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2021 was the year of EV Stocks, with automakers raising large sums of money without any vehicle deliveries or revenues. Rivian and Lucid Motors both debuted at a combined valuation of $150 Billion, while upstarts like Canoo, Lordstown and Nikola hitting Wall Street with a promise of delivering vehicles over the next few years.
Swedish EV Maker Polestar is the latest in a long list of EV makers to go public through a SPAC, but there’s more to this deal than first meets the eye.
Humble OriginsÂ
Polestar’s history is inseparable from Swedish Automobile Maker Volvo. Polestar was created under the banner of Flash Engineering in 1996 as a racing unit and outfitted with Volvo’s Cars. The brand had considerable success with the touring car outfit in Europe, racking up more than 100 wins between 1996 and 2005. Christian Dahl bought the brand in 2005 and renamed it Polestar, stating that the brand was connected to both the pole position and was a star of racing. In 2009, Polestar became Volvo’s official tuning partner, building out concept cars for the first few years.
Polestar’s first big break came in 2009 when Polestar decided to build the C30 Concept, a road car based on the Swedish touring championship-winning car of the 2009 series. The result was the fastest road-legal car produced by Volvo, hitting 0-60 in 4.6 seconds with 405 hp, catching the eye of every motor enthusiast, including Jeremy Clarkson on Top Gear. Polestar would go on to subsequently introduce the P1800 and Volvo Concept Coup (later rebranded to Polestar 1), which ultimately led to Volvo acquiring the company.
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Using the Tesla PlaybookÂ
With Volvo struggling to differentiate itself from competitors, Parent company Geely decided to spin-off Polestar into a separate unit focused on performance EVs in 2017. Nearly five years later, the company is set to make its public market debut through a merger with a SPAC Backed by Billionaire Alec Gores and Investment Bank Guggenheim Partners at $20 Billion.
Polestar is the latest EV company to go public through a SPAC, which includes a long list such as Lucid Motors, Lordstown Motors & Faraday Future, but it distinguishes itself from the competition by having shipped vehicles before hitting Wall Street.
Polestar’s first mass-produced vehicle came in 2019 with the launch of a performance plug-in hybrid called the Polestar 1. The Polestar 1 had a rapid pace (0-60 in 4.2 seconds) a supercharged engine (600 hp) and was pulled in the classic design used by the Volvo P1800. The company limited production to a 3-year, 1,500 vehicle production run, with a price tag of $155,000 per vehicle. In the following year, the company followed up with an all-electric mass-market hatchback called the Polestar 2, which is hot on the heels of the Tesla Model 3. Just as Rivian and Lucid have captured a niche across SUVs and Luxury Sedans, Polestar 2 aims to be an everyman’s EV, with an affordable price of $47,000 (even less if tax credits are accounted for).
However, the company isn’t settling with its current lineup and has ambitious plans over the next few years, including the planned launch of a luxury Electric SUV (Polestar 3), a Coupe (Polestar 4), and a luxury sports sedan inspired by the precept concept car (Polestar 5).
Using the Tesla PlaybookÂ
EV Makers such as Lordstown, Canoo, and Nikola have struggled with production constraints and the large capital outlay that generally come with scaling EV production. Polestar sidesteps a majority of these issues as a result of its relationship with Volvo and Parent company Geely. Polestar already has access to six factories across China, Belgium, and the US, not only giving it access to every major EV target market but also granting it the flexibility to ramp up/down production based on demand. Given that Geely and Volvo have extensive relationships across logistics and supply chain, Polestar can leverage its relationship to avoid the same pitfalls that rival upstarts may see, such as a slow ramp-up in production and missing delivery guidance.
2022 will be the year where most EV makers will have to contend with the problems that arise with manufacturing at scale, including supply chain disruptions, inflation, labor shortages, and ever-increasing competition. As a result, more than half of the current EV startups will either fail or miss their delivery estimates. Polestar, on the other hand, has already sold 10,000 vehicles in 2020 and 29,000 vehicles in 2021 across 14 markets, indicating that it may indeed be able to ramp up production to its target goal of 290,000 vehicles by 2025 (a feat that took Tesla nine years to achieve).
Transaction with $GGPI and ValuationÂ
Polestar is set to close its deal with Gores Guggenheim in the first half of the year at an Enterprise Value of $22 Billion. Polestar generated $636 million in 2020 and expects revenues to grow at a CAGR of 83% to $17.8 billion by 2025, as deliveries ramp up 10x between 2021-25.
Given that Public market valuations of EV Stocks remain generally heated, Polestar is debuting at a relatively lower valuation (6.5x 2022 EV/Sales) compared to peers Lucid Motors (27.95x) and Tesla (15.14x). Gores has had a solid track record as a SPAC Sponsor, with De-SPACs posting generally positive returns a year after a deal is closed, so things certainly look bright for Polestar.
Polestar will net $1 Billion in cash proceeds from the merger, which should help it scale manufacturing capacity in the US, expand across 16 markets including Spain, Portugal & Israel, and add new retail locations across existing markets, further bolstering growth over the long term.
Bottom Line
Polestar is set to make its public debut at a critical juncture in the nascent EV Market where Tesla has captured a lion’s share and the competition is struggling to scale. With its ties to Volvo and Geely, Polestar not only has access to manufacturing & distribution capabilities at scale but can also avoid the challenges faced by early-stage EV makers. Despite debuting at a premium valuation, Polestar is trading at a relative discount to both Tesla and Lucid, implying that there could be some upside ahead.