Prepared remarks
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's CEO; and Jean-Francois Mady, Polestar's CFO, who will comment on the performance, and 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, 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 a 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 U.S.A., 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 U.S.A. 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 clear 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, but 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, making 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 two to one 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-Francois 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 first quarter. Remember, we enjoyed strong quarterly growth last year, and so the comparison is harder this time, not least because of a tougher pricing environment amid intensified competition. If we look at the result of the first quarter, retail sales exceeded 13,100 cars, an increase of 7% year-on-year. Revenue was USD 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 the U.S. dollar. These positive drivers 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 towards the second half of the year. And as mentioned during the full-year results 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 sales mix, and in line with our expectation, it supports profitability of our operations. Despite this continued development in the right direction, alongside volume growth and continued product cost reduction, gross margin was negative 3.2% and adjusted gross margin was negative 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 including a positive one-off impact. Net loss for the quarter was USD 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 personnel-related costs and timing of marketing events, 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 covenants at the end of the first quarter. Our cash position at the end of March 2026 was approximately USD 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 proceeds 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 payables. To conclude, I would like to reiterate our priorities in this challenging environment, which is made more difficult by expectations for lower economic growth and continued inflationary pressure due to recent geopolitical developments that are shaping consumer spending. First, driving growth through the active selling model, expanding sales network and by leveraging our attractive and growing model lineup, and 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 disciplined SG&A control, although this is a continuous drive across both the organization and in our engagement with suppliers and partners. And last but not least, focusing always on cash conversion, cycle management and exploring sources of future funding. Now I will hand over back to the operator.
Questions and answers
We will now take our first question from the line of Anand Balaji of Cantor Fitzgerald.
This is Anand on for Andres at Cantor. Congrats on the quarter. So 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?
Thanks, Anand, for the question. On the retail locations, we add every month approximately the same number of locations, which is helpful because that brings us closer to the customer. Especially in the private retail channel, we want to improve. The timing is very good because with the launch of the Polestar 4 SUV in the second half, we will have a much better footprint going into this important part of the year. Jean-Francois, on the ASP level, would you like to comment?
Yes, to complement, I think it's fair to say that those sales points are going to mature over time. And with the current demand environment that we are seeing now, the private sales channel will develop. We all know that this private sales channel typically involves less discounting. So normally, the average ASP should improve, supporting 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. This will be a new product with even less discount when it is launched.
Got you. I appreciate the color. And 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?
Yes. As we mentioned during the last call, we had a cash burn on average of $120 million in 2025, showing a little progress versus 2024. But structurally, we are improving because profitability is improving. We are cutting the EBITDA loss. We are improving working capital and reducing inventory. We did it significantly in 2025 compared to 2024. In terms of CapEx, last year we had some legacy CapEx cash out, which should reduce significantly entering 2026. Now, the cash consumption and reduction of the cash balance at the end of Q1 2026 is under different effects. First, the EBITDA loss, which is mostly driven by seasonality. As you know, Q1 is usually a low quarter in terms of volumes, so it is not expected to develop profitability. Then we had cash out payable movements, more important in Q1, driven by the activity we had in Q4. We had as well some net repayment of financing, which has been offset by the proceeds of the new equity that we received. The positive point in Q1 is that when you're looking at working capital, we are still making progress on managing cash flow and inventory, which are reducing, and we're optimizing the collection of our receivables. It's going in the right direction. Looking to the next quarter, with seasonality being more in our favor and profitability improving, our level of cash burn should improve.
We will now take our next question from the line of Winnie Dong of Deutsche Bank.
I was wondering if just for the quarter itself on gross margin, can you help us dimensionalize the impacts from pricing pressure and the EU and U.S. tariffs? And then there have been a number of tariff changes recently, including the IEEPA decision, which credited some tariffs that were previously paid. Just curious if that's something that you would be benefiting from? And then overall, can you just remind us what is Polestar's tariff mitigation strategy as of late?
Maybe I start, Winnie. Tariff mitigation is obviously a key topic with lots of uncertainty. The principal idea is that we want to manufacture regionally where our customers are. Best example is the U.S., where we can use the Volvo plant in Charleston, South Carolina, to manufacture cars there. Same for Asia, and also our product strategy going forward with the Polestar 7 coming to Europe. That's the best way to mitigate tariffs. It takes some time to set up, but we try to be as flexible and agile as possible. Jean-Francois, do you have a few comments on the tariffs?
Yes. Some color regarding the evolution of gross margin year-on-year. Competition increased significantly through 2025, which put pressure on pricing and impacted gross margin. When comparing gross margin and the impact of discount year-on-year, it materially affected our margin level. Regarding tariffs, we started 2025 with a high level of inventory that was already customs cleared, so cars that we sold in Q1 2025 were not impacted by the new tariff which was put in place late in 2024. Now that we are in a steady state, tariffs are reflected in our results. We also had some negative impact due to lower CO2 credit sales. But as we mentioned during the last call, CO2 credit sales are expected to be in line with 2025 total sales of more than USD 210 million for the full year, so this is largely a timing difference. Also, remember that Q1 is impacted by low seasonality. When comparing Q1 to Q4 2025, seasonality matters, considering that Q4 2025 was heavily loaded in terms of CO2 credit sales for USD 88 million.
Okay. Got it. And then just a follow-up on the retail expansion. You're obviously going through a ramp right now. How is that opening up the sales channels? Could this represent some upside to your low double-digit growth volume guidance for this year? Or is that more or less embedded within that original outlook?
We have considered that in our volume projection because it's important to be closer to our customers. The increased number of retail locations has two important benefits. First, we are closer to our private customers, because they want to go to physical stores. Second, it also improves access to smaller fleets. These elements are embedded and, together with our product lineup, which will be much more competitive going forward, are included in the volume guidance we gave in February of this year.
I'm showing no further questions. I'll now turn the conference back to Michael Lohscheller, CEO of Polestar, for his closing comments.
Yes. Thanks, everybody, for joining. I wish you a wonderful day, and obviously, speak to you very soon. Thank you, everybody.