Polestar Stock: Massive 2023 Guidance Cut (NASDAQ:PSNY)

On Monday, electric vehicle maker Polestar (NASDAQ:PSNY) announced its preliminary delivery estimate for Q4 2022 and the full year. While the final quarter of the year came in a little stronger than expected, one must remember that the company cut guidance quite significantly earlier in the year. However, the biggest news of the day was the initial forecast for 2023, which was a massive cut of prior vehicle delivery guidance.

For Q4, Polestar came in with approximately 21,000 units delivered, setting a new quarterly record for the company. This resulted in total year units of 51,500, up about 80% year over year. Management in the above release mentioned that this beat the company’s target of 50,000 vehicles, which is true, but that was the revised forecast after initial guidance was looking for 65,000 units. Factory shutdowns in China due to Covid along with supply chain issues resulted in lower than expected production.

Unfortunately for investors, the full set of financial results are not going to come for some time. Management stated in the press release that it will report Q4 and full year results on Thursday, March 2, 2023, before market opening in the USA. At the moment, street analysts are expecting $2.40 billion in total revenues for 2022 and a loss of 40 cents per share, although we might see some raised estimates thanks to deliveries coming in a bit stronger in Q4.

However, the big problem I found in Monday’s release was the company’s guidance for this year, as detailed in the quote below:

In 2023, Polestar anticipates global volumes to increase by nearly 60% to approximately 80,000 cars, led by strong Polestar 2 sales, and later in the year the first deliveries of Polestar 3.

Analysts were expecting revenues to surge by nearly 116% in 2023 going into Monday’s announcement. While the Polestar 3 is a more expensive vehicle than the Polestar 2, the 3 will only be a small part of the total unit plan, so a 60% increase in units delivered is not likely to deliver revenues that more than double. The worst part though is that this essentially is a massive guidance cut from May 2022, when as the slide below details, Polestar management was calling for 124,000 deliveries this year.

Now it wouldn’t surprise me if management was being a little conservative with its guidance, especially given all of the supply chain issues we’ve seen lately as well as macroeconomic concerns around the globe. However, this set of guidance here for total deliveries isn’t even close to what management was previously guiding for the Polestar 2 to do on its own. I’ll point out that at the Q3 2022 earnings report, management said it did not want to provide any outlook for this year just yet. Perhaps this is why.

The big question I have now is how does this impact the next couple of years? The May 2022 presentation called for deliveries to nearly double in 2024, but that seems unlikely at the moment. Management previously said it expects to reach break-even as part of this plan to get to 290,000 units, but a delayed timeline there might push profitability back a little. The May presentation called for $280 million in net income in 2024, but if deliveries come in even 10% short of the prior plan, the company could easily still be in loss territory.

Investors will also now wonder about the company’s financial situation. Management said at the Q3 report that it anticipated adequate funding through this year. Polestar had just under $1 billion in cash at the end of September, and the company announced a financing package to bring in $1.6 billion back in early November. More capital may be needed now if deliveries are going to come in at a level that is a third less of previous guidance.

Polestar finds itself currently in one of the most competitive spaces in our market today. Recently, EV leader Tesla (TSLA) announced sizable price cuts in China as that company struggles with excess inventory, and prices in the US could come down too. Tesla bulls are hoping that the company can approach 2 million unit sales this year, while Chinese leader BYD and a host of others in that country look for production to surge as well. In the US, names like Ford (F) and General Motors (GM) are looking to greatly increase their electric vehicle offerings, and we have new entrants like Fisker (FSR) expected to make a big splash in 2023 as well.

Polestar finished Monday trading at a valuation of more than $11 billion, or a little more than $5.50 a share. The 52-week trading range is $4.00 to $13.36, with that peak having been right after the company completed its SPAC deal early last summer. The company goes for about 1.06 times expected 2024 sales currently, which is nearly triple what the traditional automakers like Ford and General Motors go for. Tesla goes for more than 2.5 times its 2024 sales, but is a lot more profitable currently and has other growing businesses besides vehicle sales. The recent financing package that Polestar closed has a potential equity component to it which could dilute investors even more and push the valuation at this share price even higher. The street sees the stock worth nearly $8, which implies significant upside, but you have to wonder if those targets will come down thanks to the new 2023 forecast.

In the end, Polestar’s massive delivery guidance cut for 2023 puts a major dent into the company’s growth story. While it wouldn’t surprise me to see more than 80,000 vehicles delivered in the end, that number is a far cry from what management was previously looking to do. With the company not reporting earnings for another nearly two months, investors are going to have lots of questions regarding margins and cash flow. Competition in the electric vehicle space is only increasing, especially now that Tesla has started big price cuts to drive unit volume growth. Monday’s news from Polestar tells me to avoid the stock for now until we get more clarity on these major issues.