Polestar targets 2025 breakeven
Backers Geely and Volvo pony up more, but EV start-up will still need more cash
Sino-Swedish OEM Polestar has unveiled a new strategy aimed at being cashflow breakeven by 2025. And while it has secured additional loans from major shareholder Geely of China and Sweden’s Volvo Cars, it will have to tap debt and equity markets for another nine-figure sum.
The firm is “reducing costs and improving efficiency” in order to make itself “more resilient and profitable”, according to CEO Thomas Ingenlath. It is also aiming at “reducing funding needs at the same time”.
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Volvo has extended the maturity of an existing shareholder loan to 2027, and is providing additional funding of $200mn. In addition, Geely is providing a $250mn shareholder loan on “substantially the same conditions” as Volvo’s lending, including a maturity in 2027. Both loans have an optional equity conversion feature.
But, based on expected cumulative negative free cash flow from the end of Q3 this year until achieving the 2025 cash flow breakeven — even taking into account existing and new financing and liquidity support from Geely and Volvo — the firm still identifies an external funding requirement of c.$1.3bn.
“We continue to work on a plan which will provide the remainder of required [liquidity] until we achieve the targeted cash flow breakeven in 2025,” says Polestar CFO Johan Malmqvist. “We expect to finalise this funding plan in the near term, and it will include both additional debt and equity.”
Under the knife
The firm has already taken steps to cut costs, including eliminating 300 positions in a programme announced at Q1 results in May and extending until the end of this year. It is also trying to get its production costs lower.
“We have ambitious but realistic cost reduction opportunities identified to reduce the bill of material,” says Ingenlath. And while the firm touts the benefits of access to the “existing, scalable, state-of-the-art manufacturing footprint” of Volvo and Geely, Malmqvist notes that “we are working very closely with our two main contract manufacturing partners to drive down costs while maintaining the high-quality product our customers love and expect”.
The launch of the new Polestar 3 and 4, which the firm hopes to sell in material numbers, is also expected to boost profitability. But Ingenlath stresses that “margin over volume is our way forward”.
One short-term implication of this strategy is what the Polestar chiefs calls a “more focused approach to our market presence”. “In Europe, we have a number of markets that are both performing well and show continued scope for further profitable growth.
“We are going to shift investments into these from markets which are either smaller or less profitable. It is not about leaving a market, but about directing our resources to where they give us the best impact,” he elaborates.
“We will not drive volume at the expense of margin. For that reason, concentrating with Polestar 2 on those markets where this car can achieve the margins that we expect is a very strict and clear policy that we have now.”
Higher sales from its wider range of models and its new cost discipline sees Polestar targeting gross margins “in the high teens” in 2025. “We expect more than half of this progression to come from our model range rollout with more luxurious and exclusive cars —cars that would naturally carry a gross profit margin of over 20pc,” says Malmqvist.
Capex could also be deferred until after reaching breakeven. “Although we have been steadfast at safeguarding our car programmes, we have and will be very disciplined in our planned capex spend,” Malmqvist admits.
“To the extent where we can conserve cash, whether it is looking at pushing [spending] out or different ways to fund the projects, then yes, we have taken a look at that.”
But while 2025 and breakeven “will be an important milestone for our business”, the finance chief stresses that his firm expects to continue to grow volumes after that point, particularly given the plans for “Polestar 5 and Polestar 6, as well as future models”.