Struggling Polestar faces some serious financial challenges now that Volvo, its Swedish parent, plans to cut off funding for the battery-electric startup. It’s the latest sign of retrenchment by the auto industry as the rapid growth of EV sales has started to flatten out. Volvo itself continues to move forward with plans to become an all-electric brand by decade’s end.
Volvo Cars will halt its financial support for EV startup Polestar and also will evaluate its financial stake in the company, which it spun off in 2022.
It won’t necessarily leave Polestar starving for funds. Responsibility for the brand may now be handed over to China’s Geely Holding which holds a majority stake in Swedish-based Volvo. During an appearance on CNBC, Volvo CEO Jim Rowan described the move as a “natural evolution” of the relationship between the companies.
The “next phase”
Rowan said Polestar is “entering the next exciting phase of its journey with a strengthened business plan and cost actions,” but he added that Volvo needs to focus on its own transition. “We are therefore evaluating a potential adjustment to Volvo Cars’ shareholding in Polestar, including a distribution of shares to Volvo Cars’ shareholders. This may result in Geely Sweden Holdings becoming a significant new shareholder.”
Polestar has gone through a series of major changes since the name first appeared in 1996 as a private company racing Volvo products. It was subsequently acquired by Volvo, the name used for special performance versions of the Swedish automaker’s products. Volvo and Geely formed a holding company in 2017, with Polestar positioned as an electric vehicle company. It was spun off through a SPAC merger in 2022 when it began trading on the Nasdaq exchange.
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Aggressive product plans
Its first product was the Polestar 1, a high-performance plug-in hybrid. Starting with the five-door Polestar 2, however, the brand has adopted an all-EV strategy. It followed last year with the Polestar 3 crossover and now has outlined plans for a series of new models including the sporty Polestar 4 due this year, and two more offerings due by 2026.
“They have got a very exciting future ahead of them,” said Rowan. “They’ve moved from being a one-car company to a three-car company, they’ve got two brand-new cars coming out very shortly, in fact in the first half of this year, and that’s going to take them to a new growth trajectory.”
But the product program is a costly one and Polestar has been heavily dependent upon Volvo’s financial support to keep it going. For the third quarter of 2023 — the latest period for which it’s released earnings — the EV maker had total revenue of $613 million. That was up 41% year-over-year, but it still contributed to a $735 million operating loss for the first nine months of 2023.
Volvo looks to its own EV plans
Volvo currently holds a 44% stake in Polestar. Though it is “evaluating” how that might change, Rowan didn’t give any indication as to whether Volvo might sell off its holdings entirely.
The Swedish company has its own challenges to deal with. It has rolled out a handful of all-electric models during the last several years, such as the generally well-reviewed XC40 Recharge. And it continues to produce “electrified” models, including plug-in hybrids. But it is also migrating to a 100% EV strategy.
The first models using dedicated battery-electric platforms are coming out this year, starting with the entry-luxury EX30 and the high-line EX90, an EV alternative to the current XC90 flagship crossover.
Ties will remain
The two partners will continue to have strategic ties, officials said. They’re expected to share components and even their underlying platforms in the years ahead.
“With our growing lineup of exclusive, performance cars, Polestar is in one of the most promising phases of its development,” Polestar CEO Thomas Ingenlath said in a statement.
“We look forward to continued cooperation with Volvo Cars as well as benefiting from even greater synergies with Geely on future orientated technologies,” he added.
Volvo news scores with investors
For its part, Volvo delivered some unexpected news that clicked with investors on Thursday, its fourth-quarter earnings beating expectations at 6.7 billion Swedish kronors, or $643.83 million. It earned 3.9 billion kronors during the same period a year earlier. Revenues jumped from 105.2 billion to 109.4 billion kronors. For the full year, Volvo had operating income of 25.6 billion kronors, up from 17.9 billion in 2022.
Volvo Cars’ stock closed at 34.54 Swedish kronors, a 26.4% increase, based on both the earnings numbers and Volvo’s announcement about Polestar.