Polestar Has Global Reach, Patient Strategic Shareholders And A Believable Path To Breakeven, Says Analyst

Piper Sandler analyst Alex Potter initiated coverage on Polestar Automotive Holding UK Limited PSNY with an Overweight rating and a price target of $3.

Due to Polestar's singular focus on premium electric vehicles, all of Polestar's future launches will cost at least $60k, with some products easily exceeding $100k, notes the analyst.

Though this strategy limits the size of PSNY's addressable market, the analyst says, high prices should support above-average margins.

The company can look to sell 325,000+ units/year, with 11% operating margin, writes the analyst.

The analyst notes that vehicle manufacturing requires huge capital and some startups are using outsourced production to cope with it.

But Polestar has found a unique solution to this by using its key shareholders as production partners, says the analyst. This approach, according to the analyst, may cap margins, but will boost ROIC and expedite the launch process.

The $3 price target implies PSNY will trade at 1.3x EV/revenue, based on the analyst's 2024 estimate.

The analyst lists Anti-China trade policy, dilutive capital infusions, low liquidity, extreme reliance on Geely/ Volvo, competition from other luxury brands, rising interest rates, and launch delays as possible risk factors.

Given a compelling valuation, as well as a mix of other favorable investment attributes, the analyst says investors should consider building a position.

If Polestar successfully raises ~$2.5 billion in the coming quarters (some combination of debt+equity), the analyst writes the company will not require additional cash in the future.

PSNY has a respectable track record of sales, as well as patient strategic shareholders, global reach, and a believable path to breakeven, says the analyst.

Also Read: Swedish Electric Car Brand Polestar Records 50% Growth In Q3 Deliveries; Foresees Higher Margins

Price Action: PSNY shares are trading higher by 0.24% at $2.0150 on the last check Wednesday.

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