Polestar Stock Drops as Electric Vehicle Maker Cuts 2023 Delivery Guidance

Shares of Polestar Automotive (PSNY -5.64%) dropped 12.5% on Thursday, following the Swedish premium electric vehicle (EV) maker's release of its first-quarter 2023 report. 

The stock's decline is attributable to the company cutting its 2023 vehicle delivery guidance, citing the pushback of the start of production of its Polestar 3 due to software issues. The EV maker now expects this all-electric performance SUV to begin rolling off the production line in the first quarter of 2024 rather than in mid-2023.

As background, Polestar stock began trading in June 2022 following its merger with a special purpose acquisition company (SPAC). The company was formerly the performance-car unit of Sweden's Volvo Cars, which is owned by China's Geely Automobile. Volvo still owns a large stake in Polestar.

Polestar 3 SUV. Image source: Polestar.

Polestar's key numbers

Data source: Polestar. GAAP = generally accepted accounting principles. *Calculations by author, except for revenue change, which was provided by the company.

The quarter's revenue was nearly entirely generated from sales of vehicles. However, a very small portion of total revenue (about 3%) came from non-auto sales, including sales of software and performance engineered kits, vehicle leasing, and royalties from Volvo on sales of parts and accessories for Polestar vehicles.

Investors should focus on the adjusted numbers, as they strip out one-time items. The Q1 2023 adjusted numbers exclude an accounting boost the company received from an increase in the valuation of some of its obligations related to its merger with a SPAC last year. 

Wall Street was expecting an adjusted loss per share of $0.13, so Polestar beat this estimate. 

Polestar used cash of $283.4 million running its operations during the quarter, compared with generating cash of $40.5 million in the year-ago period. The scaling up of operations was the driver of the quarter's negative operating cash flow.

The company ended the period with $884.3 million in cash.

First-quarter vehicle deliveries

Polestar delivered 12,076 cars in the first quarter of this year. That's a 26% increase from the year-ago period.

All of the vehicles delivered in the first quarter were Polestar 2 coupes. (The company made limited quantities of the Polestar 1, a very high-end plug-in hybrid performance sports car, from 2019 to 2021.) 

Polestar 3 production start delayed 

Polestar "was recently informed that additional time for final software development of the new all-electric platform shared by Volvo Cars is needed and that the start of production of Polestar 3 is now expected in the first quarter of 2024," it said in the earnings release.

The company also said that there is "no change to the start of production of Polestar 4, which is expected for China in the fourth quarter of 2023, and for other markets in early 2024." Like Polestar 3, Polestar 4 is also an SUV, though it's what the company calls an "SUV coupe." It sports a premium price tag, but is not as expensive as the Polestar 3.

Revised 2023 guidance for vehicle deliveries and gross margin

Polestar revised its vehicle delivery guidance primarily due to the delay in the start of production of the Polestar 3. The company also cited the "tougher economic environment" for automakers as a contributing factor for the paring back of its outlook.

For 2023, Polestar now expects to deliver a total of 60,000 to 70,000 vehicles, representing annual growth of 16% to 36% from the 51,491 cars it delivered last year. Its prior guidance was for 80,000 deliveries.

The company also lowered its annual gross margin guidance since it won't have any Polestar 3 sales and sales support activities in 2023. It now expects this metric to be about 4%, compared with its prior outlook of 4.9%. 

Hiring freeze and layoffs

Like many companies, Polestar is intensifying its focus on controlling costs. It's instituting a global hiring freeze and laying off 10% of its workforce.

A higher-risk stock, but worth watching 

Polestar stock deserves a spot on the watch lists of risk-tolerant growth investors who are comfortable investing in companies that are (1) relatively newly public, (2) cyclical, and (3) not yet profitable. In other words, like the stocks of other early-stage pure-play EV makers, it's not a good fit for many or even most investors.

That said, it's one of only a couple of early-stage pure-play EV makers worth watching. It has an asset-light business model, thanks to its relationships with Volvo and Geely, which also bring other benefits. Moreover, it slightly exceeded its 2022 guidance for deliveries -- 50,000 vehicles -- which was no small feat during a year in which most automakers struggled with supply chain issues.