareholder -- how have they been going or any signs where you say, look, this is giving you confidence for the upcoming months that the plan you have in mind will come to fruition?

Per Ansgar

Yeah, I think we are working with -- on different tracks with that. We have a couple of strategic shareholders already in. And then they are, of course, reaching out to us with more interest. And then there are a couple of new ones also knocking at our doors here. So there are actually quite a few people here who think that it's a good time to invest in Polestar.

Thomas Ingenlath

And I think it's fair to say as well that the position that we are in, attracting and talking to potential strategic investors, is of course, I call it, changing with the minute. That big delivery date of us getting from that one-car company to becoming a company with three cars with the two SUVs in our lineup and really portraying as well as the commercial success of these cars. I think that's very important qualifier for us now to get into that stage. So I think that will definitely open doors.

Daniel Roeska

Thank you both very much for the comments.

Per Ansgar

Thank you.

Operator

Thank you. Dan Levy, Barclays.

Dan Levy

Hi. Good morning, and apologies some background noise. I wanted to start with just a question on volume trajectory. And I recognize you're just working on the immediate term now, but this path to cash flow breakeven, you said, was contingent on reaching or was based upon reaching 155,000 units of volume next year. You did 20,000 in the first half. Maybe you can just conceptually bridge for us the key drivers of how we get to this much larger run rate that's implied in the full-year path.
We recognize there's going to be ramping on the localized facilities and ramping on three and four. But maybe you can just give us a sense of just sort of the conceptual bridge to getting the volume to where you need to be without using discount. Thank you.

Thomas Ingenlath

I think we talked about it last time already. The key time to look at is the quarter four this year when we have the -- all three cars and full delivery swing, when we have as well the revenue stream from all three cars. And that combination of what we can achieve in revenue and volume in this quarter four will be, I think for you, the key identifier of where full year 2025 would come then to.
And it is again, for us, the main goal to achieve the cash flow breakeven. We are not chasing now the volumes and the number, per se. We really are about that profitable business and becoming a profitable company in 2025. That's what is our main goal, just to make sure that you understand what is the key for us here.
This 13,000 that we did now in Q2 with Polestar 2 -- again, this is Polestar 2 delivering on these numbers. It's a complete different situation with three cars in the line up and having, on top of that, GT that we have now as well two SUVs with production in Charleston up and running. So I think that is clearly to be seen then in the second half of how this reflects on our business.

Per Ansgar

I would also add to that one. We talk very much about Polestar 3, 4, and also the upcoming Polestar 5, which is, of course, very fun because it's very nice cars to look at and to drive. But also, we are doing a lot of activities in our distribution network.
We have announced that we're going to add more markets. Most of them are imported markets, which will give us volumes without a lot of effort from our side. So that is very positive from that perspective.
We are changing our sales model and moving over to what we call non-genuine agent model, which basically means that we will be able to have more interaction and more work directly through the dealers or the investors to drive our sales. And we are expanding our point of sales.
Just as an example, in Sweden, we are going from like 3.5 to maybe 4.10, 4.14 points, which is a very good signal that we will increase our volumes in a very simple and cost-efficient way. So it's not only about the cars; it's about how we go to market from a distribution network. And also, as we have announced, we are making quite a lot of changes in our different sales units with different management, making sure that we can drive sales in a completely different way going forward.

Thomas Ingenlath

Very good addition there, Per. I would love to pick that up again. It's, on one end, new markets, yes. But it's, probably even more important, activation of the markets where we are in. On one hand, it's the new model where our space investors, as we called them in the past -- and that already kind of tells you something about how we looked upon it, how they become much more involved and active in generating orders, making this shift from an interest into a done order.
The order intake in January, February, March, April, May, June has developed really strongly, higher than we had in the years. Especially the retail, I mentioned that figure, 169% more retail order intake than the year before.
So I think we definitely see how that can be a very powerful tool to make it much more commercial successful, our organization. And this spend for example, with Sweden, we have in the US from about around 40 sales point dealers that we have there a growth up to 60 this year ahead.
And when you see as well the momentum and the energy that these dealers -- clearly with the sales success of Polestar 2 now in Q2, how much energy and optimism they go now into the business with Polestar 3 coming into their showrooms. I think that's as well, like Per said, it's on top of having more cars -- more car models is really that smell of how much business is possible with the brand Polestar, which is driving really complete new energy levels into the sales organization.

Dan Levy

Thank you. And then maybe just as a follow-up, you talked about expanding into other markets, expanding within your current markets. I know some of these are import markets where you said there's not a lot of resource required. But maybe you can just unpack the plans to expand your volume. What is the cost of this? To enter these new markets, how much incremental cost are you taking on?
And then maybe you could just remind us, beyond 3 and 4, how much resources you are allocating toward next-gen products for Polestar 5 or beyond. Just wondering what actions you're taking to mitigate maybe some of the near-term pressure on the cost side in that regard.

Thomas Ingenlath

That's a very good point. And just as an example, out of the new markets that we have listed is only France in that -- which we will actually develop as an original Polestar-operated market, which -- then again, if you look at head count for us to operate such a market, it will be a headcount around 30 people that we need to activate the whole of France.
Because the network out there then in France, we will do together with our space investors. And that's where we actually, from a cost for the Polestar side, have very limited expenses to capture such a new big market as France, even lower cost of cost when we go to the importer markets.
For that -- all of that, we definitely try to stay and basically manage to stay flat. We reduced first big time the OpEx. And now we manage the expansion that there is planned, basically staying flat with our expenses on that. That's the target, and that is what we managed to achieve big times in the second half of '23 and want to stay flat in '24.

Per Ansgar

On the investment side, I think you mentioned also that one. Obviously now, we have started to produce Polestar 3 and Polestar 4. We are going to start it in Charleston. A big portion of those investments has already been taken. There are some more payments going into that one.
So now, our focus for the balance of this year is very much on our Polestar 5, where we have some of the R&D by ourselves here. So that goes into capitalized engineering.
When we go into next year, we will see that our investment levels are going down. Obviously then, we need to start to think about what is the next generation of, for example, Polestar 2, which we are planning to replace with a car that should be produced in Europe because that's really a car for Europe. That would also help our global footprint in a very good way.
And we are also having upgrades of the existing cars. But we are doing that now in very good collaboration with our partners, Geely and Volvo Cars, to really understand how we can limit the investment needs and the payments for that one. So we are really having a strong focus on that one for the next two years or so, I would say.

Dan Levy

Thank you.

Operator

Thank you. (Operator Instructions) Tobias Beith, Redburn Atlantic.

Tobias Beith

Hi. Thanks for taking two more of my questions. I was wondering if you could discuss the financial impact of shifting to a non-genuine agency model in Europe, specifically its impact on vehicle gross margins, operating margins, and working capital.

Per Ansgar

Yeah. When we discuss with the dealers, we are giving them a little bit more of margin on the car sales. But it's also very much performance driven. So all in all, our view is that net, we will actually gain from this, obviously, because we think it's a good performance driver for this one here.
And we are also putting in metrics. So we basically say that what is good for the dealer investor should also be good for us. For example, if they sell a more highly specced car, it should gain both of us.
So I think with this mechanism, I don't think there will be any impact on our gross margin from a negative perspective rather than the positive perspective.

Tobias Beith

Okay. And then on operating margin and working capital, does it alleviate Polestar in any way from marketing expenses? And on a working capital perspective, does it offload inventory to your dealers?

Per Ansgar

Sorry. If I get the questions right, do you say that we offload some of our cost to the dealers? Yes, we do that because we are running some of our Polestar spaces at our own expenses or in our own regime. Some of them, we will actually then have a discussion with some of the other investors to have them to take it over. So that would offload some of the cost, not significant, all in all here.
From a working capital perspective, it is still so that this model is a model where even though the dealer takes a larger responsibility for the sales, it's still Polestar who actually triggers the invoice. So the working capital improvement from that specific sale will not necessarily be so much better.
Having said that, with this setup, there will be channels to sell more demo cars, more used cars, et cetera. So all in all, there will be improvements in our working capital handling here. And with this, we will also have a much more clear demand driven and more active selling. So my view is that we should be able to reduce our net working capital from this model.

Tobias Beith

Okay, understood. And then just finally, it is encouraging to hear working capital being managed. And presumably, one of those actions that has been -- or one of the actions that has been taken is purchasing fewer vehicles from Volvo and Geely. I was wondering, how flexible are these purchase agreements that you have for contract manufacturing? And could there be further underutilization charges this year?

Per Ansgar

They are -- of course, there are some boundaries to them, so we are like in range. Having said that, that range is quite wide, and we always have a discussion around this. Sometimes it may be so that we would benefit from going up in volumes some period and the counterpart to go down, et cetera.
So it doesn't necessarily mean that if we don't hit exactly this -- inside these boundaries, that we get a charge. So it's a little bit more of a give and take from those discussions here.

Tobias Beith

Okay, understood. Thanks again.

Operator

Thank you. I would now like to turn the conference back to Bojana for questions received from retail investors.

Bojana Flint

Thank you, Sandra. We will now take three top questions from our retail shareholders that were asked over the (inaudible) technology platform. These are top voting questions. So the first one is, what plan is in place to aid in recovering Polestar stock price over the next 12 to 24 months? Thomas, are you happy to answer this one?

Thomas Ingenlath

Yeah. I mean, to start with, of course, we are with the share price development as disappointed as you are and -- we see this as well as not fair. We truly believe that the current share price does not reflect the value of our company, not now or in the future. We sell many more cars globally than -- which is almost 170 cars on the road and this strong foundations to value that slow.
So with that unique position compared to our other peers with a presence in 35 markets with three cars in our portfolio and the Polestar 5 well on its way to be there next year plus a diversified manufacturing footprint that we have invested into and it's about to come out. We really think that this is a lot, a lot good reasons for our share price to recover, go up.
And basically really, the time frame, 12 to 24 months. I mean our goal is to become a profitable company in this time frame. And I think earning really, really good money with car portfolio that people appreciate and desire and a brand that is convincing. I think we have very good reason to believe that our share price will be in a much, much better height and position in this one to two years.

Bojana Flint

Great. Thank you, Thomas. The second question we received is, any news on the share buyback that was mentioned on the last call? The share price has taken a beating.

Thomas Ingenlath

Yeah. There must be some confusion. And to make that clear, we did not talk about share buyback on the last call. There has not been a share buyback announced, and there has no buyback as in the planning or expected.
Yes, we did approve a share buyback at the '23 AGM as one of the resolutions. This is pure technically needed and the normal regular AGM resolution for all UK PLCs. It's an option but not an announcement of a share buyback.
And maybe important as well to stress here the following, how strongly our interests are linked here to Polestar share price performance on the management level. I owned lots of shares. [300,035] of the Polestar PSNY, and a big part of our executive management team's remuneration is as well reinvested into PSNY shares.
Our new Chair, Winfried Vahland will reinvest this entire remuneration, 100% of it in shares. Because we very strongly believe in the potential of our shares. The Board remuneration is also heavily weighted towards reinvestment into shares. And even our employees, they have their incentive pay fully in shares this year.
So you can see that from each and every employee all the way up to the Board, we are heavily involved and believe in this company and in the opportunity that there is with our shares.

Bojana Flint

Great. Thank you. And we will take the third and final question and then move on to closing remarks. Third question is, are you confident in bringing up sales numbers?

Thomas Ingenlath

Absolutely. Like I said before, I really look with confidence ahead. I believe in the cars that we are producing, in our brand, and of course, to shareholders and the solid foundation that we created and have built and that we have in place.
The world is changing constantly, challenging us, and we navigate through the challenges. And I think we have actually prepared the company very well with the diversified manufacturing footprint to be set up right now here, even with specific plan to go now as well into Europe production with the next projects coming.
The 80% increase in deliveries in our second quarter compared to the first one, I think that is another reason to be confident about our business performance as well later in this year when Polestar 3 and 4 will assess stellar reviews join then as well the sales performance.
As we said, test drives have started now. We have 40,000 hand-raisers that want to get into the car. So slots are fully booked for the next week. So we'll be working on offering additional opportunities for people to get into the car.
So with the strong activities in the market, we still reinforced potential that we have with our sales organization. We are definitely very confident about bringing up the sales numbers.

Bojana Flint

That's great, Thomas. Thank you. And I would also like to thank all our retail shareholders for taking the time to ask these questions. We had a platform open for a good few months, and we had some very good questions come through.
And with that, Thomas, I would like to take us to closing remarks because we are coming to the end of the call.

Thomas Ingenlath

Yeah. Thanks, Bojana. Now, my closing remarks. I hope we all see now that Polestar really has come a long way in a very short space of time, as we have moved now from start-up phase into a truly global operating car company, that strong momentum and energy in the business, three cars on the roads, and the international and strong sales network.
So we are confident that we implemented the right improvements and changes to our business setup and that we're excited about the future, which I hope all of you are excited about as well.
Thanks a lot for joining us here for your questions, of course, and taking your time to be on the call with us today. I wish you all an enjoyable, great summer. And of course, I hope as well that you take the opportunity to book a test drive in the Polestar 3 and 4 in the weeks to come. Good luck with getting a spot for that.

Per Ansgar

Thank you.

Bojana Flint

Thank you. Thanks, everyone.