Good day, and thank you for standing by. Welcome to Polestar First Quarter 2026 Select Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be question- and- answer session. To ask a question during the session, you will need to press star one and one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, press star one and one again. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to Anna Gavrilova, Head of Investor Relations. Please go ahead.
Thank you, operator. Hello, everyone. I'm Anna Gavrilova, Head of Investor Relations at Polestar. Thank you for joining this call covering Polestar's select results for the first quarter 2026. I am joined by Michael Lohscheller, Polestar CEO; and Jean-François Mady, Polestar CFO, who will comment on the performance. Then we will open the floor to analysts' questions. Before we start, I would like to remind participants that many of our comments today will be considered forward-looking statements under the U.S. 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, 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 their reconciliation to the most directly comparable GAAP measure can be found in the appendix of the press release and in the Form 6-K published today. Now I will hand over to Michael.
Thank you, Anna. Hello, everyone, and thank you for joining us today as we present our first quarter 2026 select financial and operational results. Looking at the first quarter, I'm pleased with what the team has delivered in terms of volume growth. In a very challenging market, we grew our volumes in the first quarter by 7% to over 13,100 cars, a record first quarter number for Polestar. In Europe, we grew by 11%, and that now represents 78% of our total sales. It's especially encouraging that we are doing well in key markets such as the U.K., where we grew by 20%, Germany, where we grew by 35%, and Sweden, where we grew by 17%.
We also saw strong growth in South Korea and Australia, two markets where we enjoy a strong brand position and where Polestar 4 is proving to be a success. In the USA, the EV market as a whole has been impacted by the removal of incentives, but the launch of Polestar 4 across North America has started well with strong media reviews and growing interest amongst customers both in Canada and the USA. The last time we met, I referenced what we are all aware of, that the world around us continues to throw up challenges. This is reflected in our results for the first quarter. Headwinds in the form of market conditions becoming more challenging, the impact of EU and U.S. tariffs, and the overall seasonality of the quarter more than offsetting the steps we have taken to improve our cost base.
Facing this reality, we have accelerated our business model transformation, changing our commercial setup by increasing retailer locations, evolving to a single group architecture, consolidating our manufacturing footprint to the regions in which we operate, and creating a leaner organization. The commercial transformation we started 18 months ago isn't just about growing our number of dealers. It is also about how we work with them. As an example, we have recently changed our setup with dealers in Germany. As a result, we now have more flexibility in how we operate in Europe's largest market. We have dealers with a clearer incentive to sell more cars and agreed plans to grow our number of sales points in Germany from 12 to 30 by 2027.
In total, we expect to end 2026 with approximately 250 sales points globally, up from 150 just over a year ago. This is a significant step for a young brand to take. Expansion is of course an important element here, equally important is a shift in locations. We are moving from smaller, often city center-based spaces to fully fledged dealerships, located where customers go to test drives, make it easier for more people to experience our great cars and providing a natural destination for new car sales, service, and pre-owned sales. Since I joined, we have taken a lot of steps to reduce complexity in the organization and reduce our overall cost base. In total, these steps have resulted in a reduction in staff of about 25% to just approximately 1,700.
We will continue to realize activity-based savings across the organization by identifying and implementing further leaner ways of working. We are also working hard with our partners to realize efficiencies in our sourcing and manufacturing processes. The planned consolidation of Polestar 3 production in South Carolina, moving from 2 to 1 factory, will support these efforts further from the latter part of 2026. The same focus on efficiency gains is in place for Polestar 4, and adding a new variant to the lineup to be produced in the Busan, South Korea factory will further support those efforts as volumes continue to grow. Regionalization of manufacturing is probably the most significant shift happening in the industry right now and one of the most important for our future success. This is why our decision to produce Polestar 7, the compact SUV in Europe, is so important.
Rest assured that as market conditions continue to become more challenging, so will our focus on these topics. Last week, we started the global media test drive for Polestar 5, and the reaction and feedback I got from my discussions with journalists confirms what a unique car this is. By having journalists drive from Sweden to the Sahara, we are really showing what this electric car can do. It's a real head turner with clean Scandinavian design, performance, and sustainability that simply put, no one else offers. The next step on our model offensive after the summer is the launch of the Polestar 4 SUV, followed by the all-new Polestar 2 successor early next year, addressing much wider segments with more customers and bigger profit pools. Our product offensive is in full swing.
With that said, I'll hand over to Jean-François and look forward to taking your questions in a few minutes. Thank you.
Thank you, Michael. Good morning, good afternoon, everyone. Our retail expansion is continuing, as Michael stated, driving the retail sale volume growth of 7% in the 1st quarter. Remember, we enjoy strong quarterly growth last year, so the comparison is harder this time, not least because of tougher pricing environment amid intensified competition. If we look at the result of the 1st quarter, retail sale exceeded 13,100 cars, an increase of 7% year-on-year. Revenue was $633 million, broadly stable year-on-year. The key positive drivers were higher volume driven by Polestar 4 and positive foreign exchange impact from appreciation of pound sterling and euro against US dollar.
These positive driver were, however, offset by pressure on pricing the car line mix, which included fewer high-priced Polestar 3 cars, 9% versus 20% a year earlier, but higher contribution from Polestar 4 cars, 67% of the volume versus 49% a year earlier, and lower carbon credit sales in the quarter. Carbon credit sales amounted to $21 million in Q1 2026 versus $29 million in Q1 2025. Carbon credit sales are expected to follow the same pattern as last year, with revenues weighted toward the second half of the year. As mentioned during the full year result call, we expect carbon credit sales in 2026 in line with 2025 for the full year. We continue to grow the proportion of Polestar 4 cars in the sale mix, and in line with our expectation, it support profitability of our operations.
Despite this continued development in the right direction, alongside volume growth and continued product cost reduction, gross margin was - 3.2% and adjusted gross margin was - 3.3%. The lower margin was predominantly a result of pressure on pricing, EU and U.S. tariff impact, lower carbon credit sale in the quarter, and Q1 2025 included positive one-off impact. Net loss for the quarter was $383 million compared to net loss of $166 million a year earlier, mainly due to factors impacting gross margin and foreign exchange impact related to Chinese yuan movements in Q1 2026 on other operating and financing liabilities.
At the same time, we continue to exercise strict cost discipline across SG&A. However, in the period, SG&A expenses were higher as sales agent remuneration increased proportionally with growth of volume and due to one-off personal related costs and timing of marketing event. While R&D costs were stable year-on-year. Adjusted EBITDA loss of $235 million, compared to adjusted EBITDA loss of $96 million in the prior period, was due to adjusted gross margin result explained earlier, increase in SG&A expenses, and mainly negative foreign exchange movements on operating liabilities. On the funding of our operation and liquidity, we provided a detailed picture at the full year results.
We will report to the market in due course on the debt to equity conversion by Geely Sweden of approximately $300 million, expected later this quarter, followed by the second debt to equity conversion by Volvo Cars of approximately $65 million. Polestar was in compliance with all its covenant at the end of the first quarter. Our cash position at the end of March 2026 was approximately $676 million. The change in the cash position was primarily driven by higher adjusted EBITDA loss, net negative movement in working capital, and net repayment of financing facilities. These elements were offset by equity proceed in the first quarter of 2026. On the working capital movement, while inventory level reduced, this positive impact was more than offset by cash outflow from settlement of payable.
To conclude, I would like to reiterate our priorities in this challenging environment, which is made more difficult by expectation for lower economic growth and continued inflationary pressure due to recent geopolitical development that are shaping consumer spending. First, driving growth through the active selling model, expanding sale network, and by leveraging our attractive and growing model lineup. We continue to make good progress on this front. Second, improving processes, streamlining the organization, and realizing further operational synergies. Structurally, Polestar is in significantly better shape today than 18 months ago, but there is still work to do. Third, extracting efficiencies and sustaining cost-cutting and financial discipline. We see tangible progress on product cost reduction and discipline SG&A control, although this is a continuous drive across both the organization and in our engagement with suppliers and partners.
Last but not least, focusing always on cash conversion, cycle management, and exploring sources of future funding. I will hand over back to the operator.
To ask a question now, please press star one one on your telephone keypad and wait for your name to be announced. To withdraw your question, please press star one one again. There may be a short pause as participants register for questions. We will now take our first question from the line of Anand Balaji of Cantor Fitzgerald. Please ask your question. Your line is open.
Hey, this is Anand for Andres at Cantor. Congrats on the quarter, and thanks for taking our question. I was wondering, as you expand to the 250 sales points by the end of the year, and you ramp up Polestar 4, maybe how should we think about the ASP and the mix trends throughout 2026, especially given these tariffs and intensified EV competition that you talked about on the call? Thank you.
Thanks, Anand, for the question. First of all, on the retail location, I think it's a linear development. We add every month kind of the same number of location, which is helpful because that brings us closer to the customer, especially on the private retail channel we want to improve. Obviously, timing is very good because with the launch of the Polestar 4 SUV in the second half, we have then a much better footprint going into this important part of the year. Maybe Jean-François, on the ASP level, you want to comment?
Yes. Yes, to complement, I think it's fair to say that those sale points are going to mature over the time. With the current pump anxiety that we are seeing now, the private sale channel we've developed, and we all know that this private sale channel, sorry, is less consuming in term of discount. Normally, the average ASP should improve, so the profitability, and it should be even more true with the launch of the new Polestar 4 SUV, which will happen at the end of the year, which will be a new product with even less discount when it will be launched.
Gotcha. Thanks. I appreciate the color. Maybe as a quick follow-up, as we look at the financials, can you talk a little bit about the balance sheet, given the cash on hand and the burn? Can you walk us through how you see the capital runway and the milestones on the path to free cash flow positivity? Thank you.
As we mentioned during the last call, we had a cash burn in average of $120 million in 2025, showing a little progress versus 2024. We mentioned that structurally, we are improving because profitability is improving. We are cutting the EBITDA loss, and we are improving the working cap, reducing the inventory. We did it significantly in 2025 compared to 2024. As well in term of CapEx, we mentioned that last year we had some legacy CapEx cash out, which should reduce significantly during 2026. In term of cash consumption and reduction of the cash balance at the end of Q1 2026, this is under different effects. First, the EBITDA loss, which is mostly driven by the seasonality.
As you know, Q1 is usually a low quarter in terms of volume, so it is not proper to develop profitability. We had as well some cash out payable, more important in Q1, driven by the activity we had in Q4. We had as well some net repayment of some financing, but which has been offset as well by the proceed of the new equity that we got. For me, the positive from still in Q1 is that when you're looking at the working cap, we are still making progress on managing the cash flow and inventory, which are reducing, and we're also optimizing the collection of our receivable. It's going into the right direction and looking for the next quarter with the seasonality, which will be more in our favor, profitability improving, our level of cash burn should improve.
Gotcha. Thanks so much for the color, and I appreciate the detailed answer. I'll pass it on.
Thank you. As a reminder, to ask a question now, please press star one one on your telephone keypad and wait for your name to be announced. Once again, that's star one one for questions. We will now take our next question from the line of Winnie Dong of Deutsche Bank. Please go ahead, Winnie. Your line is open.
Hi. Yes, thank you so much for taking my questions. I was wondering if just for, you know, the quarter itself, on growth margin, can you help us dimensionalize the impacts from, you know, pricing pressure, the EU and U.S. tariffs? You know, there has been a number of tariff changes recently, including the IEEPA decision, which had credited that OEM some tariff that was previously paid. Just curious if that's something that you would be benefiting from. You know, overall, can you just remind us what is, you know, Polestar's tariff mitigation strategy as of late? Thanks.
Maybe I start, Winnie, thanks for the question, with the tariff mitigation, because that's obviously a key topic. Lots of uncertainty. The principal idea is that we want to manufacture regionally, right? Where our customers are. Best example is the U.S., right? Where we can use the Volvo plant in South Carolina and Charleston manufacture cars there. Same obviously for Asia and also our product strategy going forward with the Polestar 7 coming to Europe. That's the best way to mitigate this, right? Obviously, this takes some time to set it up, but we try to be as flexible and agile as possible. Maybe, Jean-François, a few comments on the tariffs.
Yes. Maybe some color regarding the evolution of the gross margin year-on-year. Indeed, as you know, the competition has significantly increased all over during 2025, the pressure on the pricing. When you compare the gross margin and the impact of the discount year-on-year, it's really impacted the level of our gross margin. When it's come about tariff, we started 2025 with a high level of inventory, which was already custom clear. For the car that we sold in Q1 2025, the new tariff, which has been put in place late in 2024, was not impacting our sale in Q1 2025. Now that we're in a steady state, it reflects as well another impact.
We had some negative impact due to less carbon credit sales. As we mentioned during the last call, carbon credit sales are expected to be in line with 2025 total sale of more than $210 million. This is just for me a timing difference. We should not forget that this Q1 is impacting by low seasonality. When we are comparing Q1 to Q4 2025, this seasonality is impacting us considering that Q4 2025 was quite heavy loaded in term of carbon credit sales for $88 million.
Okay. Got it. Thanks so much for the details. Just to follow up on, you know, the retail expansion, you're obviously, you know, going through a ramp right now. I guess just curious how maybe that's opening up the sales channels, and could this represent some, you know, upside to your low double-digit growth, you know, volume guidance for this year? Or is that more or less sort of embedded within that original outlook? Thank you.
Yeah. Thanks, Winnie. We have considered that obviously in our volume projection because it's important to be closer to our customers. The increased number of retail location has two big important benefits. First one, we are closer to our private customers, right? Because they want to go to physical stores, but also to smaller fleets, right? This is really embedded and also one of the reason, in addition with our product lineup, which obviously is going to be much better and much more competitive going forward. These two elements are embedded in our volume guidance we gave in February of this year.
Got it. Thank you. I'll pass it on.
Thank you. Once again, this is star one and one on your telephone keypad if you wish to ask a question. I'm showing no further questions. I'll now turn the conference back to Michael Lohscheller, CEO of Polestar, for his closing comments.
Thanks, everybody, for joining. I wish you a wonderful day and obviously speak to you very soon. Thank you, everybody.
Thank you for your participation in today's conference. This does conclude the program. You may now disconnect your lines.