Piper Sandler believes Polestar ‘warrants consideration’; starts automaker at Overweight

Piper Sandler initiated coverage on Polestar Automotive (NASDAQ:) with an Overweight rating and set their 12-month price target on the EV stock at $3.00 following the company’s most recent selloff.

Valuations for electric vehicle (EV) startups are facing significant pressure, and this trend extends to Polestar as well. Despite this challenging landscape, Piper Sandler maintains that PSNY deserves careful consideration.

The automaker has recently introduced two new SUVs, which are expected to drive growth in 2024 and 2025. The company’s partnership with Volvo/Geely is anticipated to enhance ROIC while mitigating the risk associated with scaling up.

While the need for additional capital is acknowledged as a potential obstacle, Polestar, unlike some of its counterparts, boasts a commendable sales history (with approximately 135,000 units sold), along with patient strategic investors, a global presence, and a plausible roadmap to achieving breakeven.

“Polestar has a singular focus on premium electric vehicles.” Write analysts at Piper Sandler.

The company’s existing product, the Polestar 2 electric sedan, sells for a relatively modest starting price of around $45k. However, Polestar’s future models are expected to sell for at least $60k, with some products easily exceeding $100k.

This strategy limits the size of Polestar’s target market, but also, the high sticker prices should support above-average margins.

Using this strategy, Piper Sandler believes that the automaker could eventually sell 325k+ units/year, with 11% operating margin.

And while the company’s future cars are expected to have a high MSRP, manufacturing EVs requires a staggering amount of money.

Through leveraging key shareholders such as Volvo (OTC:) and Geely as production partners, Polestar seems to have found a unique solution to this challenge. While this tactic might limit profit margins, it concurrently enhances ROIC and accelerates the product launch process.

“Given a compelling valuation, as well as a cocktail of other favorable investment attributes, we think investors should consider building a position.” Wrote analysts at Piper Sandler in a note.

Shares of PSNY are up 2.48% in pre-market trading Wednesday morning.