Why Polestar Automotive Stock Keeps Falling

Shares of Polestar Automotive (NASDAQ: PSNY) fell 14.4% through 10:40 a.m. ET on Monday, the stock's third straight day of declines since reporting exceptionally weak car deliveries for the first quarter. Last Thursday, Polestar said that it delivered only 7,200 electric vehicles (EVs) in the quarter.

Not a good number

A year before, the company delivered 12,076 EVs, meaning that 7,200 figure was a 40% decline in deliveries for the Sweden-based company.

China's Geely Automobile owns 24% of its stock, more than Volvo, and S&P Global Market Intelligence says Polestar's chairman, Shu Fu Li, owns another 39.2% of the EV company's stock.

Management says 2024 is a "transitional year" in which it will shift from building just one EV model (the Polestar 2) to adding two new electric SUVs (Polestar 3 and 4) to its lineup. As the SUVs roll out, the company predicts it will grow its sales and expand its profit margins in the second half of fiscal 2024. By 2025, it expects to sell between 155,000 and 165,000 EVs, implying a sixfold increase from the latest quarterly numbers.

Is Polestar stock a buy?

That's a pretty aggressive target. And judging from investors' reaction to the company's first-quarter news, they are not convinced Polestar can hit it. Meanwhile, the stock remains a speculative investment.

At last report, the company had $3.1 billion in market capitalization and net debt of $2 billion. Polestar has said it recently secured $950 million in external funding from a consortium of international banks. But this would still imply it has an enterprise value in excess of $4.1 billion, resulting in an enterprise-value-to-sales ratio of about 1.5. For comparison, Ford's EV/S is just 1, and General Motors' is 0.9 -- and both companies are profitable.

Polestar isn't expected to turn profitable before 2030 at the earliest. Seems to me that's another good reason to sell the stock.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends General Motors and recommends the following options: long January 2025 $25 calls on General Motors. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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