Rising Tariffs And Chinese Rivalries Will Hurt Future Prospects

Key Takeaways

• Growing competition, trade barriers, and loss of incentives threaten Polestar's revenue growth, pricing power, and access to key markets.
  
• Dependence on partners, high costs, and cash burn create major risks for profitability and long-term financial stability.
  
• Successful execution on new model launches, cost control, and global partnerships is driving margin improvement, increased sales, and greater operational resilience across key markets.

Catalysts

Engages in the research and development, marketing, commercialization, and sale of battery electric vehicles and related technology solutions.

• Intensifying competition from both established automakers and aggressive new entrants, especially subsidized Chinese brands, is likely to erode Polestar's future market share and pressure pricing, severely restricting top-line revenue growth and compressing margins despite current sales momentum.
  
• Increasing trade barriers and protectionist policies-such as heightened tariffs on imported EVs and potential bans on China-connected vehicles in key markets like the U.S.-will drive up input costs, disrupt supply chains, and may force costly localizations or reduce access to major markets, directly threatening Polestar's earnings and long-term profitability.
  
• The company's heavy reliance on Volvo and Geely for manufacturing and technology risks undermining cost control and differentiation, particularly as these entities might prioritize their own, more profitable models if capacity becomes constrained, limiting Polestar's volume growth and margin expansion prospects.
  
• Pending reductions in government EV incentives as markets mature, combined with potential overcapacity in the EV sector, could expose Polestar to price wars, declining average selling prices, and heightened inventory risk, which would further squeeze profitability and potentially result in significant inventory write-downs.
  
• High ongoing capital requirements, a persistently high cash burn rate, and increasing debt-paired with the likelihood of equity dilution to fund ongoing operations-make sustained improvements in net margins and earnings per share highly uncertain over the medium to long term.

Polestar Automotive Holding UK Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Polestar Automotive Holding UK compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Polestar Automotive Holding UK's revenue will grow by 84.9% annually over the next 3 years.
• The bearish analysts are not forecasting that Polestar Automotive Holding UK will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Polestar Automotive Holding UK's profit margin will increase from -100.8% to the average US Auto industry of 5.4% in 3 years.
• If Polestar Automotive Holding UK's profit margin were to converge on the industry average, you could expect earnings to reach $694.8 million (and earnings per share of $0.3) by about August 2028, up from $-2.0 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 1.8x on those 2028 earnings, up from -1.2x today. This future PE is lower than the current PE for the US Auto industry at 18.1x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.5%, as per the Simply Wall St company report.

Polestar Automotive Holding UK Future Earnings Per Share Growth

Risks

• The rapid growth in retail volumes and revenue-76% and 84% increases year-on-year for Q1, respectively-signals that the company is successfully capitalizing on strong demand for its newer models and expanding its addressable market, supporting the potential for continued revenue and profit growth.
  
• Significantly improved gross margins, with a 15 percentage point positive swing to a 7% gross margin driven by a favorable product mix and higher-margin vehicles (notably Polestar 3 and 4), suggest effective cost control and improved pricing power, which could lead to strengthening net margins and improved earnings.
  
• The company's ongoing expansion of its dealer network and transition to a more diversified commercial strategy-including both physical retail and digital sales-enhances brand visibility, customer access, and supports long-term sales growth potential across multiple geographies, positively impacting revenues.
  
• Asset-light manufacturing leveraging global partners and flexible production sites in China, South Korea, the U.S., and future plans for Europe, provides the agility to navigate geopolitical trade uncertainties and tariffs, thus reducing potential cost pressures and protecting profitability.
  
• Strategic use of partnerships with Volvo and Geely for technology, manufacturing, and capital access allows Polestar to lower research and development expenses and optimize production costs, which can improve operational efficiency, drive down capital expenditures, and ultimately support stronger net margins and earnings.

Valuation

• The assumed bearish price target for Polestar Automotive Holding UK is $0.4, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Polestar Automotive Holding UK's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $1.5, and the most bearish reporting a price target of just $0.4.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $12.9 billion, earnings will come to $694.8 million, and it would be trading on a PE ratio of 1.8x, assuming you use a discount rate of 11.5%.
• Given the current share price of $1.08, the bearish analyst price target of $0.4 is 170.0% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.