On Friday, Bernstein analysts adjusted their outlook on Polestar (NASDAQ:PSNY) Automotive Holding UK Plc (NASDAQ:PSNY), increasing the price target to $0.40 from the previous $0.33 while maintaining a Market Perform rating on the stock.
Currently trading at $1.09 with a market cap of $2.3 billion, InvestingPro analysis indicates the stock is currently undervalued. The revision followed a strategy update presented by Polestar's new CEO and CFO on January 16, 2025, which outlined a shift in the company's direction.
Polestar's management team announced a strategic pivot from luxury electric vehicle (EV) aspirations to a focus on premium EV positioning. The update included plans to gradually transition to an improved "in-market" production strategy and emphasized a stronger commitment to cash conservation.
This focus on cash preservation is crucial, as InvestingPro data shows the company is quickly burning through cash with a concerning current ratio of 0.58. Despite these changes, Bernstein's analysis suggests that the company's EBITDA and free cash flow (FCF) break-even point may occur later than what Polestar's management anticipates.
The updated strategy by Polestar is seen as more realistic by Bernstein, prompting an adaptation of their financial model for the company. The analysts noted that by removing the "bull case" of achieving Porsche-like margins, the upside to revenue and margin expectations is effectively lowered.
This adjustment appears prudent given the company's current gross profit margin of -22.57% and negative EBITDA of $1.47 billion. The valuation of the stock continues to be based on its long-term potential, utilizing a discounted cash flow (DCF) approach with bear, base, and bull-case scenarios.
Bernstein's analysts only identified equity value in the bull case scenario, which assumes annual volume growth exceeding 10% until 2040 and a terminal growth rate of 4%. This scenario also projects operating margins to increase from 2% in 2030 to 16% by 2040.
Following the revised strategy, the scenario weighting was adjusted back to one-third for each case, leading to the new price target of $0.40. Despite the increase in the price target, the Market Perform rating remains unchanged. For deeper insights into Polestar's financial health and growth potential, including 12 additional ProTips and comprehensive valuation metrics, visit InvestingPro.
In other recent news, Swedish electric vehicle maker Polestar has faced profitability concerns as car sales fell short of expectations, causing a decline in revenue by 10% YoY to $551 million. The company reported a net loss of -$323 million and an adjusted EBITDA of -$180 million. To address these challenges, Polestar announced the appointment of Jonas Engström as its new Chief Operating Officer (COO), who is expected to bolster the company's operational capabilities.
BofA Securities recently initiated coverage on Polestar shares with a Neutral rating and a price target of $1.25, citing the company's growth potential in the EV sector. However, they also pointed out risks associated with Polestar's Chinese ownership and potential changes to U.S. trade and subsidy policies.
In other developments, Polestar has begun deliveries of its new Polestar 3 SUV in North America, anticipating an acceleration in the delivery of these vehicles in the United States and Canada. The company also plans to introduce two more models by 2026.
Despite potential U.S. sales ban due to a new rule proposed by the Biden administration, Polestar remains committed to its growth strategy. These are some of the recent developments shaping the future of Polestar.
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