What happened

Shares of Swedish EV maker Polestar Automotive Holding UK (PSNY 1.53%) dropped 11.6% through 11:15 a.m. ET Thursday morning despite reporting a respectable rise in electric car deliveries -- up 26% to 12,076 units.  

So what

Polestar appears to have beaten analyst forecasts for Q1 earnings, reporting only a $0.01 per-share loss, where the Street had the stock losing $0.14 per share. Also noteworthy is that Polestar achieved positive gross margins this quarter -- albeit only 3.4% -- while the company's selling, general, and administrative costs actually declined 11%, despite the company selling a greater number of cars.

On sales, however, Polestar fell short. Although sales grew 21% to $546 million, this was slower than both the growth in units shipped and also less revenue than the $589.4 million that Wall Street had forecast for the automaker.    

On the cash front, meanwhile, things got noticeably worse for Polestar. As production ramped up, Polestar flipped from generating positive cash flow from operations ($40.4 million) a year ago to burning through $283.4 million in cash this quarter. Capital spending also raced ahead to $19.7 million, leaving Polestar with negative free cash flow of $303.1 million for the quarter.  

Now what

Underwhelming sales and accelerating cash burn is obviously not great news for Polestar. What really may be worrying investors, though, is that the company seems to be running into some bumps in the road in product development and production.

Management warned that it needs "additional time for final software development" that will delay the start date for Polestar 3 electric SUV production into Q1 2024. (Curiously, Polestar 4 is still expected to begin production in Q4 2023, in China). Management also warned that it will probably only produce between 60,000 and 70,000 EVs this year, which would imply unit volume growth of only 16% to 36%. The midpoint of that range is, of course, 26% -- the same growth rate seen in Q1 -- which implies probably no acceleration in production this year, and potentially a slowdown.  

Adding to investors' concerns, Polestar noted that it is freezing hiring and laying off 10% of its workforce. While management characterized this as a cost-cutting move, it doesn't bode well for Polestar's growth prospects this year.

Coming on the heels of a sales miss, I'd say this is probably the biggest reason Polestar stock is falling today.