Summary
- Volvo Cars is withdrawing as the primary production and design funding source for Polestar
- Via Geely Holdings, Polestar has secured a $950 million dollar loan from an international banking syndicate
- While Polestar does not have nearly the market valuation of some primary competitors, the fact that investment confidence is high enough to secure nearly $1 billion in loans shows that it stands to become a viable competitor
- The new investment allows for increases in both development & design departments, as well as helping to increase production capacity as Polestar is projecting 155,000 vehicles annually by end of 2025
- We think that a $1 billion investment at a time when interest in EV’s is diminishing is a very strong vote of confidence in Polestar, and will allow them to capitalize on opportunities, address challenges, and push to become a viable top-tier luxury EV maker
In today’s EV market, there are big players and small players. The biggest player is Tesla, while others such as the VW Group via Audi and Porsche are investing billions upon billions of dollars into electrification.
One of the smaller players, Polestar, who until late in 2023 was funded primarily by Volvo Cars and Geely Holdings, has recently acquired nearly $1 billion in secured loans from a banking syndicate that saw it as a strong investment as EVs are expected to rebound from their current slow sales in 2023 in the next few years.
These loans fill in the gap left in the company’s funding after Volvo stepped back from primary funding, and give them significant financial leverage in an emerging and competitive field, namely luxury EVs positioned between “Standard” EV’s such as the Tesla Model 3 and “Ultra-Lux” EV’s such as the Rolls-Royce Spectre.
Quantifying Polestar’s Financial Leverage
The infusion of nearly $1 billion represents a significant financial milestone for Polestar. This capital injection is estimated to increase Polestar’s total valuation by approximately 20 to 30% over the next few months, based on the company’s pre-funding market cap valuation of around $3.2 billion.
This was readily visible in market trading as Polestar was trending downwards toward closing rates between $1.48 and $1.495 per share before the announcement on February 26, 2024. For the week after the announcement, the stock jumped to high of $2.13 per share with a median closing low of $1.92 per share.
Currently, as of March 4, 2024, the stock has stabilized at between $1.77 to $1.8 per share, with total market cap now standing at $3.735 billion. In percentages, that is a 21% increase in trending stock price, and a 16.72% increase in market cap valuation, already halfway to their estimations for valuations at the close of Q2 2024 after just 5 trading days.
Comparative Analysis
To contextualize Polestar’s financial achievement, it is crucial to compare that success against that of other prominent players in the EV market. While each of these other companies have much higher valuation, they have crucially been in the public trading space for much longer than Polestar’s IPO of June 24, 2022.
Tesla
Tesla remains the gold standard in the EV industry, with a current market capitalization of approximately $800 billion, or roughly 125x Polestar’s recent capital injection.
However, despite Tesla’s dominance, Polestar’s ability to attract substantial capital means that they are a viable challenger in the luxury EV segment.
NIO
As a prominent player in the Chinese EV market, NIO has garnered attention for its very strong technology and engineering divisions, and multi-tiered offerings across all types of EVs.
While NIO’s recent financial successes have been noteworthy, Polestar’s latest funding round signals its intent to compete on a global scale, leveraging Scandinavian design aesthetics and a strong commitment to sustainability to carve out a distinct niche in the market. NIO’s current market capitalization stands at around $80 billion, about 8x greater than Polestar’s.
Rivian
Rivian’s recent IPO and subsequent valuation surge have underscored the growing investor interest in electric trucks and SUVs.
While Rivian and Polestar cater to different market segments, both companies share a common goal of making their EV segments more competitive, with more innovative technologies and making their vehicles out of more sustainable materials.
Rivian’s market capitalization currently stands at roughly $100 billion, about 10x more than Polestar’s.
Strategic Implications for Polestar
Polestar’s successful capital initiative not only bolsters its financial position but also amplifies its strategic capabilities in several key areas:
Development & Design Investment
Staying on the bleeding edge of technology is crucial if you’re going to be a competitor in the EV space. It is also important to note that of Polestar’s two ownership stakeholders, Volvo Cars and Geely Holdings, only Volvo has stepped back, and over 2024, will be handing over most of their ownership stake. Geely has provided, and will continue to provide, operational and administrative funding as needed.
This means that instead of relying mostly on Volvo’s direction for R&D, Polestar can now dedicate more capital towards future tech and designs to take advantage of those innovations. While the true numbers are internal privileged information, many analysts expect at least a 10% increase in R&D funding.
This will be crucial for the expansion of Polestar’s model trims. Currently, Polestar produces the 2 and 3 as their car and CUV respectively . The Polestar 4 has just started production in November 2023 as a premium luxury SUV offering, and other models are expected to arrive between 2025 and 2030, likely following the same naming convention, with the Polestar 5 expected to be an executive high-performance sedan and the flagship of the “New” Polestar after Volvo withdraws.
Production Expansion
Perhaps the biggest portion of the new loan will be to increase production capacity. Despite EV’s slowing down in sales and hybrids taking the lead instead, there is still significant consumer interest in more pr5emium EV offerings, as evidenced by Bentley, Rolls-Royce, and Toyota (via their all new Century brand with a planned EV in the next few years) all producing ultra-luxury EVs.
In 2023, Polestar delivered roughly 54,600 cars globally. With this capital injection, Polestar will be producing the Polestar 2, 3, and 4 models by 2025, with an expected volume growth to 155,000 vehicles annually, or approximately 181% of 2023’s numbers, by the end of 2025.
This will require new production lines and possibly new production facilities. By showing that there is major investment and loan interest in the company as a whole, that can be leveraged towards more funding to build the required production capacity to meet that volume growth expectation.
Conclusion
Polestar’s successful fundraising endeavor represents a significant stamp of confidence in the company’s journey to being a viable competitor in the ever expanding EV industry. We think that by leveraging its newfound financial windfall, Polestar is well-positioned to capitalize on emerging opportunities, address key challenges, and push to become a top-tier luxury EV maker.
As Polestar continues to chart its course forward, confidence remains high that because of the design aesthetic, use of sustainable materials, and the fact that the company was born from an international partnership that it will become one of the premiere EV makers globally. If that isn’t a return on investment, we don’t know what is!
