Polestar Stock: Patience Required After Q4 Results (NASDAQ:PSNY)

Before the market opened on Thursday, we received fourth quarter results from Polestar (NASDAQ:PSNY). The electric vehicle maker is currently working on an ambitious growth plan, one that like many others has hit some bumps in the road. The company’s Q4 results were mostly as expected, but it is possible that investors looking to buy might find a better opportunity down the road.

Polestar delivered approximately 21,000 vehicles in Q4, which was its best quarter to date. As a result, quarterly revenues rose by 67% over the prior period, almost reaching the $1 billion level. The company was also able to get its gross margins up a bit, while keeping its overall expense base mostly in check, something many EV startups have had trouble doing. The graphic below summarizes the company’s key Q4 results.

The full year results were a bit messier with the company finalizing its SPAC deal to go public, leading to a number of one-time income statement items. When taking out listing expenses, the non-GAAP operating loss came in at $914 million for the year, an improvement of just over $80 million. As we’ve seen with many other names in this space, large losses are likely to continue when delivery volumes and revenues are just getting started.

In my previous article on the name, I discussed how management significantly cut its 2023 forecast. In the original SPAC presentation, this year’s deliveries were forecast to be 124,000 units. However, that number has since been cut to 80,000, a guidance number that was reiterated on Thursday. The longer term goal had been to get to 290,000 vehicles sales in 2025, but supply chain issues and Covid shutdowns in China have hurt the growth trajectory so far. Since the middle of last August, the average analyst revenue estimate for this year has dropped from $6.24 billion to $4.81 billion.

Unfortunately, one of the disappointments in guidance I believe is for gross margins. The company expects gross margin to be broadly in line with 2022, with volume and product mix supporting margin progression later in the year. Last year, gross margins came in just below 5%, and normally you would hope that the roughly 80% surge in deliveries this year would help out. However, it seems the upcoming launches of two new vehicles could eat into those hopes, and of course, we’ve seen lots of inflation pressures globally.

The competitive landscape isn’t getting any easier for Polestar. Just a few days after my previous article, EV leader Tesla (TSLA) announced massive price cuts in the US and Europe. This made mass market vehicles like the Tesla Model 3 and Y more affordable, and they got access to significant US EV credits at the start of this year as well. There has also been an escalating price war in China as domestic brands try to grow sales faster than their foreign counterparts.

When it comes to the balance sheet, Polestar finished Q4 with about $974 million in cash. Unfortunately, working capital went further negative by another roughly $260 million, finishing last year at negative $1.07 billion. In the earnings release, management stated that it is exploring potential debt or equity raises to fund future operations and growth. Major shareholders did provide a financing package late last year, so perhaps they will put some more money in this year as well. Still, it wouldn’t surprise me to see another debt or equity offering to bolster the financial situation.

Polestar shares were up about 8% in afternoon trading on Thursday, trying to get back to $5.50 a share. They currently sit just a few cents below the 50-day moving average. Getting above that key technical trend line could spark the next breakout, but staying below it could add resistance and push shares back down towards $5. Going into the earnings report, the street saw the name worth $7.67, implying significant upside on a percentage basis. However, that average has come down a few percent since my previous article, and it was in the low double digits just 5 months ago. If the overall market pulls back further on Fed rate hikes, a name like this with big losses and cash burn is likely to be one of the first to be hit.

In the end, Polestar delivered an okay Q4 report on Thursday. Revenues surged over the prior year period as quarterly deliveries have started to ramp up to meaningful levels, but the company is still losing a ton of money. While the delivery forecast was reiterated for 2023, it remains well below what the company was previously looking for, and gross margin guidance could have been better. The stock currently sits near a key technical point, which could help to decide which way the next move is. Since management is looking to raise more capital and the Fed is still fighting to get inflation down, I’d think those looking to get into this name should probably try to wait for a better entry point.