The stock of PolestarAutomotive(NASDAQ: PSNY) has been on a tear recently, surging 108% since early August as it overhauled its management team and reestablished compliance with Nasdaq listing requirements.
However, the company has struggled with production delays, slower demand, and other factors, and the stock remains 88% below its price since going public in 2022. With its new management, is Polestar a good buy while the stock is below $2.50?
Polestar has faced several challenges
Polestar is headquartered in Sweden, jointly owned by Volvo Cars and China's Geely Automobile Holdings. The company produces high-end premium electric vehicles (EVs) that compete with the likes of Tesla and Lucid.
It doesn't have its own factory. Instead, the company uses its partnerships with Volvo and Geely to produce its vehicles at their factories, giving it an asset-light business and allowing it to focus specifically on development and design.
The company has faced challenges in recent years. Last year, it had delays in launching its Polestar 3 SUV, which it had to push back one year due to software issues.
On top of that, consumer demand for EVs has been waning. Last year, the company delivered 54,600 cars, short of its initial goal of 80,000. Slower deliveries continued in the first half of this year, with Polestar's 20,371 vehicle deliveries down 27% from last year.
Image source: Getty Images.
Tariffs on Chinese-made vehicles have thrown another wrinkle into Polestar's plans. The company has made all of its EVs in China but is now shifting production of its Polestar 3 to the United States this year and its Polestar 4 production to South Korea in the second half of 2025. Until then, it faces tariffs of 20% for imports to the European Union and more than 100% for United States deliveries.
Another issue for Polestar has been its compliance with Nasdaq listing rules. The company failed to meet deadlines for its 2023 and first-quarter 2024 reports.
On July 5, Nasdaq notified the company that it did not comply with the minimum bid-price requirements because its shares had closed below $1 for 30 consecutive trading days. In August, it filed its annual report on Form 20F and recently met the minimum bid requirements to get back into compliance.
What's next for Polestar
Polestar investors have had a bumpy ride, and the company has overhauled its management after its significant struggles. Over the past few months, it has brought in a new CEO, chief financial officer, head of design, and head of global communications. The new CEO, Michael Lohscheller, previously led two other struggling EV makers, Nikola and VinFast Auto.
PSNY revenue (TTM) data by YCharts; TTM = trailing 12 months.
One crucial figure to monitor is Polestar's cash burn. In the past year, it earned around $2 billion, but it had a net loss of $1.4 billion. At the end of the second quarter, the company had around $669 million in cash and cash equivalents.
In August, it secured $300 million in funding from one bank, and this year, it has taken on $1.3 billion in external financing. While the funding helps extend the runway, it is "nowhere near fully funded," Cantor Fitzgerald analyst Andres Sheppard told Reuters.
Polestar expects a more robust back half of the year, with the fourth quarter being particularly strong. It will continue looking for ways to reduce costs, and next year it hopes to deliver 155,000 vehicles and break even on cash flow.
Is Polestar a buy?
Polestar's recent capital raise is a positive development and extends its runway. However, the premium EV maker continues to lose money and has work to do to achieve positive cash flow. The company has also undergone extensive changes, and its new management has its work cut out for it.
If Polestar interests you, add it to a watch list and monitor its ongoing progress with deliveries and, more importantly, operating margins and profits. Shares of money-losing companies are vulnerable to further price declines, and it hasn't proved it can turn a profit quite yet.
Until then, investing in Polestar today is risky, and most investors can avoid the stock for now.
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Courtney Carlsen has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.
