This analysis was first published in SvD Näringsliv, in Swedish, on September 4th, 2022. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.
Polestar’s losses are ballooning, driven by expensive costs from its SPAC listing. The EV company has been squeezed, and the question now is how quickly its owners will have to step up with fresh capital.
An ordinary IPO is usually preceded by a long and cumbersome process. The company has to be prepared for a whole new set of requirements and rules, management has to be trained, and a new way of reporting financial information has to be put in place.
On top of that comes the sales pitch to the market. This is where you display historical metrics and show how the business has developed up to today — which indirectly says something about how the future might look.
With a so-called SPAC listing, you get to skip that last part. No history is required; you can go public entirely on the basis of future hopes instead.
That fits perfectly for companies that have no history to offer. It is also much faster to get to the stock market, which suits young and innovative companies that need capital quickly.
It is no accident, then, that so many EV companies have gone public via SPACs. Tesla’s enormous stock market success is enough to pull the whole category along as the car industry heads toward general electrification. Faraday Future, Canoo, Rivian, Fisker and Lordstown Motors are all examples of EV companies that have benefited from this trend and listed relatively recently.
And then there is Swedish Polestar, which just reported its quarterly numbers. The figures showed a doubling of revenue but also runaway losses. On just over a billion dollars in revenue the loss was $885 million. Of that, a full $372 million was costs directly attributable to the SPAC listing.
That is equivalent to roughly SEK 4 billion.
Speed to market has its price, to put it mildly.
The choice of a SPAC for EV companies as a category may be logical, but for Polestar specifically it raises a number of questions.
Polestar is not a straightforward startup in this context — it was a wholly owned subsidiary of Volvo Cars. Volvo Cars is in turn listed on Nasdaq Stockholm since October 2021. And to make it even more complicated, Volvo Cars is 82 percent owned by the Chinese company Zhejiang Geely Holding Group (which is also the main owner of listed Geely Automotive). Access to capital exists at many different levels, and this Russian doll of listings looks like a complex and expensive way to solve the problem.
To understand a plausible motive, you need to go back about a year in time, to when news of Polestar’s combination with SPAC vehicle Gores Guggenheim first emerged. Back then enthusiasm was flowing on the stock market and money was pouring in.
A lot can happen in twelve months. The speed at which they moved to catch these favourable market conditions — even with the SPAC method — simply wasn’t fast enough. The Nasdaq 100 index fell around 20 percent between Polestar’s announcement and its first day of trading. But they still needed the capital.
Now an entire generation of listed EV companies has one more thing in common — it looks like their money is running out. As early as May this year, Fisker, Canoo and Lordstown Motors all warned that they might not have enough cash to last a year. Their share prices have also fallen between 42 and 62 percent apiece — just since the start of the year.
Polestar’s market cap, for its part, has nearly halved since the SPAC merger. Analysts at Bernstein Research wrote in June that the company might have to ask its main owners for more money.
As recently as Thursday, Polestar’s CFO Johan Malmqvist said in an interview with Bloomberg that “we are very excited about our upcoming launch”. The new SUV, Polestar 3, is released in October. But looking at the numbers, it will probably take more than additional car models to turn things around. It will take money.
