By Polestar Automotive recently presented its updated business plan to investors, revealing challenging circumstances for the electric vehicle start-up.
Slower Growth and Lower Profit Margins
According to the revised plan, Polestar (PSNY) now expects to achieve gross profit margins in the “high-teens” for fiscal year 2025, with an annual volume of approximately 160,000 cars. This is a downward adjustment compared to their previous projection of shipping around 290,000 units annually, while maintaining gross profit margins above 20% for 2022.
Strengthening in Response to a Changing Environment
Polestar justified these revisions by highlighting the rapidly changing operating environment. The company stated that due to the circumstances, they have introduced an enhanced business plan aimed at reducing costs and improving efficiencies.
CEO’s Insight
Thomas Ingenlath, CEO of Polestar, expressed his views on the revised business plan. “By implementing the necessary measures to reform our business plan, we are able to minimize costs and enhance efficiencies, ultimately ensuring a more resilient and profitable Polestar,” he affirmed.
Cash Flow Break-Even Target
Ingenlath’s primary objective is to achieve cash flow break-even by 2025. This target is intended to reduce the reliance on external funding. However, according to FactSet, Wall Street analysts do not anticipate positive free cash flow until 2027.
Financing and Stakeholder Support
To reach the cash break-even goals, Polestar aims for approximately $1.8 billion in new financing. This figure is significantly lower than Wall Street’s current projections by approximately $1.2 billion. Notably, Polestar partners Geely and Volvo Car are expected to contribute between $400 million and $500 million towards this financing target.
Fears within the Investor Community
While the focus on cost reduction and cash preservation may be considered a prudent move, the overall update is likely to exacerbate existing concerns among investors regarding the electric vehicle market.
The Current Landscape of EV Investing
Analyst Itay Michaeli from Citi recently noted that investor sentiment towards electric vehicles (EVs) is at an all-time low. Several events have contributed to this decline in enthusiasm. Tesla’s disappointing earnings, the delay in EV spending announcements from General Motors and Ford Motor, warnings from Volkswagen and Mercedes-Benz about EV demand, and the weak outlook provided by auto suppliers have all dampened the outlook for EVs.
Amidst this uncertainty, there are still some positive developments, albeit not as bright as before. Global EV sales in the third quarter experienced a year-over-year growth of approximately 26%. However, this growth rate is slower compared to earlier in the year.
The challenge lies not only in demand but also in supply. The market is now flooded with a greater number of EV models vying for market share. In the United States, over 35 EV models sold more than 1,000 units in the third quarter. This figure has increased from about 20 models a year ago and approximately 15 models in the third quarter of 2021.
The profitability of all automakers has been affected by Tesla’s price cuts. This ripple effect is exemplified by Polestar’s revised gross profit goal. Currently, the average price of a new EV in the U.S. stands at around $51,000, a significant decrease from $65,000 a year ago.
Polestar’s stock price has already taken a hit due to the abundance of negative news. In the past three months, shares have dropped by almost 50%. In comparison, the S&P 500 and Nasdaq Composite only experienced declines of about 2% and 1%, respectively.
Considering this challenging landscape, it is crucial for investors to stay informed and navigate this evolving market carefully.
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