Polestar Automotive Holding (NASDAQ: PSNY) is a Sweden-based electric vehicle (EV) company. Established in 1996, the company is actually a joint venture between Volvo and Geely (OTC: GELYF) , and most of its vehicle production takes place in the Chinese region.
Polestar started trading on the Nasdaq by merging with a special purpose acquisition company, the Gores Guggenheim Group, back in September 2021. Following that merger, Volvo now holds 49.5% of the total shares in Polestar. Also, due to the merger, the company’s enterprise value has exceeded many established EV manufacturers such as Rivian (NASDAQ: RIVN).
Despite having a bright future, EV makers around the world have seen a steep decline in share prices in 2022. Despite being the talk of the town, Polestar stock has lost more than 40% of its value so far this year. In this inflationary market, interest rates are moving up, and people are slowly losing out on their purchasing powers. Will it be a safe decision to put up one's money on this newly growing EV dealer?
Polestar has a lot of potential
The fact that Polestar is linked to the rapidly expanding EV industry is one of the main arguments in favor of being bullish on the stock. The demand for EVs has been steadily expanding along with people's growing environmental awareness due to the rising levels of global warming.
In Q1 of 2022 of this year, despite all the supply chain disruptions and chip shortages, the number of electric vehicles has grown by 76% year-over-year, and as per the latest projections, the number of people wanting to purchase EVs globally has reached 52%. The projections also state that EV sales will total $20 billion by 2025 as more customers show interest in purchasing battery-powered vehicles.
China already has the biggest market for EVs in the world and intends to sell around 5 million vehicles by the end of this year. Further, the EV market in the U.S. follows the Chinese market in terms of market size, and sales are expected to take a significant jump (nearly double) by the end of 2022. All this indicates there is a huge opportunity coming up in the EV industry.
Polestar has access to these huge markets, and company management is quite hopeful and expects to double its sales by this year, delivering around 65,000 electric vehicles globally. The company has also planned to produce 290,000 EVs by 2025, which is a significant increment compared to its present times.
Polestar has to survive a competitive market
The global EV market has become extremely competitive as legacy auto manufacturers are entering this sector. As the demand for EVs increase in the future, these competitive forces are going to increase even further. Therefore, to survive and succeed in this market, a business needs to provide the highest quality services.
Polestar’s products have been quite successful in grabbing the eyes of the customers. The company has been expecting its two models: Polestar, the premium hybrid model, and Polestar 2, the standard sedan, to even compete with giant EV makers like Tesla and other mid-high range sedans.
Moreover, it intends to launch three new cars by 2024 along with selling a whole range of new electric vehicles, including luxury SUVs. So, if its newer launches are able to resonate with the market in a better fashion, Polestar has a lot of growth potential.
Polestar stock remains expensive and is valued at 17x trailing sales. Its projections do not justify the stock to be a must-buy as of now, as there is not sufficient data to back the company’s future performance. Its high growth rate and the market potential of the EV industry, in general, do make the stock an extremely attractive one yet.
Polestar is a good buy if you can handle higher than average levels of risk.
Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.
