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Thomas Ingenlath, CEO of Gothenburg-based Polestar, has a clear vision. “When we founded Polestar, I wanted to show that creating beautiful and desirable cars could persuade people to choose more sustainable options,” he told the IAA Mobility conference in Munich this week.
And he feels that commitment to more climate-friendly option will be rewarded, not least by a willingness by the newest generation of car buyers to pay more for such an offering. He also asserts there should be industry-wide parameters on transparency around carbon footprint to help assist these new consumers to make a choice.
“Customer purchasing behaviour is shifting and consumers are demanding these sustainable solutions — 40pc of Gen Z and millennials, are already willing to pay for greener products,” Ingenlath says. Polestar is aiming to capture these more environmentally conscious buyers.
The firm published its first lifecycle assessment (LCA) of its Polestar 2 three years ago. Since then, it has been trimmed from 26t to 23t. And this has been achieved, Ingenlath’s notes, even as the vehicle “actually travels up to 22pc further, consumes 9pc less energy and it charges up to 34pc faster".
“So, we can make big improvements to a car that is already in production, and still reduce its CO2 impact,” he boasts.
“We want to be transparent, to be upfront about the environmental impact of our electric cars, particularly in the production phase, however uncomfortable it might be,” Ingenlath continues, arguing the “transparency is our best weapon against greenwashing”. “It is why we need a standardised LCA for the industry,” he continues.
Ingenlath acknowledges that EVs may leave the factory with a bigger carbon footprint, but “their carbon impact over their lifetime is much lower”. If charged with green energy, the LCA “is about half of the combustion engine”.
“And, while a fossil fuel driven car never will be carbon neutral, an electric car offers the real route towards carbon neutrality,” he states.
The firm also launched its Polestar Zero project in 2021. “The aim is clear, to eliminate greenhouse gas emissions, cradle to gate and end-of-life — no low-carbon solutions, no offsetting schemes, zero means zero,” says Ingenlath.
The project is still in its 2021-25 research first stage. “Right now, we are focusing on the hardest bit — to actually find new solutions that do not yet exist,” he continues.
The firm now has c.30 industry partners in the project, across areas such as plastics, aluminium, steel, minerals, mining, polymers and chemical. There will be a second applied science phases across 2025-27, followed by a final product development phase up to 2030.
Short term versus long term
But a long-term vision of competitive advantage presented on-stage and without the opportunity for feedback is one thing. Delivering tangible results in the short term on these convictions is another. And the company’s recent Q2 results flagged up this current dichotomy.
While Polestar saw revenue increase by 18pc year-on-year to $1.2bn for the first six months of 2023 on the back of strong sales it had previously flagged, analyst concerns that it was achieving this higher volume through discounting proved founded. And these lower prices had a tangible impact on operating margin, pushing it into negative territory.
Increased revenue from higher Polestar 2 deliveries and price increases implemented in 2022 on model year '23 cars was offset by sales channel mix, product mix and higher discounts, according to Polestar CFO Johan Malmqvist. Gross profit decreased from $61mn in Q2’22 to a negative $1mn, while operating loss increased by 8pc, or $19mn, predominantly impacted by the negative gross profit.
But “the targeted campaigns to sell out the model year '23 [will be] falling away as we are clearing out that inventory”, says Malmqvist. “At some point, the channel mix and the product mix will settle down,” he predicts.
And that leads to Polestar forecast that margins will still get to 4pc in 2023, despite analysts pointing out that this is a 5.2 percentage point improvement from where it is currently. The firm forecasts delivering between 60,000 and 70,000 vehicles this year, which would represent annual growth of 16-36pc.
“We expect a stronger second half supported by the easing of supply chain disruptions and reducing raw material costs, [and] reflecting the transition to the upgraded Polestar 2 model year '24 with higher anticipated both volume and margin,” says Ingenlath.
It has also started taking orders for Polestar 4 SUV coupe, which is on track to start production in November. First customer deliveries in China expected before year-end, while deliveries to the rest of the world are planned for early 2024.
Capital injection
Polestar had $1bn on the balance sheet as of the end of Q2, and access to $800mn in undrawn credit. But, even aside from loans from its main shareholders, it owes another $2bn to third parties. And the firm is transparent that it requires additional capital, which is likely to be a mix of equity and debt.
“We are very conscious of the fact that we have a low free float,” says Ingenlath. “Issuing more shares, of course, would help address that. With that being said, we also recognise that the dilution impact given where the share price is at and also the overall macro perspective of where the markets are needs to be taken into account.
“We are looking into both tracks, both equity and debt, recognising that it is going to require a combination of both,” he continues.
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