To The Moon

$Polestar Automotive(PSNY)$

Once a Multi Billion Market Cap company fall from 27 Billion to 2.2Billiion…The MEME Story Continue

Earning Overview

Polestar, the Swedish electric vehicle manufacturer, reported delivering approximately 11,900 cars in the third quarter of 2024, bringing total deliveries for the first nine months of the year to 32,300, down from 41,844 during the same period in 2023.

Fundamental Analysis

Shares of Polestar, an electric vehicle (EV) company, have dropped over 93% since the IPO year in 2021, bringing the stock price to approximately $0.50-1 per share. The company currently has a market capitalization of $2.2 billion, with $668.91 million in cash on hand. However, it also carries $57.96 billion in liabilities. Polestar’s financial situation is challenging, as it reported a negative free cash flow and a net income loss over the past 24 months. To sustain operations, Polestar will likely require additional capital, which could dilute existing shareholders.

This financial strain is not uncommon among EV startups. Apart from Tesla and BYD, most EV companies are still scaling production and are not expected to turn profitable for several years. Polestar does have some advantages, though. First, it outsources its manufacturing to Chinese firm Geely, which reduces costs and may help it ramp up production faster than competitors. Second, Polestar has developed a strong lineup of sleek, well-received vehicles with ranges of up to 600 kilometers. In 2022, the company delivered 52,000 vehicles and is projected to deliver between 60,000 and 70,000 this year.

Free Cash Flow

Polestar Cash Flow is “Black hole Flow”, the company faced challenges maintaining consistent free cash flow (FCF) due to factors such as operational costs, production scaling, and macroeconomic conditions.

Inventory Problem

Inventory problems are critical for Polestar's future, as they directly impact the company’s ability to generate revenue and achieve profitability. Holding onto large inventories adds costs, such as warehousing and depreciation, and impacts cash flow negatively. Demand-Supply Mismatch: Overestimating demand and producing more vehicles than the market can absorb.

On the downside, Polestar missed revenue estimates in its latest quarter, and some of its models are not eligible for U.S. tax credits, making them less competitive on price. This is especially significant as Chinese automakers flood the market with cheaper vehicles, driving down prices across the industry. Reports indicate Chinese car exports rose 86% this year, surpassing Japan.

Guidance

Polestar plans to provide a comprehensive business and strategy update, including select Q3 financial and operational highlights, on January 16, 2025.

Pricing Issues: Polestar's vehicles may be priced higher than competitors, especially since some models don't qualify for U.S. EV tax credits.

Volume Growth and Profitability: Polestar aims to deliver between 155,000 and 165,000 vehicles in 2025, a significant increase from the 54,600 units delivered in 2023. This growth is expected to be driven by the increased availability of the Polestar 3 and Polestar 4 SUVs.

Market Expansion: The company plans to enter seven new markets by 2025, including France, Czech Republic, Slovakia, Hungary, Poland, Thailand, and Brazil, to attract new customers and boost sales.

Profit Margins: Polestar is targeting double-digit profit margins by the end of 2025, focusing on operational efficiency and cost management.

In response to potential tariff increases on Chinese-made electric vehicles, Polestar is adjusting its manufacturing footprint. The production of the Polestar 3 in South Carolina and the Polestar 4 in South Korea is part of this strategy to reduce reliance on Chinese manufacturing and navigate trade challenges.

Risk & Challenges

The challenge is Polestar’s reliance on Geely, which also manufactures vehicles for Volvo, Lotus, and Zeekr, the latter rumored to be planning an IPO. Outsourcing manufacturing to Geely may streamline production, but it could also lead to inefficiencies if Polestar cannot align production with actual market demand. This could result in excess inventory or outdated models.

The influx of cheaper Chinese EVs in global markets is driving down prices. If Polestar cannot adapt quickly by adjusting production or offering competitive pricing, inventory levels could remain high, further pressuring margins.

Polestar's vehicles, particularly the Polestar 2, are manufactured in China and imported to markets like the U.S. This exposes the company to tariffs on Chinese-made goods.

In recent years, the U.S. has imposed significant tariffs on Chinese imports, including cars and car parts, as part of trade tensions between the two countries. These tariffs can add 25% or more to the cost of importing vehicles, making them more expensive for American consumers and potentially reducing demand. The tariffs are especially critical because Polestar is aiming for price competitiveness in the U.S. market, and higher costs due to tariffs can erode margins and increase the final consumer price.

Market sentiment

Government Incentives: EV subsidies and tax incentives in markets like the U.S., Europe, and China could provide a tailwind for Polestar’s growth. If governments continue to support the transition to electric mobility, this would benefit Polestar and improve market sentiment.

Valuation

In terms of valuation, Polestar’s $2.2 billion market cap compares favorably to other automakers like Tesla, Rivian and Lucid. This could make Polestar appealing to some investors. However, the company’s precarious financial position, highlighted by a recent going-concern warning in its earnings report, suggests significant risk.

I can’t see any fair value or support level for this laughing stock.

Conclusion

Given the uncertainties, if the company struggles with production delays, high costs, low demand for certain models, or geopolitical and tariff risks, market sentiment could turn negative, leading to lower valuations.

It may be wiser to wait for Polestar’s financial situation to stabilize before considering it as an investment opportunity.

[Facepalm]Only the smart cookies will buy hardware that without warranty in the future.

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