PSNY - Polestar stock price is at risk after big Volvo news
2024-02-01 04:08:18 ET
Polestar (NASDAQ: PSNY) stock price will be in the spotlight on Thursday after its biggest shareholder closed its cash tap. The stock closed at $2.17 on Wednesday after crashing by more than 85% from its all-time high.
Volvo to stop funding Polestar
Polestar is a company seeking to become a big player in the EV industry. It has made several vehicles, which have done modestly well. Most importantly, Polestar comes from a big vehicle family since it was spun off by Volvo. Volvo is now mostly owned by Geely, a leading Chinese company.
In a statement on Thursday, Volvo said that it will stop giving out money to Polestar as it seeks to boost its own profitability. This happened after Volvo said that its total profit crashed by 17% in 2023 as the automobile industry went through challenges.
Therefore, this means that Polestar will need to find cash elsewhere since its business is still making substantial losses. The most recent results showed that Polestar’s net loss jumped to $155 million in the third quarter. It’s net loss has been over $600 million in the past four quarters.
Fortunately, Polestar has adequate funds to use for the next few quarters since it ended the last quarter with over $951 million, down from $1.05 billion in the previous quarter. Most of these funds came from Geely and Volvo , which gave it over $400 million. However, ultimately, it will need to raise cash if the cash burn continues.
Another fortunate thing is that Polestar is still a big company with a strong equity value that it can monetize. It has a market cap of over $4 billion, meaning that it can still sell shares even though it has become a penny stock.
Polestar risks remain
The challenges are, nonetheless, bigger than the potential benefits. For one, Polestar is in an EV industry that is going through an upheaval. Global demand is slowing while China is pumping millions of vehicles in the market every year.
The implication of all this is that the soaring volumes and falling demand will push vehicle prices lower and affect margins. Think about all the EV companies that you know, including the likes of Tesla, Rivian, Lucid, and Fisker. In China, there are over 100 EV companies.
All these factors explains why Polestar has slashed its guidance over and over again. It has also missed its delivery targets. It delivered just 12,800 vehicles in the fourth quarter. It had guided to make 124k cars in 2023 but ended delivering just 54.6k vehicles.
Therefore, with Polestar, we have a company in a highly competitive market, one that is not growing as fast, and one that could be forced to raise cash in 2025. It reminds me of Virgin Galactic whose stock tumbled after Richard Branson said that he will not fund it again.
Therefore, I suspect that the Polestar stock price will continue falling in the coming days as investors continue worrying about its future. This is in line with my last Polestar stock forecast .
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