Is It Too Late to Purchase Polestar Automotive Inventory?

Polestar Automotive (PSNY 2.30%) hasn’t impressed traders since its public debut final June. The electrical car maker went public by merging with a particular objective acquisition firm (SPAC), and its inventory opened at $12.98 on the primary day. However at this time Polestar’s inventory trades at about $4.

Like many different SPAC-backed EV makers, Polestar drove away the bulls by overpromising and underdelivering. It initially claimed it may produce about 29,000 automobiles in 2021 and 65,000 in 2022 throughout its SPAC presentation, however it truly delivered 28,677 automobiles in 2021 and 51,491 automobiles in 2022.

That shortfall wasn’t as disastrous because the grim outcomes of different SPAC-backed EV makers like Nikola or Canoo, however traders nonetheless tossed out Polestar with these flimsier performs as rising rates of interest rattled the market. Ought to traders nonetheless contemplate shopping for Polestar as a turnaround play on the EV market after that steep decline?

A brighter future than lots of its friends

Polestar was initially a racing group that changed Volvo‘s automobiles into high-performance race vehicles. Volvo, which itself had been acquired by the Chinese language automaker Geely (OTC: GELYY) in 2010, purchased Polestar’s model in 2015.

In 2017, Geely and Volvo introduced that they might reboot Polestar as a stand-alone efficiency EV maker. That new division caught the eye of the SPAC Gores Guggenheim, and Polestar was spun out as a public firm.

Not like many different SPAC-backed EV makers which might be struggling to ramp up their manufacturing, Polestar simply pumped out tens of hundreds of automobiles with the help of Volvo, which nonetheless owned practically half of its shares after its public debut.

Polestar launched its first car, the Polestar 1 sports activities automobile, in 2019. It was solely bought in restricted portions and discontinued final yr. It launched its second car, the Polestar 2 electrical sedan, in 2020. That car prices about $50,000 and might final 335 miles on a single cost — which is akin to the vary of Tesla‘s Mannequin 3.

Polestar’s latest car, the Polestar 3 SUV, will reportedly value round $70,000 and have a variety of about 373 miles. That SUV was initially scheduled to reach in mid-2023, however some software program points compelled it to postpone its launch to early 2024. It nonetheless plans to ramp up its manufacturing of its fourth car, the Polestar 4 SUV, in late 2023.

Undervalued relative to its progress prospects?

In Could, Polestar lowered its full-year manufacturing goal from 80,000 automobiles to 60,000-70,000 automobiles because it grappled with the Polestar 3’s delay and provide chain constraints. That discount is disappointing, however it’s nonetheless on monitor to supply much more automobiles than numerous underdog EV makers. By comparability, Rivian expects to supply 50,000 automobiles this yr, whereas Lucid solely plans to supply about 10,000 automobiles.

Analysts count on Polestar’s income to rise 30% to $3.2 billion this yr, which might be consistent with its personal goal for producing 16%-36% extra automobiles, then surge 165% to $8.5 billion in 2024 because it sells extra Polestar 3 and 4 SUVs.

Primarily based on these estimates and its enterprise worth of $9.9 billion, Polestar appears surprisingly low-cost at simply thrice this yr’s gross sales. Rivian additionally trades at about thrice this yr’s gross sales, whereas Lucid is quite a bit pricier at 18 instances this yr’s gross sales.

It is shedding cash, however it will not go bankrupt

Polestar’s income is rising, however it’s nonetheless deeply unprofitable. Analysts count on its web loss to greater than double from $466 million in 2022 to $1.05 billion in 2023, after which to $1.06 billion in 2024.

All of that crimson ink may make it unappealing so long as rates of interest stay elevated, however the firm plans to tighten up its spending, lay off 10% of its workforce, and implement a world hiring freeze to stabilize these losses over the subsequent few quarters. It ended its newest quarter with $884 million in money and equivalents, so it will not go bankrupt anytime quickly.

Volvo and Polestar’s different prime investor, PSD Funding, additionally shored up its steadiness sheet with $1.6 billion in further financing final November.

It is not too late to purchase Polestar

Polestar does not get as a lot mainstream consideration as many different EV makers, however I consider it is nonetheless a promising play available on the market’s secular progress. It is backed by one of many world’s largest automakers, it is already producing tens of hundreds of automobiles, and it appears low-cost relative to its near-term gross sales progress. Its inventory may definitely stay risky on this uneven market, however it may additionally generate large multi-bagger features for affected person traders.