Polestar, a Volvo-owned electric vehicle start-up (NASDAQ:PSNY), has released its Q2 earnings report, which fell short of revenue expectations. Despite strong delivery and revenue growth in Q2’23, Polestar’s shares declined by 13%. However, I see this as a buying opportunity, considering their projected deliveries and upcoming EV product launches.
Revised Rating: Buy
Missed Revenue Expectations, Unsatisfied Investors
The second fiscal quarter revenue of Polestar was $685.25M, missing the consensus estimate by $71M. Share prices dropped by 13% after the earnings release. However, I believe the results were better than what investors perceived.
Polestar achieved over $685M in revenues in Q2’23, showing a 16% YoY growth due to increased production and deliveries of their flagship model, the Polestar 2. However, net losses increased YoY as the company expanded its operations and delivered more vehicles. Despite this, Polestar is expected to continue experiencing operating and net losses in the near term as they prepare to launch the Polestar 4 and 5 models.
Polestar’s projected positive EPS is anticipated in FY 2027, similar to other US-based EV manufacturers such as Lucid Group (LCID) and Rivian Automotive (RIVN).
Growth Potential: EV Portfolio and New Product Launches
With the release of new EV products in the pipeline, Polestar’s electric vehicle portfolio will expand, resulting in incremental delivery growth. The upcoming launch of the Polestar 4 in China and the Polestar 5 next year will position them to compete against other prominent models. I anticipate that these new launches will positively impact delivery projections and restore investor confidence in Polestar’s execution.
Confirmed Delivery Outlook
Polestar has confirmed its delivery outlook: 60,000 to 70,000 electric vehicle deliveries in FY 2023, with a gross profit margin of 4%. This implies up to 36% YoY delivery growth compared to FY 2022. In the first six months of FY 2023, Polestar delivered 27,841 electric vehicles, showing a 31% YoY growth, mainly driven by strong sales in the United Kingdom, Australia, and Canada.
Polestar’s Valuation and Investment Potential
Following the recent decline in valuation, Polestar now presents a more attractive risk profile compared to US-based EV manufacturers like Lucid Group and Rivian Automotive. Despite expecting slower revenue growth, Polestar’s valuation is more favorable with a lower P/S ratio (1.3X compared to 6.7X for Lucid and 3.1X for Rivian).
I believe Polestar has the potential to be valued at 2.0X forward revenues, leading to a potential market cap of $10.8B, representing a 54% valuation upside. Considering their successful rollout of new EV models, along with meeting delivery targets, lowering losses, and expanding internationally, my price target of $5.10 appears realistic.
Risks and Final Thoughts
Polestar still faces production and timeline risks with the upcoming Polestar 4 and 5 models. Additionally, as an EV manufacturer, profitability is yet to be achieved, and any production setbacks could delay their projected profitability date. Despite these risks, Polestar’s solid Q2 earnings, confirmed guidance, and upcoming product launches make the recent price drop unwarranted. Considering the more favorable risk profile and attractive valuation, I recommend buying the dip in Polestar’s shares.