Polestar Automotive (NASDAQ:PSNY) is yet another early-stage electric vehicle company whose shares have plummeted. PSNY stock is currently in penny stock territory, changing hands for around $4.25 per share.
That’s considerably below the $10 per share at which Polestar’s special purpose acquisition company (or SPAC) predecessor, Gores Guggenheim, debuted. PSNY’s current share price is also a far cry from its all-time high in the mid-teens per share.
Yet while this EV stock may trade at a sharp discount to its high-water mark, don’t assume this means shares are a bargain at current price levels. Although recent results suggest Polestar is in a better situation than peers such as Lucid Group (NASDAQ:LCID) and Rivian Automotive (NASDAQ:RIVN), the market isn’t wrong in its heavy discounting of PSNY.
Considering all factors, whether shares can make a recovery is questionable.
Why Recent News Isn’t Lifting PSNY Stock
On March 2, Polestar Automotive reported its financial results for the full year ending Dec. 31, 2022.
For 2022, the EV maker reported revenues of $2.5 billion, an 84% year-over-year increase. Vehicle deliveries increased by 80%, from 28,677 to 51,491. As for profitability, Polestar reported an operating loss of $914 million.
Not only did these figures represent considerable growth compared to the prior year’s quarter. Polestar’s top line came in slightly ahead of analyst forecasts ($2.4 billion), and operating losses were narrower than expected ($1 billion). So then, why hasn’t this earnings beat provided much of a boost for PSNY stock?
After initially moving higher on the news, PSNY has since slid lower. This comes despite these numbers coming in considerably stronger than the disappointing results reported by both Lucid and Rivian.
However, while this early-stage EV maker may outpace these other high-profile rivals in terms of execution right now, investors remain on the fence whether the Polestar “story” will still fully play out.
Investors are skeptical about the company’s ability to continue meeting/beating growth expectations. They are also concerned that further growth will not translate into materially higher prices for shares.
Three Factors Could Hold This EV Stock Back
In a nutshell, present worries about PSNY stock have to do with three things: execution, margins, and dilution. As stated in its most recent outlook, Polestar expects increasing its global vehicle volume to 80,000 this year.
Hitting this figure hinges highly on success with its updated Polestar 2 crossover model, as well as with the launch of its Polestar 3 SUV model.
Although the EV maker’s 2022 figures suggest a high demand for these vehicles, factors such as the high chance of a slowdown in global EV sales growth may limit its ability to hit this 80,000 figure.
Even if sales growth happens as expected, that alone may not assuage the market’s concerns. Analysts such as Deutsche Bank’s Emmanuel Rosner have pointed out that Polestar’s gross margins have not progressed as quickly as expected.
If the company makes little incremental progress in 2023, this too could keep PSNY under pressure.
With just $1 billion in cash on hand, Polestar needs to raise additional capital to fund its future expansion. The company may not have trouble raising cash from its backer Volvo (OTCMKTS:VLVLY), but additional capital raises will be dilutive and limit long-term upside potential.
Expect it to be an upward climb at best, an impossible feat at worst, for stock returning to pre-slump price levels.
Even as the company has been outperforming other aspiring Tesla (NASDAQ:TSLA) rivals, suggesting names like LCID and RIVN remain overvalued, PSNY has its work cut out for it in sustaining and growing its valuation.
In the meantime, the market could keep its current “show me” stance about Polestar. At least, until it becomes more clear that high growth will continue, gross margins are trending up, and the full impact of future likely dilution is baked into the stock’s valuation.
Bottom line: worries about execution, margins, and dilution will keep PSNY stock on low battery. There’s little need to rush in, even if you’re bullish on its long-term prospects.
PSNY stock earns a D rating in Portfolio Grader.
On the date of publication, Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.