Polestar is caught in the middle of an international trade war. Growing competition from Tesla and Chinese rivals and the slowdown of the global EV market are not great for business. Even worse are the gigantic taxes set to be imposed on Polestar’s entire cohort of Chinese-manufactured cars. The US government will raise tariffs on electric vehicles coming from China from 25 percent to 100 percent, and in Europe, the threat of a 38 percent hike in taxes also looms from July 4. In May, China suggested that it will retaliate with a 25 percent tariff hike on large-engine cars should the US go ahead.
For rivals including Rivian, the Saudi-backed Lucid, and Tesla, a market slowdown is bad news. But for New York–listed Polestar, whose mainstay, the Polestar 2, is manufactured entirely in China, this could be devastating. The Swedish-founded company confirmed to WIRED that it believes its electric hatchback, whose price starts at $49,900, will definitely be affected when these tariffs come into play. Polestar told WIRED it is currently “digesting the legislation and its options” following the news.
The company—which is recovering from an ownership and management restructure, a round of job cuts, disappointing sales results, and a lackluster balance sheet for 2023—faces an uphill battle to grow its business and pay back its loans.
So far there is no publicly announced plan to safeguard the Polestar 2, the company’s tentpole EV which makes up the vast majority of its sales. Already, the Polestar 2 is more expensive than the Tesla Model 3 (which is produced in Shanghai, and starts at around $40,000).
Polestar declined to comment on how badly the tariffs will impact the price of its vehicles. But the company has a plan that could help its later models: It says it will follow through on its 2021 plans to manufacture the Polestar 3 in South Carolina, while the Polestar 4 will be manufactured in South Korea from the second half of 2025. (The Polestar 4 is already available in China and is currently discounted there, but won’t reach Europe until later this year.)
Andy Palmer, former COO of Nissan and CEO of Aston Martin Lagonda, who has four decades of experience in the automotive industry, says that Polestar is “far from out of the woods,” even if it is able to navigate its way through these tariffs, which are also set to impact EV batteries. “Strict cash management will be the order of the day until at least we see growth in EV adoption toward previously expected demand,” he says.
Polestar’s latest sales results, released on Tuesday, state that it has delivered 20,200 cars so far in 2024, mostly in the second quarter of the year. Only 200 of those cars were Polestar 4s, the company told investors. Overall, these figures are a marked improvement on its preliminary Q1 results, which showed that sales of the Polestar 2 had dropped by 40 percent from the same period the year before with just over 7,200 vehicles sold in the first three months of 2024, its weakest result since the third quarter of 2022. Polestar CEO Thomas Ingenlath said in a statement that the company was showing “strong momentum,” and that he expects strong revenue improvement in the second quarter of the year.
After major investor Volvo decided to decrease its stake and cut funding for Polestar early this year, the EV company went in search of $1.3 billion of new funding. It raised a $950 million lifeline three-year loan from a banking syndicate led by BNP Paribas, and told investors it has plans to continue raising the rest of the funds this year. Volvo parent company Geely Holdings, a Chinese company whose investment portfolio includes Levc, Lotus, and Smart, became the second-largest shareholder of the company, while Volvo retained 18 percent and is still owed $1 billion through an outstanding convertible loan.
The plan, Polestar told investors, is to target double digit margins by the end of the year, and in its latest earning call, investors were told that the company is “working intensely” to improve cashflow and still has plans to break even by the latter part of 2025. The company’s new facility in South Carolina will play a big part in whether this can be achieved: Analysts expect that it will help with production volume and would qualify its EVs for the US EV tax credit of up to $7,500 depending on the specs of the vehicle, which would hopefully appeal to its customer base. Questions have been raised about whether Polestar will decide to hold off selling the Polestar 4 in the US until it can swap its production over to South Korea in 2025, and therefore avoid the China tariffs.
“There is increased competition, and interest rates have increased significantly, which is why a lot of these companies like Polestar are still having challenges ramping up,” says Andres Sheppard, senior equity analyst at financial services firm Cantor Fitzgerald.
Yet Polestar’s adjusted financial results for 2023, released on Friday after a long delay, somewhat dampen its prospects: Its net losses grew to $1.17 billion, operating losses ballooned by more than 11 percent from $1.29 billion to $1.46 billion, and its revenue dropped by 3 percent to $2.38 billion. These losses were not offset by a 6 percent uptick in car sales. Polestar missed its sales target of 60,000 vehicles (lowered from 80,000 earlier in 2023), delivering 54,600 vehicles last year.
The late arrival of these results was itself a warning sign: If their release had extended into July, Polestar was at risk of being delisted on Nasdaq, a consequence of missing required financial deadlines. The delays have been linked to accounting misstatements.
The company’s share price has suffered a steady decline in the past year, and at premarket open Tuesday had dropped by 8 percent, which Ingenlath said is “not fair.” “We see our current share price does not reflect the value of our company—not now and in the future,” he told investors.
This means that the gap between where Polestar is and where it wants to be is wider than expected. Projected revenue figures collated by market analysis firm Pitchbook show the company is targeting £3.51 billion ($4.43 billion) in revenue this year, and growing that by 145.5 percent to £8.62 billion ($10.9 billion) by 2026. This would be an ambitious feat for the current global head of sales, Kristian Elvefors, the former managing director of Volvo in the UK who took over from Mike Whittington earlier this year. Elvefors has a plan to expand the company’s retail footprint across Asia, Europe, and Latin America in 2025, and to allow customers to configure and order cars online. Troubling, though, is the news that car rental giant Hertz has pressed pause on plans to buy tens of thousands of cars from Polestar this year, rowing back an estimated $3 billion agreement bartered in 2022 that promised to make up a quarter of its fleet with Polestars by 2024.
After the news that Polestar faced $450 million of impairment charges in 2023—accounting lingo for assets whose value has diminished or is lost completely—Volvo was quick to release a statement on Friday claiming that the financial impact of Polestar’s performance would be “nonmaterial” for its sister brand. In an investor call, Polestar said that $330 million of these impairment charges relate to the Polestar 2, caused by tariffs in the US and “weak performance” in China.
While the decline in EV demand could continue, there is hope of a reprieve in Europe. Chinese and European officials are set to meet to discuss the tariffs after both sides accused the other of protectionism and China threatened to file a lawsuit with the World Trade Organization if Europe did not back down.
Polestar’s rivals will not emerge from this tariff war unscathed either: Tesla CEO Elon Musk has lobbied heavily against tariffs, backtracking from previously held views to claim that the US efforts were anticompetitive. Lucid, meanwhile, delivered only 6,001 vehicles last year (down 31 percent on the fourth quarter of 2022) and announced plans to lay off nearly 20 percent of its workforce in mid-2023 as it struggled to generate demand for its vehicles. Similarly, some large EU carmakers, including VW and Merc, have voiced opposition to the tariffs, saying that they could in turn hamper their access to China.
Polestar is betting heavily on zero delays in production and considerable success in the remainder of the year, which are far from guaranteed. Price cuts that have already hit the Polestar 4 in China could become more frequent as Polestar and its competitors continue to battle against rivals like BYD. But Polestar can’t afford to follow in the footsteps of Tesla, which has repeatedly cut prices around the globe in an attempt to ramp up demand, Sheppard says.
The true test of success, Polestar executives told investors on Tuesday, will be in Q4, when all three car models and their revenue streams are in play and the company’s South Carolina plant is up and running. So if Polestar is able to ramp up interest in the Polestar 3 and 4, capitalize on its on-the-ground manufacturing presence in the US, and leverage the tax breaks, the balance of US tariffs may actually end up working in its favor, explains Sheppard. “They’ll prevent Chinese OEMs [original equipment manufacturers] from entering this market, and thereby give Polestar a fighting chance to build demand and to build a brand.”
Source : Wired
