Polestar: The Challenges and Ambitions of a Car Industry Start-Up

The Tough Road for Car Industry Start-Ups

Being a start-up in the car industry is no easy feat. While engineering a car for production is a significant achievement, the real challenge lies in mass production, compliance with regulations, managing sales channels, and generating public awareness.

Cars require meticulous cradle-to-grave management and face unique burdens compared to other products. Start-ups in the car industry often struggle to achieve success, with many fading away or facing ongoing challenges.

One notable exception is Tesla, which turned a profit in 2020 after 17 years of losses. However, other start-ups like Faraday Future and Rivian have faced difficulties, and even Dyson abandoned its car production plans after investing billions.

Polestar: A Unique Start-Up

Polestar is a relatively new player in the car industry. Although it didn’t exist as a car company a few years ago, being spun out of Volvo and part of the Geely group has given it a significant advantage over other start-ups.

Despite this advantage, Polestar’s financial reports reveal the challenges faced by start-ups in the industry. The company has spent over $1.5 billion (£1.2bn) on day-to-day operations, development, and scaling the business in 2023 alone.

To support its growth, Volvo and Geely have provided additional funding, and Polestar is seeking $1.3 billion (£1.0bn) in funding with the goal of becoming cash-flow break-even by 2025.

The Path to Profitability

Polestar’s revenue for this year has reached $1.8 billion (£1.5bn), but with a margin of just 1%. The company aims to increase its margins to around 20% when it introduces the Polestar 3, 4 SUVs, and 5 saloon.

By achieving this goal, Polestar anticipates lower development costs and reduced cash burn as profits from car sales can be reinvested in new models.

However, Polestar’s share price is currently down by 80% from its all-time high, and its market capitalization is less than 1% of Tesla’s, despite the success of the Polestar 2 and projected sales of 60,000 units this year.

Polestar’s Strategies for Success

During a recent event called Polestar Day, CEO Thomas Ingenlath highlighted the company’s resilience and acknowledged that not everything goes according to plan in the start-up world.

Ingenlath outlined several strategies that Polestar is implementing to achieve its goal of being cash-positive by 2025:

• Expanding the product portfolio with the Polestar 3, 4, and 5, focusing on SUV segments with higher margin potential.
• Diversifying manufacturing by utilizing Volvo’s South Carolina plant for Polestar 3 production and Renault’s Busan plant for Polestar 4 production.
• Implementing cost reduction measures for raw materials, logistics, and overall cost efficiencies.
• Continuing investment in digital market environments and reducing development costs for new models.
• Focusing investments on markets where electrification is thriving.

Polestar also emphasizes its unique selling points, including a bespoke operating system for the Chinese market, adoption of automated driving technology, and a strong commitment to sustainability.

While the challenges are significant, Polestar’s CEO remains optimistic about the future. As Ingenlath stated, “Building a new brand is not easy,” but with a range of desirable Polestar models and a focus on key strategies, the company aims to overcome obstacles and achieve profitability.