Executive Summary / Key Takeaways

• Polestar (NASDAQ:PSNYW) is undergoing a significant strategic transformation, shifting from a single-model offering to a diversified premium EV portfolio, driving substantial revenue and retail sales growth in the first half of 2025.
• Despite a challenging external environment marked by tariffs and intense pricing pressure, the company achieved a positive adjusted gross margin of 1.4% in H1 2025, alongside a 30% reduction in Adjusted EBITDA loss, reflecting improved sales mix and rigorous cost discipline.
• Strategic initiatives, including an accelerated active selling model, retail network expansion, and diversified manufacturing in the U.S. and South Korea, are crucial for mitigating geopolitical risks and driving future volume growth.
• While liquidity management remains a key priority, Polestar secured $200 million in new equity and approximately $2.1 billion in new and renewed debt facilities in H1 2025, demonstrating ongoing financial support despite a "going concern" warning.
• The company has paused its comprehensive financial guidance for 2025 due to market uncertainties but reiterates a robust compound annual retail sales volume growth target of 30-35% between 2025 and 2027, underpinned by its expanding model lineup and operational efficiencies.

Polestar's Electric Vision: Setting the Scene in a Dynamic EV Landscape

Polestar, founded in 2017 in Gothenburg, Sweden, has rapidly established itself as a pure-play electric vehicle (EV) brand, distinguished by its unwavering focus on design, performance, and sustainability. The company's core business revolves around the research, development, marketing, commercialization, and sale of battery electric vehicles and related technology solutions. Operating across 28 countries, with Europe as its primary market, Polestar is strategically positioned within a global EV industry that, despite some recent moderation, continues to exhibit growth, particularly in Europe. This growth, however, is increasingly characterized by a shift towards lower-priced EVs and heightened competitive intensity, especially in key markets like China and the U.S..

Polestar's overarching strategy is to leverage an asset-light business model, supported by synergistic partnerships with Geely Group (GELYY) and Volvo Cars (VOLVF), to drive growth and achieve profitability. This involves a multi-pronged approach: transforming commercial operations, expanding its model lineup, enhancing operating efficiencies, and meticulously managing its cash position. The company's historical journey, from the foundational Polestar 2 fast-back sedan to its current three-model portfolio, has shaped its strategic responses to these market dynamics, particularly in diversifying manufacturing and sales channels to mitigate geopolitical and competitive pressures.

Technological Edge and Innovation: Driving Performance and Sustainability

Polestar's competitive differentiation is deeply rooted in its technological prowess and commitment to innovation. The company's vehicles are designed to offer a unique blend of performance and sustainability, setting them apart in the premium EV segment. A prime example is the Polestar 3, an aero sport-utility vehicle, which recently demonstrated a remarkable range, traveling 935 kilometers on a single charge around Southeast England, effectively addressing potential range anxiety among consumers. This model also achieved a 5-star Euro NCAP safety rating, including an impressive 93% score for child occupant protection, the highest in its class over the past nine years.

The company's commitment to continuous improvement is evident through regular over-the-air (OTA) updates, which enhance vehicle features and performance over time. Polestar Charge, for instance, now provides access to over 1 million charging points across Europe, significantly improving the ownership experience. Looking ahead, the Polestar 5, a four-door grand tourer developed on a bonded aluminum platform, is poised to be a "brand shaper". This vehicle, launching in September 2025, is expected to showcase Polestar's capabilities in delivering "amazing power, precise handling and sustainable materials," enabling it to compete directly with legacy performance brands. Further solidifying its future product roadmap, Polestar 7, a compact SUV, is slated for manufacturing in Kosice, Slovakia, with Volvo Cars and is expected to launch in 2028, targeting one of the fastest-growing segments in the industry. These technological advancements and strategic product introductions are crucial for Polestar's competitive moat, contributing to higher average selling prices (ASPs), enhanced market positioning, and long-term growth.

Strategic Transformation and Operational Momentum

Polestar is actively executing a comprehensive strategic transformation to bolster its market position and financial performance. A cornerstone of this strategy is the accelerated transition to an active selling model, which involves expanding its physical retail footprint. In the first half of 2025, the number of sales points (excluding China) grew by 40% to 169, with 26 new retail partners added, 20 of which are in Europe. This expansion, including a new market launch in France, is deemed essential for achieving growth ambitions that would be unattainable through online sales alone.

Operational efficiency and cost discipline are also central to Polestar's strategy. The company has implemented significant headcount reductions and restructuring efforts across its R&D, Procurement, and Manufacturing departments in the UK, China, and Sweden. These initiatives, along with streamlining selling, general, and administrative (SG&A) activities, are expected to positively impact financial performance towards the end of Q4 2025, with full benefits realized in 2026. Furthermore, Polestar's manufacturing footprint is diversifying, with Polestar 3 production commencing in South Carolina for North American and European markets, and Polestar 4 production for North America expected to start in South Korea in the second half of 2025. This diversification is a critical strategic response to mitigate the impact of tariffs and geopolitical uncertainties.

Financial Performance: A Closer Look

Polestar's financial performance in the first half of 2025 reflects both significant growth and persistent challenges. Revenue surged by 56.5% to $1.42 million for the six months ended June 30, 2025, compared to $909,247 in the prior-year period. This growth was primarily fueled by a 48.3% increase in vehicle sales revenue to $1.32 million, driven by higher sales volumes and an improved product mix with greater participation from the higher-priced Polestar 3 and Polestar 4 models. Retail sales volume grew by 51% to over 30,000 cars in H1 2025, with Polestar 3 and Polestar 4 accounting for over 50% of the volume.

A notable contributor to revenue was the significant increase in carbon credit sales, which amounted to $72,155 in H1 2025, up from a mere $40 in H1 2024, primarily due to a new EU pooling agreement and U.S. sales. These carbon credit sales contributed positively to Polestar's profitability, with $72.2 million partially offsetting the gross loss. Other revenue, mainly from aftermarket parts and services, also saw a substantial increase of 1674.8% to $19,487, reflecting the growing car park volume.

Despite the strong top-line growth, Polestar reported a gross loss of $703,124 in H1 2025, a significant increase from $23,286 in H1 2024. This was largely attributable to an impairment expense, net of reversals, of $723,524 recognized in H1 2025, with no equivalent in the prior period. This impairment was driven by increased production costs due to new tariffs on U.S.-assembled car parts and mounting pricing pressure, significantly impacting the forecast volume and profitability of Polestar 3. Excluding this impairment, the adjusted gross margin improved to a positive 1.4% in H1 2025 from a negative 2.6% in H1 2024, benefiting from sales mix improvements and cost reductions, including an 8% average decrease in product costs and a 10% average decrease in battery costs. However, the adjusted gross margin in Q2 2025 declined to a negative 5.7% quarter-on-quarter, primarily due to an intensifying competitive pricing environment, a higher mix of Polestar 2 sales, increased tariffs, and inventory adjustments.

Operating expenses saw some improvements, with selling, general and administrative (SG&A) expenses decreasing by $49 million (12%) year-on-year in H1 2025, mainly due to optimized marketing and advertising costs and administrative cost reductions from restructuring. Research and development (R&D) expense, however, increased by $7 million due to a lower capitalization rate. The adjusted EBITDA loss narrowed by 30% to $302,301 in H1 2025, reflecting the top-line improvement, adjusted gross margin gains, enhanced operating efficiencies, and higher other operating income, including positive foreign exchange impacts.

Liquidity, Funding, and Financial Resilience

Polestar's liquidity and capital management remain critical priorities, particularly given its growth trajectory and the capital-intensive nature of the automotive industry. As of June 30, 2025, the company reported net current liabilities of $2,988.2 million. In the first half of 2025, Polestar generated negative operating cash flows of $497.7 million and negative investing cash flows of $321.7 million, primarily due to scaling commercialization efforts and ongoing capital expenditures for vehicle development.

To fund these activities, Polestar generated positive cash flows of $687.5 million from financing activities in H1 2025. This included a $200 million new equity injection from PSD Investment, a related party, and the securing of approximately $1 billion in new 12-month term facilities, alongside the renewal of about $1.1 billion in existing facilities. The company's cash and cash equivalents stood at $718.6 million as of June 30, 2025.

Despite these funding efforts, management acknowledges that the company's debt level is "too high" and "not satisfying". Polestar's syndicated Club Loan is subject to various covenant requirements, including minimum annual revenue, debt-to-asset ratio, minimum quarterly cash levels ($400 million), and maximum quarterly financial indebtedness ($5,500 million). The company has actively engaged with lenders, successfully amending covenants, including the debt-to-asset ratio for Q2, Q3, and Q4 2025, and the minimum revenue covenant for 2025 from $7,144.9 million to $3,000 million. Polestar successfully met a specific Chinese loan facility covenant requiring 30,000 retail sales units in H1 2025, reporting 30,289 cars. While a "material uncertainty related to the execution of managements liquidity and funding plan casts significant doubt upon Polestars ability to continue as a going concern," the company benefits from flexible payment terms with related parties, providing additional liquidity. Management expects cash burn to improve in the second half of 2025 and further in 2026, driven by increased volume, improved product mix, and reduced capital expenditures.

Competitive Positioning and Strategic Differentiation

Polestar operates in a fiercely competitive global EV market, positioning itself as "Europe's first and only pure EV start-up". The company differentiates itself through a clear focus on Scandinavian design, performance, and sustainability, aiming to attract discerning customers in the premium segment. While leveraging synergies with Volvo Cars, such as utilizing their service network, Polestar maintains distinct brand identity and separate showrooms, resulting in "very little overlap" and "incremental business for most of our dealers". The upcoming Polestar 5 is specifically designed to compete with "legacy performance brands," showcasing the company's ambition to challenge established luxury players.

However, Polestar faces an "intensifying competitive pricing environment". The U.S. market, representing about 9% of its retail sales, is particularly challenging due to tariffs and policy changes, while the Chinese market is described as "tough," with many local brands operating at a loss. Polestar's strategy to counter these pressures includes diversifying its manufacturing footprint (U.S. and South Korea production) to mitigate tariff impacts and continuously reducing product costs, with an 8% average decrease in product costs and a 10% average decrease in battery costs observed in H1 2025. The company's cars are increasingly winning comparison tests against premium competitors, underscoring its product quality and performance.

Outlook and Risks

Polestar has paused its comprehensive financial guidance for 2025, citing the "challenging and volatile" geopolitical environment and uncertainties surrounding international tariffs and government regulations. Despite this, the company reiterates its target for a compound annual retail sales volume growth of 30% to 35% over the 2025-2027 period. This growth is expected to be driven by the expanding model lineup, the active selling model, and market expansion.

The benefits of Polestar's R&D, Procurement, and Manufacturing restructuring are anticipated to positively impact financial performance towards the end of Q4 2025, with full financial benefits expected in 2026. Carbon credit sales are projected to exceed $100 million in 2025, providing a consistent revenue stream. Management expects cash burn to improve in the second half of 2025, driven by increased volume, an improved car line mix, and expected profitability, with further improvements anticipated in 2026 due to enhanced profitability and reduced capital expenditures.

Key risks to this outlook include potential regulatory changes impacting carbon credit demand and revenue. The ongoing threat of tariffs and mounting pricing pressure in global EV markets could continue to impact profitability. Furthermore, the "material uncertainty related to the execution of managestments liquidity and funding plan casts significant doubt upon Polestars ability to continue as a going concern". Polestar's ability to successfully navigate these external headwinds while executing its strategic initiatives will be crucial for its long-term success.

Conclusion

Polestar is in the midst of a profound transformation, evolving from an early-stage EV entrant into a more diversified and operationally resilient premium automotive brand. The first half of 2025 showcased significant commercial momentum, with robust retail sales and revenue growth driven by an expanded model lineup and strategic shifts in its selling model. Despite a substantial impairment charge related to Polestar 3 assets, the company's underlying financial health, as reflected in its adjusted gross margin and narrowing Adjusted EBITDA loss, demonstrates progress in cost management and operational efficiency.

The strategic emphasis on technological differentiation, diversified manufacturing, and an active selling model positions Polestar to capitalize on the growing, albeit competitive, global EV market. While external headwinds like tariffs and pricing pressures present ongoing challenges, Polestar's proactive approach to liquidity management, including securing new equity and debt facilities and amending loan covenants, underscores its commitment to financial stability. The reiterated long-term volume growth target, coupled with anticipated improvements in cash flow and the full realization of restructuring benefits in 2026, suggests a path towards sustainable profitability. Investors should closely monitor Polestar's execution of its new business plan, its ability to mitigate external risks, and the continued market reception of its expanding, technologically advanced vehicle portfolio as key indicators of its long-term value creation.