Polestar (PSNY), an electric vehicle company, looks to us like a long straw through which parent companies Volvo Cars and Geely suck up money from public investors. Those public investors are lining up for massive dilution.
Share issuance is inevitable for a company losing between $20,000 and $25,000 per car produced, with no end of losses in sight. In October 2023, PSNY began what will inevitably be an iterative process, offering $1 bln in new shares.[1] Given the losses, we expect there will be more offerings to follow. On a market capitalization of only around $4.2 bln, the subsequent share dilutions could be profound.
Brief history
PSNY started as a racing team that modified Volvo cars. After several permutations, PSNY emerged as a roughly 50-50 joint venture between Volvo Cars (ultimately owned by Geely) and “Eric” Li Shufu, the chairman of Geely. In Q4 2021, Volvo acquired Geely’s Taizhou manufacturing plant, where the Polestars were being manufactured. PSNY merged into a SPAC and listed in New York on June 23, 2022. Geely and Li still control over 87% of the company.
Much of the technology in the Polestar vehicles is based on Volvo Cars’ in-house developed SPA modular vehicle architecture. In essence, Polestar is a souped-up version of Volvo cars, hence the similarities.
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PSNY’s first production car was the Polestar 1, a 600 hp two-door, four-seater hybrid coupe. The electrified performance car was targeted to go into production in Chengdu in mid-2019, followed closely later in 2019 by a smaller vehicle named Polestar 2, a pure electric car. The Polestar 1 price was extraordinarily expensive, at around $156,000. Sales were limited. PS1 production halted in late 2022.
Polestar 2 is a mid-sized BEV with a base price of $48,000 and a 270-mile range, competing with the Tesla Model 3.
Polestar 3: an SUV, around $90,000, launched October 2022
Polestar 4, a Sport SUV, about $80,000, launched in April 2023
Polestar 5 will be a Sport GT retailing for about $109,000, to launch in 2024.
Polestar 6 will retail for over $200,000, the company says, and will be a luxury roadster.
The model line-up is the book cover, but the read inside is horrific. PSNY is starved for cash and running out of it quickly. At the end of June 2023, PSNY was technically insolvent: current assets were $2.4 bln and current liabilities $4 bln.