Is Polestar Automotive stock worth buying?

Polestar Automotive (NASDAQ: PSNY)like all companies, it wants to put its best foot forward when reporting earnings, which is why the headline in Q2 2024 was a sequential 82% increase in deliveries. Sounds great, but if shipments are up 82% in just one quarter, there must be a bigger story happening. The bigger story isn’t great. Here are some key facts you need to know before purchasing electric vehicles (EVs).

1. Polestar returns to compliance

In mid-August, Polestar’s press release said it had “filed its Annual Report on Form 20-F for the fiscal year ended December 31, 2023 with the U.S. Securities and Exchange Commission.” As a result, the Company regained reporting compliance and meets the requirements of Nasdaq Listing Rule 5250(c)(1).”

Non-compliance means that the company is not meeting the exchange’s expectations for some reason. In this case, the deficiency was, of course, the failure to provide regulators with the required financial statements. Polestar also recently received news that the company’s stock price had dropped below $1 per share, which is also concerning.

Image source: Getty Images.

The question is, why did the company delay filing its 20-F? (It’s pretty obvious why it received notice of the stock trading below $1.) According to a filing with the Securities and Exchange Commission, the company faced the delay because it needed additional time to “evaluate and quantify certain errors in the historic year 2021.” and annual and interim financial statements for 2022.” These things happen, but when they happen to stocks trading close to $1 a share, you need to be especially careful.

2. Polestar has revamped its management team

Although the electric vehicle company has resolved compliance issues with both the SEC and Nasdaq The stock exchange also decided to hand over top management, emphasizing in the publication of its second quarter results that it had hired a new CEO, director of design and head of global communications. The company recently hired a new CFO. When a company does a massive overhaul of its management team, especially when accounting problems arise (see point 1), conservative investors should probably start looking elsewhere.

3. Polestar’s quarterly results weren’t great

After getting past the bullet points at the top of the second quarter earnings report, which contained largely positive news, investors were able to look at the financial statements. The story wasn’t very good. Revenue for the quarter was down 17% year-over-year. The company explained that this was “primarily due to lower global vehicle sales and higher discounts.” So he lowered sales prices and still couldn’t sell that many cars? This is a bad sign.

Gross profit dropped from $900,000 to negative $2.4 million, meaning the company is paying more to produce its cars than it generates by selling them. This is not a sustainable business model. For now, Polestar appears to be a struggling company, even though it has highlighted large, sequential delivery growth.

Meanwhile, research and development expenses dropped by as much as 76%. The company explained that the decrease was due to changes in the capitalization and amortization of this cost in connection with the start of sales of the new model. However, given the other issues at play, the glass half empty could mean the company is retreating even further in a bid to save money and/or brighten the earnings picture. Time will tell what this will be, but it is important to remember that research and development is something that cannot be skipped in the highly competitive automotive industry. Which brings up point number 4.

4. Polestar continues to lose money

Polestar lost $242.3 million in the second quarter, a 12% improvement from its loss in the second quarter of 2023. On the one hand, that’s good, but a more realistic view would be that it’s actually just less bad.

PSNY data by YCharts

Meanwhile, looking back, Polestar never had a profitable year. It’s a young company, so there’s nothing strange about it. But if we add accounting issues and huge turnover in management positions, the company’s history is not pretty. Only a very aggressive investor will want to own these shares.

Polestar is a very risky company

Polestar is one of a handful of upstart electric vehicle makers trying to break into the automotive industry with fully electric vehicles. So far, the only company that has really managed to do this is the company Tesla. As you can see from the chart above, investors were excited about Polestar’s prospects from the beginning, perhaps believing it could be the next Tesla. However, given the continued negative news, Wall Street lost ground on the stock, pushing it down about 90% from its peak. Only the most aggressive investors should consider Polestar today.

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Reuben Gregg Brewer has no position in any of the companies mentioned. The Motley Fool covers and recommends Tesla. The Motley Fool has a disclosure policy.