Polestar Automotive (PSNY -0.97%) hasn't impressed investors since its public debut last June. The electric vehicle maker went public by merging with a special purpose acquisition company (SPAC), and its stock opened at $12.98 on the first day. But today Polestar's stock trades at about $4.

Like many other SPAC-backed EV makers, Polestar drove away the bulls by overpromising and underdelivering. It initially claimed it could produce about 29,000 vehicles in 2021 and 65,000 in 2022 during its SPAC presentation, but it actually delivered 28,677 vehicles in 2021 and 51,491 vehicles in 2022.

That shortfall wasn't as disastrous as the grim results of other SPAC-backed EV makers like Nikola or Canoo, but investors still tossed out Polestar with those flimsier plays as rising interest rates rattled the market. Should investors still consider buying Polestar as a turnaround play on the EV market after that steep decline?

The Polestar 2 electric sedan.

Image source: Polestar.

A brighter future than many of its peers

Polestar was originally a racing team that modified Volvo's vehicles into high-performance race cars. Volvo, which itself had been acquired by the Chinese automaker Geely (OTC: GELYY) in 2010, bought Polestar's brand in 2015.

In 2017, Geely and Volvo announced that they would reboot Polestar as a stand-alone performance EV maker. That new division caught the attention of the SPAC Gores Guggenheim, and Polestar was spun out as a public company.

Unlike many other SPAC-backed EV makers that are struggling to ramp up their production, Polestar easily pumped out tens of thousands of vehicles with the support of Volvo, which still owned nearly half of its shares after its public debut.

Polestar launched its first vehicle, the Polestar 1 sports car, in 2019. It was only sold in limited quantities and discontinued last year. It launched its second vehicle, the Polestar 2 electric sedan, in 2020. That vehicle costs about $50,000 and can last 335 miles on a single charge -- which is comparable to the range of Tesla's Model 3.

Polestar's newest vehicle, the Polestar 3 SUV, will reportedly cost around $70,000 and have a range of about 373 miles. That SUV was initially scheduled to arrive in mid-2023, but some software issues forced it to postpone its launch to early 2024. It still plans to ramp up its production of its fourth vehicle, the Polestar 4 SUV, in late 2023.

Undervalued relative to its growth prospects?

In May, Polestar reduced its full-year production target from 80,000 vehicles to 60,000-70,000 vehicles as it grappled with the Polestar 3's delay and supply chain constraints. That reduction is disappointing, but it's still on track to produce a lot more vehicles than a lot of underdog EV makers. By comparison, Rivian expects to produce 50,000 vehicles this year, while Lucid only plans to produce about 10,000 vehicles.

Analysts expect Polestar's revenue to rise 30% to $3.2 billion this year, which would be in line with its own target for producing 16%-36% more vehicles, then surge 165% to $8.5 billion in 2024 as it sells more Polestar 3 and 4 SUVs.

Based on those estimates and its enterprise value of $9.9 billion, Polestar looks surprisingly cheap at just three times this year's sales. Rivian also trades at about three times this year's sales, while Lucid is a lot pricier at 18 times this year's sales.

It's losing money, but it won't go bankrupt

Polestar's revenue is rising, but it's still deeply unprofitable. Analysts expect its net loss to more than double from $466 million in 2022 to $1.05 billion in 2023, and then to $1.06 billion in 2024.

All of that red ink could make it unappealing as long as interest rates remain elevated, but the company plans to tighten up its spending, lay off 10% of its workforce, and implement a global hiring freeze to stabilize those losses over the next few quarters. It ended its latest quarter with $884 million in cash and equivalents, so it won't go bankrupt anytime soon.

Volvo and Polestar's other top investor, PSD Investment, also shored up its balance sheet with $1.6 billion in additional financing last November.

It's not too late to buy Polestar

Polestar doesn't get as much mainstream attention as many other EV makers, but I believe it's still a promising play on the market's secular growth. It's backed by one of the world's largest automakers, it's already producing tens of thousands of vehicles, and it looks cheap relative to its near-term sales growth. Its stock could certainly remain volatile in this choppy market, but it could also generate big multi-bagger gains for patient investors.