Polestar/Volvo Cars: navigating a course to more capital

Electric vehicle makers receive sky-high valuations these days. Polestar, an EV unit within Volvo of Sweden, has a celestial moniker but a more grounded approach. It already produces vehicles — something highly valued start-ups such as Lucid cannot say. Increasing output will require more capital. Polestar would like to raise the money from public markets.

This hope is not some distant twinkle, despite the recent derating of US-quoted EV makers. The group has the backing of China’s Geely Group, parent of both Geely Autos and Volvo Cars itself. Geely’s factories in China and Volvo’s in South Carolina could be used to make new EVs. In April, Polestar tapped Chinese and South Korean investors for $550m.

Polestar also has a better record than most EV start-ups. It originally developed petrol-guzzling performance cars for Volvo’s racing team. In recent years it has changed its focus to powerful electric SUVs. It sold 10,000 of these vehicles last year, most of them in Europe.

Other EV makers either cannot meet demand, such as Tesla, or have run out of road. Listed electric truckmaker Lordstown Motors said goodbye to its top two executives earlier this week after admitting a lack of sufficient funds. Its market value has halved this year to less than $2bn. That looks peanuts compared with the valuation of $24bn that Saudi-backed Lucid received in a proposed takeover by a blank-cheque company.

What might Polestar be worth? It does not publish financials, but it probably loses money at present. Its flagship model, the Polestar 2 SUV, only went on the market last year. Unit sales trends in Europe and China plus IHS estimates suggest Polestar should sell at least 22,000 EVs this year. Even assuming little growth and using the price-to-sales ratios for Tesla and China’s NIO, a $15bn-$20bn valuation appears feasible.

Compared with pie in the sky EV start-ups, Polestar offers a brighter future. More importantly, its value should provide a fillip for a future initial public offering by Volvo Cars.

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