Polestar Automotive Holding (PSNY -5.22%), a Swedish electric vehicle (EV) maker that was spun off from Geely's (GELYY 0.22%) Volvo (VLVL.Y 0.58%), went public this June by merging with a special-purpose acquisition company (SPAC).
Polestar's stock opened at $12.98 after the deal closed, but it now trades at about $5 a share. Like many other SPAC-backed EV makers, Polestar lost its luster as investors questioned its rosy long-term expectations, high valuations, and ongoing losses amid a backdrop of rising interest rates.
Image source: Polestar.
Yet Polestar has already delivered tens of thousands of vehicles to date -- which sets it apart from other fledgling EV makers still struggling to ramp up their production. Moreover, Volvo already established Polestar's brand with high-end gas-powered and hybrid vehicles over the past decade before spinning it off as a stand-alone EV maker. That brand recognition could help it stand out in the increasingly crowded EV market.
Should contrarian investors hold their noses and buy Polestar's beaten-down stock in this challenging bear market? Let's evaluate its business model, its pre-merger promises, and valuations to decide.
Reviewing Polestar's roadmap
Polestar launched its first electric sports car, the Polestar 1, with a starting price of about $155,000 in 2019. Only 1,500 units were ever produced, and it was discontinued this year. Its range was only about 75 miles.
The company started producing the Polestar 2, an electric sedan that costs about $50,000, in 2020. It can last 335 miles on a single charge, which is comparable to the range of Tesla's (TSLA 1.85%) Model 3.
The EV maker is gearing up to launch the Polestar 3 SUV in October. It will cost around $70,000 and have a range of over 373 miles. Next year, it plans to launch a slightly less expensive SUV, called the Polestar 4, followed by a high-end sports car, called the Polestar 5, in 2024. Both vehicles are expected to have similar ranges to that of the Polestar 3.
Comparing its expectations to reality
During an investor presentation last September, Polestar predicted it could sell about 29,000 vehicles in 2021 to generate $1.59 billion in revenue. It met that production target but generated only $1.34 billion in revenue.
In the first half of 2022, its revenue surged 95% year over year to $1.04 billion as it delivered 21,185 vehicles. But that's still less than half of its original target of $3.17 billion in revenue and 65,000 shipments in 2022.
It could generate much-higher revenue in the second half of 2022 as it delivers more Polestar 2 units and launches the Polestar 3. But for now, analysts expect its revenue to rise 77% to $2.37 billion for the full year.
Polestar originally expected its annual revenue to surge to $13.3 billion in 2024, which would represent a whopping three-year compound annual growth rate (CAGR) of 117% from 2021, as its annual sales soar to 225,000 vehicles. However, analysts expect its annual revenue to grow at a slightly lower CAGR of 109% to $11.8 billion by 2024.
That's still an impressive growth rate for a stock trading at just five times this year's sales. Lucid Group (LCID 5.88%), which expects to produce just 6,000 to 7,000 vehicles in 2022, still trades at more than 30 times this year's sales. Tesla, which is expected to generate 57% sales growth this year, trades at 11 times that estimate.
But will Polestar ever turn profitable?
Polestar could struggle to live up to its pre-merger expectations, but it also didn't present overly bullish (and arguably misleading) estimates like other SPAC-backed EV makers Nikola, Canoo Holdings, and Faraday Future. Instead, Polestar should more closely be compared to Rivian Automotive, which is already shipping thousands of vehicles.
But like Rivian, Polestar will struggle with ongoing losses as it ramps up its production. Its net loss of $1 billion in 2021 matched its pre-merger expectations, but its net loss widened year over year from $368 million to $503 million in the first half of 2022.
It had originally expected to post a net loss of $670 million in 2022 -- which could be difficult as it ramps up its production of the Polestar 3 in the fourth quarter. Analysts project a wider net loss of $1.07 billion for the full year, and for its bottom line to remain in the red through 2024. Polestar had initially expected to turn profitable in 2024.
Polestar ended the first half of 2022 with $1.38 billion in cash and equivalents, but that liquidity could dry up quickly as it opens more retail "spaces" (its version of dealerships) worldwide and rolls out new vehicles.
Should you take a chance on Polestar?
Polestar is faring better than most of its SPAC-backed peers, but it's still a speculative investment. Its soaring shipments indicate it could grow like a weed, and its stock is still surprisingly cheap relative to other EV makers. Therefore, I believe Polestar could be worth buying as it hovers near its all-time low -- but investors should brace for a lot of near-term volatility.
