Bernstein initiated coverage on Polestar Automotive (NASDAQ:PSNY) with an Underperform rating, setting a 12-month price target of $1.15 on company shares as analysts expect the electric automaker to miss its ‘25 targets, burning 25% more cash than guided.
“We love the innovative asset-light strategy, we like the cars, but we don’t think the company should be a stand-alone equity,” wrote analysts in a note.
In November 2023, Polestar projected a cash burn of $1.9 billion for 2024 and 2025. To address this, they are now aiming to secure $1.8 billion through a combination of debt and equity. However, challenges related to volume and pricing are expected to postpone the achievement of positive free cash flow until late 2026.
Bernstein's projection suggests a cash burn of $2.4 billion, requiring an additional $500 million in funding. To address this, Polestar is expected to pursue $1 billion in extra equity and $600 million in debt in 2024, with contributions of $450 million from Volvo Cars and Geely.
For Polestar to justify its current $4,326 million market capitalization, it needs to achieve strategic goals, selling at least 300,000 cars by 2030 at an average price of $75,000 and maintaining a 21% gross margin. Analysts are skeptical about the company surpassing this optimistic scenario. Furthermore, there are significant execution risks, and increased macroeconomic challenges and competition may lead to additional funding needs.
Volvo Cars and Geely own 88% of Polestar's shares and control over 93% of its voting rights. Polestar heavily depends on Volvo Cars' and Geely's support in technology, research, development, production, and dealer networks. It's hard to see how Polestar can provide substantial returns to external investors in the future. Eventually, Volvo Cars and Geely may have to choose between dealing with insolvency or privatizing Polestar.
“Ultimately, we would like to see the concept and brand survive, but think it would make more sense for Polestar to eventually fold back into the Volvo Cars-Geely ecosystem,” added Bernstein.
Shares of PSNY are down 2.38% in mid-day trading on Wednesday.