Polestar/Geely, an electric vehicle manufacturer, has issued a challenge to Tesla.
If you are going to wish upon a star, it might as well be the brightest one. US investors are doing just that with a deal for Polestar valuing the Swedish electric vehicle maker at $20bn. Special purpose acquisition company Gores Guggenheim will invest $800m alongside $250m from other investors for a 5 per cent stake.
Access to US capital markets is one small step to Polestar’s goal of taking on Tesla. Unlike rival EV start-ups the group has backing that combines established design and manufacturing capabilities from parents Volvo Cars and Geely. In the race to capture market share, Polestar has already shown the ability to increase production quickly. That adds sparkle to its investor pitch.
Polestar emerged from the racing research division of Volvo Cars. The group’s Polestar 2 model mass market electric vehicle should compete with Tesla’s Model 3 in price and performance. Polestar will need that edge to meet an ambitious goal of gaining a 2 per cent share premium car sales by 2025.
Getting to that finishing line will require a tenfold increase in unit sales, expected to be 29,000 this year. Tesla watchers rightfully could argue that target is impossible given the US group’s own struggles in ramping up output. But Polestar plans to contract out manufacturing to Geely. Accepting lower profit margins, at least initially, in return for a rapid ramp-up in production partly explains Polestar’s share valuation at a discount to its US peer.
The listing puts Polestar at about 6 times 2022 sales, which it expects to reach $3.2bn. Though hardly cheap for an automaker, Tesla shares trade on roughly twice that ratio. Look further out and the discount widens. By 2025, Polestar shares would receive a quarter of Tesla’s valuation on a revenue basis or one-third on a multiple of operating profits.
Like other US Spacs, Polestar will launch at a high valuation boosted by high voltage promises. Those features have led most Spacs to underperform the market in the months following deal completion, says Goldman Sachs. Polestar at least offers the right components to buck that trend.
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Note: This article has been amended since incorrectly stating that Polestar was targeting a market share of one-third of EV sales