Rising Tariffs And Fierce EV Competition Will Erode Margins

Key Takeaways

• Escalating production costs, cash constraints, and shareholder dilution threaten Polestar's competitiveness, technological agility, and ability to scale.
  
• Fierce competition, shifting consumer demand, and risk of technological obsolescence undermine Polestar's revenue growth and long-term market position.
  
• Expansion into new markets, product launches, and cost efficiencies are driving stronger sales, better margins, and diversified income streams for improving financial performance.

Catalysts

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

• Rising tariffs on imported components and increasing protectionism are expected to continue elevating Polestar's production costs, lowering gross margins and making it even more difficult for the company to compete outside its primary European markets, directly squeezing future earnings prospects.
  
• Persistent cash burn, ongoing operating losses, and heavy reliance on short-term debt facilities will require Polestar to keep raising capital, significantly diluting shareholders and jeopardizing its ability to invest in technology or scale, ultimately impairing net margins and shareholder returns.
  
• Intensifying competition in the EV space, especially as established automakers and well-capitalized new entrants push aggressively into the same premium and compact SUV segments, is likely to trigger sustained price wars, suppressing average selling prices and fundamentally limiting long-term revenue growth for Polestar.
  
• Ongoing shifts in demand toward lower-priced electric vehicles in key markets, combined with contracting consumer purchasing power due to macroeconomic headwinds and higher interest rates, will limit Polestar's ability to grow volumes in the mid-to-premium segment, placing pressure on both top-line growth and margins over the long term.
  
• Rapid advances in EV battery technology and connected car ecosystems by larger competitors may leave Polestar with outdated offerings, increasing the risk of product obsolescence and further eroding future market share, which would weigh heavily on both future revenue streams and profitability.

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 85.9% 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 5.1% in 3 years.
• If Polestar Automotive Holding UK's profit margin were to converge on the industry average, you could expect earnings to reach $661.1 million (and earnings per share of $0.29) by about September 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 1.9x on those 2028 earnings, up from -1.5x today. This future PE is lower than the current PE for the US Auto industry at 18.3x.
• 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

• Polestar's retail sales grew by 51% and revenue increased by 56% to $1.4 billion in the first half of 2025, demonstrating strong demand and successful expansion in both geographic footprint and product lineup, which could drive continued top-line growth and benefit future revenues.
  
• The company achieved an improvement in adjusted gross margin, rising to a positive 1.4% from a negative 2.6% a year earlier, with ongoing material and battery cost reductions, optimized marketing spend, and organizational restructuring, which suggests improving operating efficiency and could support sustained margin recovery.
  
• Carbon credit sales boosted profitability and are expected to exceed $100 million in 2025, offering a diversified income stream that partially offsets external headwinds and can improve both gross margin and net profit.
  
• Strategic expansion through new model launches-such as the Polestar 5 high-performance premium offering and the planned Polestar 7 positioned for the rapidly growing compact SUV segment-along with increased sales points and new market entries in Europe, APAC, and North America, may lead to continued strong revenue growth and broaden the addressable market.
  
• Ongoing investments in production localization, leveraging manufacturing partnerships with Volvo and Geely, along with continuous product cost improvements (including an 8% reduction in average product cost and 10% reduction in battery costs over the past year), may enhance gross and net margins over time and mitigate the impact of tariffs and rising input costs.

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 $13.1 billion, earnings will come to $661.1 million, and it would be trading on a PE ratio of 1.9x, assuming you use a discount rate of 11.5%.
  
• Given the current share price of $1.33, the bearish analyst price target of $0.4 is 232.5% 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.