Polestar Debut Misses Pole Position

Polestar Debut Misses Pole Position

Since making its public debut on Friday, Polestar's price has dropped, warning other businesses that the purge might not be finished. The lackluster response to Polestar, the most recent American electric vehicle company to go public, is a warning sign for future start-ups. As oil costs skyrocket and the need for greener transportation becomes increasingly obvious, the auto industry is due for a makeover. Despite the appeal of the galloping inflation and a potential economic crisis are making investors wary of risky bets, which include EV makers.

The latest example of skepticism is Polestar's muted reception, with the stock rising 16 percent on Friday during its first day of trading before dropping 15 percent on Monday. After combining with the business Gores Guggenheim, the Swedish electric vehicle manufacturer went public. As of Monday's end, Polestar, which was cofounded by Volvo Cars and Zhejiang Geely Holding in 2017, had a market value of roughly $24 billion.

Last year October, Polestar CEO Thomas Ingenlath boldly claimed it could compete with Porsche.

EV equities benefited immensely from the system's two years of abundant liquidity, but now that liquidity is dwindling, investors will need to reassess the value of these EV names. Only one of the challenges faced by startups is tighter market conditions. The difficulties are numerous, with rising raw material costs, supply-chain constraints that won't go away, and high automobile prices that could reduce demand. Since the materials used in EV batteries have experienced some of the most significant inflation, pushing corporations to increase the price of their already expensive vehicles, trucks, and SUVs, any new entrant to the EV sector is in an especially difficult situation.

Tepid Start for EV Start-ups

Additionally, the automakers do not yet have strong consumer bases on which to rely. For industry veterans like GM, Ford, and market leader Tesla, this is a significant advantage. When you spend that much money on a vehicle, you at least want to know that the manufacturer will still be in business in a few years. Recently, the initial enthusiasm for the stocks of some EV manufacturers has faded. Phoenix Motor, situated in Anaheim, California, is currently trading around 11% below its $7.50 per share IPO price from June 7. Rivian has decreased by 64% since its November debut, while Arrival from Luxembourg has decreased by more than 90% after becoming public in the United States.

They are a part of a larger trend of recent IPOs that have performed poorly as investors avoid risk owing to increased market volatility, which is a major factor in why 2017 has been the lowest first half for global stock offerings in almost two decades. However, according to analysts, the market values of EV startups Rivian or Lucid still don't completely reflect all the dangers. Currently, Lucid Group is valued at about $31 billion, while Rivian is estimated to be worth about $26 billion. Ford, a century-old company with a bevy of EVs due out in the next few years, is valued at approximately $48 billion in contrast.

Steve Sosnick, chief strategist at Interactive Brokers, said the EV market, including Tesla, continues to be overvalued using any traditional metrics. Even so, not all firms can deliver on the promise that the market is pricing in, despite investors' continued willingness to pay a premium for the idea of an EV future.


More about Polestar…

Swedish automaker Polestar was founded in 1996 by Flash/Polestar Racing, a partner of Volvo Cars. And in 2015, Volvo acquired Polestar. The STCC Polestar racing team gave rise to Polestar Performance AB, and while keeping tight ties to Volvo, the racing team changed its name to Cyan Racing.

By signing a business combination agreement with US special purpose acquisition company Gores Guggenheim Inc. in September 2021, Polestar declared its desire to go public. On June 24, 2022, Polestar started trading on the Nasdaq exchange under the ticker PSNY.