Lotus’s Path to Profitability Proving Rocky

Introduction

Lotus, the Geely-owned company, is positioning itself as the future of electric performance luxury cars ahead of its upcoming public listing. However, the company is facing several challenges that have led to a scaling back of its near-term goals.

Lotus’s Electric Lineup

Last week, Lotus introduced its new electric saloon, the Emeya, which will compete with the Mercedes EQS. The company expressed confidence in achieving its long-term target of selling 150,000 cars per year by 2028. The Emeya will be available for delivery next year, following the launch of the Lotus Eletre large electric SUV in China. Lotus plans to release a smaller SUV, codenamed Type 134, in 2024 to compete with the Porsche Macan.

Revised Sales Figures

Lotus has encountered difficulties with its ambitious sales plan, resulting in two downward revisions of its sales figures. Initially, Lotus Technology projected sales of 21,500 cars this year, but that number was lowered to 12,000 in June and further revised to 9,000 last month. The delays were attributed to a prolonged customs clearance process and a shortage of semiconductors affecting the rollout of the Eletre SUV.

Challenges in the US Market

Lotus has also faced challenges in delivering its combustion-engine sports car, the Lotus Emira, to customers in the US. Dealers are still awaiting deliveries, which have been delayed by almost a year. Despite these setbacks, Lotus has achieved record-breaking sales numbers, shipping a total of 4,800 Eletre and Emira models globally this year.

Geely’s Investment and Public Listing

Geely, the parent company of Lotus, has invested £1.5 billion in the company and an additional £900 million in a dedicated factory in Wuhan, China. Geely aims to generate a return on its investment and plans to list Lotus on the US stock market through a special-purpose acquisition company (SPAC) before the end of the year.

Valuation and Market Concerns

The valuation of Lotus Technology has been a subject of negotiation between Lotus and L Catterton Asia Acquisition Corp, the listed company that Lotus will acquire through the SPAC method. The initial valuation of $10 billion was reduced to $7 billion due to concerns about global capital markets and the economic outlook. L Catterton representatives further lowered the valuation to $5.5 billion, citing recent IPO and deSPAC transactions in the automobile sector.

Uncertain Demand for Luxury EVs

Lotus faces uncertainty regarding the demand for high-end electric vehicles. While consultants predict growth in the luxury car segment, established premium brands have struggled to persuade customers to switch to luxury EVs. However, Lotus remains confident in its strategy, citing increasing sustainability awareness and regulatory tailwinds as drivers of growth in the luxury EV market.

Future Sales Projections

Lotus already has orders totaling 19,000 for the Eletre and Emira models. The company has slightly revised its sales predictions for 2024 to 47,000 units, with an expected increase to 73,000 units in 2025. China is projected to be the largest market, accounting for 32% of sales, followed by Europe and North America at 28% each. Lotus aims to reach the milestone of selling 150,000 cars per year by 2028.

Path to Profitability

Lotus expects to achieve profitability by 2025, although its margin target has been adjusted to 4% from the initial 5%. Despite the challenges, Lotus differentiates itself from other SPAC start-ups by already delivering Eletre models to customers, thanks to the support of its parent company.

As investors assess Lotus’s long-term prospects, the company’s track record and the demand for its electric vehicles indicate a more promising outlook compared to other SPAC start-ups that failed to meet investor expectations.