Polestar stock forms a double bottom; 1 key risk remains

Polestar (PSNY) stock price has bounced back in the past few days as the market waits for its second quarter update. It rose to the important resistance point at $1 on Monday, up by over 60% from its lowest point this month.

Polestar is a high-growth company

Polestar is one of the many companies seeking to become the next big player in the electric vehicle industry. It is part of the Geely empire, which also includes popular companies like Volvo, Zeekr, and Lotus Technology.

Polestar has leveraged its association with Volvo to build some of the best-rated electric cars in the industry. Its vehicles have become highly popular in China, where the company is still competing with some well-known brands like Nio, Xpeng, and BYD.

Its financial results show that Polestar’s business has started slowing down as the EV industry has become saturated. Total annual revenue dropped from over $2.4 billion in 2022 to $2.3 billion in 2023. 

The most recent quarterly figures demonstrated this as its revenue fell by 36% from $534 million in Q1’23 to $345 million in Q1’24. 

Analysts expect that its upcoming results will show that the company returned to growth in the second quarter as its revenue rose to $700.16 million. For the year, analysts believe that its revenue will come in at $3.41 billion followed by $6.97 billion in 2025.

If the company can achieve these numbers, it would make it one of the fastest-growing EV brands globally. 

Polestar hopes to become a big player in the United States, where it has started to manufacture the Polestar 3 brand. This is a premium SUV whose starting price is $74,000 and competes with the likes of Tesla Model X, Audi e-tron, and Rivian R1s. 

Polestar 3 has a range of 403 miles and can move from 0-60 miles per hour in just 4.5 seconds. By manufacturing it in the US, the company hopes that its customers will receive tax credits by the government. 

Additionally, Polestar has brought Polestar 4 to the market and is starting at $54,900, making it cheaper than some of the vehicles in its category. It has a range of 300 miles. 

Therefore, these results will show how the company is doing and whether it is seeing strong demand for its vehicles. In the first quarter, the company delivered 7,200 vehicles and by July, it had sold 20,200 vehicles. 

The company has also taken more measures to conserve cash. It slashed staff by 15% in the first quarter. 

Need to raise cash

The biggest challenge that Polestar faces is that it is still burning cash, meaning that it will need to raise more soon. 

It ended the last quarter with $784 million in cash and cash equivalents, down from $884 million in the same period in 2023. 

Polestar’s net loss in the last financial year was $1.19 billion while its levered free cash outflow was over $2 billion. In the most recent quarter, its FCF was minus $1.47 billion, meaning that the company is still incinerating cash.

This is notable since Volvo has said that it will stop funding the Polestar brand, meaning that investors will need to shoulder the burden. As such, I suspect that Polestar will raise additional cash either this year or later this year, which will lead to more dilution. Earlier this year, the company raised $950 million from a bank syndicate.

The other big risk is that the company is in a slowing industry as evidenced by the decision by Ford to slow the rollout of its Ford 150 pickup truck. As such, the company will likely start to see weaker sales, especially as competition rises.

Polestar stock price analysis

On the positive side, the PSNY share price has formed a double-bottom pattern at $0.6313. In most periods, this is one of the most popular bullish signs and the stock is now nearing the neckline at $1.10. 

Polestar shares have also jumped above the 50-day moving average, meaning that bulls are now in control. The Relative Strength Index (RSI) has also pointed upwards. Therefore, there is a likelihood that the stock will continue rising in the coming days. This view will be confirmed if it moves above the double-bottom’s neckline at $1.10.