Is Polestar Automotive stock a buy?

Polestar Automotive (PSNY 4.57%)like all companies, it wants to put its best foot forward when reporting earnings, which is why the main headline in the second quarter of 2024 was an 82% sequential increase in shipments. That sounds great, but if shipments are up 82% in a single quarter, there has to be a bigger story. The bigger story isn’t great. Here are some key facts you need to know before buying this electric vehicle (EV).

1. Polestar has returned to compliance

In mid-August, a Polestar press release stated that it “filed its Annual Report on Form 20-F for the fiscal year ended December 31, 2023 with the US Securities and Exchange Commission. Accordingly, the company has regained reporting compliance, meeting the requirements of Nasdaq Listing Rule 5250(c)(1).”

Non-compliant means that a company, for some reason, does not live up to the exchange’s expectations. In this case, the deficit was clearly a failure to provide the necessary financial statements to the regulatory authorities. Polestar also recently received a notice that its share price is falling below $1 per share, which is also worrying.

Image source: Getty Images.

The question is why did the company delay its 20-F filing? (It’s pretty obvious why he got a notice about trading stocks below $1.) According to a Securities and Exchange Commission filing, he had to delay because he needed extra time to “evaluate and quantify certain errors in 2021 history. and the 2022 annual and interim financial statements.” These things happen, but when they happen with stocks trading close to $1 a share, you have to be very careful.

2. Polestar has revamped its management team

While EV has resolved compliance issues with both the SEC and Nasdaq instead, it also decided to hand over its top management, noting in its second-quarter earnings release that it had hired a new CEO, head of design and head of global communications. More recently, the company brought in a new CFO. When a company goes through a massive overhaul, especially when there have been accounting problems (see #1), conservative investors should probably start looking elsewhere.

3. Polestar’s quarterly results weren’t great

After getting past the highlights of the second-quarter earnings report, which were mostly positive, investors got to see the financials. The story was not very good. Revenue fell 17% year-over-year in the quarter. The company explained that this was “mainly due to lower global vehicle sales and higher discounts”. So he lowered the selling prices and still couldn’t sell that many cars? This is a bad sign.

Gross profit fell from $900,000 to negative $2.4 million, meaning the company is paying more to build its cars than it is generating from selling them. This is not a sustainable business model. So far, Polestar appears to be a struggling company, even as it has shown strong sequential growth in deliveries.

Meanwhile, spending on research and development fell by 76%. The company explained that the decline was due to changes in the capitalization and amortization of this expense as it began selling a new model. But given the other issues playing out, a half-empty read here could be that the company is pulling back a lot as it looks to save money and/or make the earnings picture look a little brighter. Time will tell on that, but it’s important to remember that research and development is something you don’t want to skimp on in the highly competitive automotive industry. Which brings up point no. 4.

4. Polestar is still losing money

Polestar lost $242.3 million in the second quarter, a 12 percent improvement over its loss in the second quarter of 2023. That’s good, on the one hand, but a more realistic view would be that it’s in less bad truth.

PSNY data by YCharts

Looking back, meanwhile, Polestar never had a profitable year. It’s an upstart company, so it’s no surprise. But when you add in accounting issues and massive management turnover, the company’s story is not a pretty one. Only a very aggressive investor will want to own these stocks.

Polestar is a very risky stock

Polestar is one of the few upstart electric vehicle manufacturers trying to break into the automotive industry with fully electric vehicles. So far, the only company that has really managed to do this is adze. As the chart above highlights, investors have been excited about Polestar’s prospects from the start, perhaps believing it could be the next Tesla. But with the ongoing negative news, Wall Street fell on stocks, pushing them down about 90% from their highs. Only the most aggressive investors should consider Polestar today.