Electric vehicle (EV) manufacturers are having a rough outing lately and upstart Polestar (NASDAQ:PSNY) is proving no different. PSNY stock is slipping on Friday after the underlying company announced a headcount reduction. Fundamentally, the Polestar layoffs reflect the steep market and economic obstacles facing pure-play EV makers right now.
According to Seeking Alpha, Polestar plans to cut around 450 jobs globally or about 15% of its total workforce. The company cited difficult market conditions as a main catalyst driving the decision.
“As part of this business plan, we need to adjust the size of our business and operations. This involves reducing external spend and, regrettably, also our number of employees,” said Polestar.
PSNY stock is conspicuously down more than 75% since its public market debut. Further, Polestar has been forced to “tap key backers” like Volvo (OTCMKTS:VLVLY) and Geely (OTCMKTS:GELYY) for “funding to cover operating costs” as the firm seeks to scale operations.
During the fourth quarter, Polestar delivered roughly 12,800 cars as well as 54,600 vehicles for the full year. However, as Seeking Alpha points out, its “annual growth rate of 6% fell far below the initial target for the year.” Moving ahead to fiscal 2025, Polestar is targeting a gross margin “in the high teens.” The company also projects total annual volume between 155,000 and 165,000 vehicles
Still, given the difficulties reflected in the Polestar layoffs, investors remain skeptical. For the past one-year period, PSNY stock is down more than 60%.
Polestar Layoffs Underline Broader Industry Troubles
While the Polestar layoffs impose a sobering reality on the EV industry, the news isn’t necessarily surprising. In particular, pure-play EV enterprises — including sector stalwart Tesla (NASDAQ:TSLA) — have suffered from poor performance in recent sessions. Notably, TSLA stock’s recent decline stems from the company’s lackluster earnings report as fierce competition kicks in.
Of course, the concern for PSNY stock is that said competition — particularly from Chinese EV manufacturers — is not a headwind exclusive Tesla. Other heavyweights, including Rivian (NASDAQ:RIVN) and Lucid (NASDAQ:LCID), have printed alarming market losses in the trailing month as well. Even news about harsh winter conditions stranding EV owners has generated some negative advertising.
Perhaps the worrying component of the Polestar layoffs is that it may not be the only painful cut to come for the industry. Sadly, EV makers face plenty of headwinds, including the following:
- EV inventory dumping: According to a Reuters report earlier this month, Hertz (NASDAQ:HTZ) will sell about 20,000 EVs from its U.S. fleet. This move implies a saturation of EVs, crimping Polestar’s ability to attract budget-conscious consumers.
- Price wars: As Barron’s pointed out last October, Tesla started a sector-wide price war. Now, every EV player is paying the price — most ironically Tesla.
- Consumer burden: While the economy overall has been resilient and indeed charging full-steam ahead, questions exist about how long consumers can keep opening their wallets amid brutal inflation and high interest rates.
Generally speaking, legacy automakers that have pivoted toward EVs but maintain their traditional car businesses have fared better than pure-play EV makers. For example, General Motors (NYSE:GM) has only dipped about 3% in the trailing month. Meanwhile, Toyota (NYSE:TM) is up nearly 10% over the same period.
Why It Matters
Emphasizing the woes surrounding the Polestar layoffs, analysts appear to be rather pensive about PSNY’s prospects, rating shares as a consensus hold. This assessment breaks down as three buys, one hold and two sell ratings. However, the average price target for PSNY stock stands at $3.78, implying 71% upside potential.
On the date of publication, Josh Enomoto did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
