Is Polestar Stock a buy it now?

Polestar Automotive Holding (PSNY) -0.90%)a Swedish electric vehicle (EV) manufacturer spun off from Geelyit is (GELYY -1.69%) VOLVO (VLVL.Y 3.41%)went public last June by merging with a special purpose acquisition company (SPAC).

Polestar shares opened at $12.98 after the deal closed, but are now trading at around $5 per share. Like many other SPAC-backed electric vehicle makers, Polestar has lost its luster as investors question its bullish long-term expectations, lofty valuations and continued losses amid rising interest rates. .

Image source: Polestar.

Still, Polestar has delivered tens of thousands of vehicles to date, setting it apart from other early-stage EV makers still struggling to ramp up production. Additionally, Volvo has already established the Polestar brand with premium gasoline and hybrid vehicles over the past decade before building it into a self-driving electric vehicle maker. This brand recognition could help it stand out in the increasingly crowded electric vehicle market.

Should contrarian investors hold their noses and buy Polestar’s battered shares in this tough bear market? Let’s evaluate its business model, its pre-merger promises, and the valuations to decide.

Polestar roadmap review

Polestar launched its first electric sports car, the Polestar 1, with a starting price of around $155,000 in 2019. Only 1,500 units were produced, and it was discontinued this year. Its range was only about 75 miles.

The company started producing the Polestar 2, an electric sedan that costs around $50,000, in 2020. It can last 335 miles on a single charge, which is comparable to the range of You’re hereit is (TSLA 1.72%) Model 3.

The electric vehicle maker is gearing up to launch the Polestar 3 SUV in October. It will cost around $70,000 and have a range of over 373 miles. Next year it plans to launch a slightly cheaper SUV, called Polestar 4, followed by a premium sports car, called Polestar 5, in 2024. Both vehicles are expected to have similar ranges to the Polestar 3.

Compare expectations with reality

In an investor presentation last September, Polestar predicted it could sell around 29,000 vehicles in 2021 to generate $1.59 billion in revenue. It achieved that production goal but only generated $1.34 billion in revenue.

In the first half of 2022, its revenue jumped 95% year-over-year to $1.04 billion, with 21,185 vehicles delivered. But that’s still less than half of its original goal of $3.17 billion in revenue and 65,000 shipments in 2022.

It could generate much higher revenue in the second half of 2022 by shipping more Polestar 2 units and launching the Polestar 3. But for now, analysts expect its revenue to rise 77% to 2 .37 billion over the full year.

Polestar originally expected annual revenue to reach $13.3 billion in 2024, which would represent a whopping three-year compound annual growth rate (CAGR) of 117% from 2021, while its annual sales would climb to 225,000 vehicles. However, analysts expect its annual revenue to grow at a slightly lower CAGR of 109% to $11.8 billion by 2024.

That’s still an impressive growth rate for a stock that trades at just five times this year’s sales. Lucid Group (LCID 5.62%), which plans to produce just 6,000 to 7,000 vehicles in 2022, is still trading at more than 30 times this year’s sales. Tesla, which is expected to generate 57% sales growth this year, is trading at 11 times that estimate.

But will Polestar ever become profitable?

Polestar might struggle to live up to its pre-merger expectations, but it also hasn’t come up with overly optimistic (and arguably misleading) estimates like other PSPC-backed EV makers. Nicholas, Canoo Holdingsand Faraday’s future. Instead, Polestar should be compared more closely to Rivian Automotivewhich already ships thousands of vehicles.

But like Rivian, Polestar will be saddled with continued losses as it ramps up production. Its net loss of $1 billion in 2021 was in line with its pre-merger expectations, but its net loss widened year-over-year from $368 million to $503 million in the first half of 2022 .

It originally expected to post a net loss of $670 million in 2022, which could be tough as it ramps up production of the Polestar 3 in the fourth quarter. Analysts are forecasting a wider net loss of $1.07 billion for the full year and for its bottom line to remain in the red through 2024. Polestar had originally forecast to become profitable in 2024.

Polestar ended the first half of 2022 with $1.38 billion in cash and cash equivalents, but that liquidity could dry up quickly as it opens up more retail “spaces” (its version of dealerships) in the world and deploys new vehicles.

Should you try your luck on Polestar?

Polestar is doing better than most of its SPAC-backed peers, but it’s still a speculative investment. Its skyrocketing shipments indicate it could grow like a weed, and its stock is still surprisingly cheap compared to other EV makers. Therefore, I think Polestar might be worth buying as it sits near its all-time low – but investors should be prepared for a lot of near-term volatility.

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