Where will Polestar Automotive stock be in 3 years?

Polestar Automotive (PSNY 3.16%) has disappointed a lot of investors since its market debut. The electric vehicle (EV) maker, which was spun off from Volvowent public through a merger with a special purpose acquisition company (SPAC) in June 2022. Its stock opened at $12.98 on its first day, but is now trading at around $1.60.

Polestar lost almost 90% of its value as software problems and supply chain constraints reduced production. Macro and competitive headwinds have also forced it to lower its prices to remain competitive. But could this poor EV stock bounce back in the next three years? Let’s take a fresh look at his business to decide.

Image source: Polestar.

Polestar makes a lot of vehicles

Polestar was once a racing team that turned Volvo cars into high-performance racing vehicles. Volvo, which was acquired by the Chinese automaker Geely in 2010, it bought the Polestar brand in 2015. In 2017, Geely and Volvo relaunched Polestar as a high-performance autonomous electric vehicle brand. That reinvention led to the spin-off and SPAC-backed debut.

But unlike many other SPAC-backed EV makers struggling to produce more vehicles, Polestar already produces tens of thousands of vehicles each year. It sells three state-of-the-art electric vehicles: the Polestar 2 fastback, the Polestar 3 SUV and the Polestar 4 SUV coupé in select markets. It plans to launch the next two vehicles, the Polestar 5 grand tourer and the Polestar 6 electric roadster, in 2025 and 2026 respectively.

However, Polestar’s growth is slowing. Its total deliveries rose 80% to 51,491 in 2022, but rose just 6% to 54,626 in 2023. It pinned the sharp slowdown on its supply chain challenges and some software issues that delayed the Polestar launch 3 from 2023 to early 2024.

In the first half of 2024, its deliveries fell 27% year-on-year to 20,371 vehicles. But its shipments still rose 82% in the second quarter — and it plans to keep expanding as it prepares to enter seven new markets in 2025. It did not provide an exact outlook for 2024, but aims to deliver 155,000 vehicles in 2025 as it ramps up production of the Polestar 3 and launches the Polestar 5. It will support this expansion with its new plants in the US and South Korea.

These growth rates still put Polestar well ahead of other luxury electric vehicle manufacturers such as The Lucid Group (NASDAQ: LCID)which only plans to deliver around 9,000 vehicles this year. From 2023 to 2026, analysts expect Polestar’s revenue to grow at a compound annual growth rate (CAGR) of 61% and reach $9.9 billion by the final year.

That’s an impressive growth rate for a stock that trades at less than 2x this year’s sales. By comparison, Lucid and adze trade at 12 and 7 times this year’s sales, respectively. So if Polestar successfully expands its business, the stock could double or triple and still be considered a bargain.

But the red flags are hard to ignore

Polestar shares look cheap, but they are trading at this discount for obvious reasons. First, it delayed its 2023 annual report earlier this year to correct some accounting errors and restate some of the 2021 and 2022 numbers. That delay coincided with a major management shakeup that replaced both CEO- ul as well as CFO. Its new CEO, Michael Lohscheller, also previously ran two other controversial electric vehicle manufacturers: Nicholas and VinFast Auto.

Those abrupt changes rattled Polestar investors, and its stock fell below $1 from May to August and triggered a delisting warning. Nasdaq. It has climbed back over that threshold in the past month, but is still on shaky ground.

Polestar has already cut the prices of its vehicles by thousands of dollars in the past year, and new European Union tariffs on electric vehicles made in China could exacerbate that pressure and hinder planned expansion into more European countries. These challenges cast doubt on its goal to expand its gross margin from a negative 3.2 percent in the first half of 2024 to positive “double-digit” levels by the end of the year.

Polestar’s net loss widened from $466 million in 2022 to $1.17 billion in 2023, and analysts expect it to remain in the red through 2026. That’s a grim situation for a company that still was carrying $2.79 billion in net debt at the end of 2023 and holding just $669 million in cash and cash equivalents at the end of the most recent quarter.

Where will Polestar stocks be in three years?

Polestar makes a lot of vehicles, its long-term goals sound rosy, and its stock looks very cheap relative to its sales. However, its alarming accounting problems, management changes and bloody balance sheet could limit its earnings. That’s why I don’t think Polestar stock will come back in the next three years. Instead, it could easily miss its ambitious production and gross margin goals — and its stock could get much cheaper before it’s considered a bargain.