Polestar to Dominate EV Market with Volvo and Geely Backing, Analyst Says, Leaving Rivian and Lucid in the Dust

Cantor Fitzgerald analyst Andres Sheppard initiated coverage on Polestar Automotive Holding UK Ltd PSNY with an Overweight rating and a price target of $7.

Polestar designs and manufactures passenger electric vehicles (EVs) that it sells directly to customers in >26 countries. 

In the U.S., EVs accounted for ~7% of all passenger vehicles sold in the year (an increase from ~3.5% in 2021), and in California, EVs represented >18% of all passenger vehicles sold. More importantly, this meant a >70% increase year-on-year, despite the current economic environment. 

The analyst expects this rapid acceleration to continue and believes Polestar can capitalize on this growing demand given its global reach and competitive prices of its vehicles. 

Polestar is offering its Polestar2 model (the company's 1st fully EV) and the Polestar3 to customers in >26 markets across North America, Europe, and Asia. The company will also begin offering its Polestar4 model in 2H24. These vehicles will have ASPs ranging from>$40K to ~$100K, which the analyst sees as competitive in the industry. 

Polestar benefits from: the rapid industry demand for EVs, the support of Volvo AB VLVLY VOLVF and Geely Automobile Holdings Ltd GELYF GELYY, and a meaningful partnership with Hertz Global Holdings, Inc HTZ, the analyst writes. 

Volvo acquired Polestar in 2015 (which Geely acquired in 2010) and spun off in 2017, but the companies continue to work closely together. 

Polestar is currently manufacturing all of its vehicles at a China plant owned and operated by Volvo. PSNY will be able to leverage the manufacturing footprint of both Volvo Cars and Geely, which should provide the company with operating leverage and allow the business to scale up production faster than competitors. 

Polestar's 2023 vehicle guidance of 80K exceeds Rivian Automotive, Inc RIVN and Lucid Group, Inc LCID combined, and the company pre-announced deliveries of ~12K in 1Q23. 

More importantly, PSNY generated FY22 positive gross margins of ~5%, while LCID and RIVN currently produce negative gross margins. 

Polestar announced an agreement with Hertz in April 2022 whereby PSNY will deliver up to 65K vehicles over five years (through 2026). Deliveries for this agreement began in June 2022, making Hertz the company's biggest customer, and Polestar expects the deal will cover markets in North America, Europe, and Australia.

With the stock down ~36% YTD, it could be a good entry point for investors with a long-term investment horizon. 

Price Action: PSNY shares traded higher by 6.76% at $3.63 on the last check Thursday.

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