How Polestar aims to reach breakeven next year, boost sales tenfold by mid-decade

Polestar’s plan to go public via a merger with the special-purpose acquisition company Gores Guggenheim in the first half of this year forced the Volvo Cars subsidiary to do something it had decline to do since it was born in 2017: provide detailed sales and financial targets. Polestar CEO Thomas Ingenlath said that revealing the electric car maker’s midterm plan -- which includes boosting sales to 290,000 by 2025 from 29,000 last year and reaching breakeven in 2023 -- was “absolutely terrifying.” He added, however, that making the targets public has been a great motivator. Ingenlath also explained how Polestar was spared from the worst of the chip crisis and revealed a big change the company has made in the U.S. during an interview with Automotive News Europe Managing Editor Douglas A. Bolduc.

Polestar for years was reluctant to provide sales or financial targets. That changed after you announced plans to become a publicly listed company through a combination with special-purpose acquisition company (SPAC) Gores Guggenheim. Polestar has provided a detailed sales and financial outlook for 2021-25. Was that terrifying or was it liberating to finally announce all those goals?

You are right. It's absolutely terrifying. But this is required if you want to go to the public markets. It also has a positive effect in that it puts everything into the open. It's like if you want to quit smoking, the best thing to do is tell everybody because then they will hold you responsible. Making a public commitment helps you to strive toward a goal in a way that you would have never done if you had kept the target a secret.

There has been recent backlash against SPAC deals. Is this a concern?

When we started this process there were already some questions about the big hype around SPACs. That is why Polestar decided to do this together with Gores Guggenheim, which is an experienced partner that has done a number of successful SPAC deals. We see this as a good example of how a SPAC should be done. In addition, the EV/electrification market is still a very relevant investment area. Yes, we still have a couple of miles to go before we are listed. We are very carefully making sure we do our part to deliver on our ambitions and targets. I think Alec [Gores, chairman of Gores Guggenheim] and his team are very thoroughly working on what they have to achieve. Then we'll see how everything proceeds in the spring. We are confident there is nothing that will prevent this from coming to a successful finish.

Polestar wants to be breakeven by 2023. That would be six years since the announcement of the brand and within three years of the Polestar 2’s arrival. Why do you think you can get to that level so quickly when many other brands have struggled for much longer?

It will be the strongest proof point of the success of our asset-light model where we invest all of our money in the product and technology and not into manufacturing or logistics systems, which we gain access to as part of Geely. Our emphasis on this best-of-both-worlds idea should bring such a result. I know that nobody would have had the patience with us to take as long as some of the other EV companies, with almost a decade of nothing and then, finally, some growth. We have an ambitious target, but hopefully it will be proved to be the right way to go when we break even in such a short period of time.

You predict a 9 percent EBIT margin on earnings of $1.6 billion by 2025. That is a BMW-level EBIT margin, which is something Volvo has struggled to achieve. Why do you think Polestar can reach that in just eight years after becoming a stand-alone brand and five years after debuting its first volume model?

With our contract manufacturing and the very efficient way that we are going to market, we have created a modern, premium luxury brand with a cost structure that has been optimized to generate profit in the future.

How do you address the risks created by Polestar's heavy reliance on production in China, which has tense trade relations with the U.S.?

The picture that you draw is of today. In the future, we will have U.S. production in South Carolina, starting with the Polestar 3. As our lineup grows, we will go to Europe, because we want to have production in all three major regions. Therefore, we will not end up being China-dependent with our production. We will have a healthy mix that will give us the leverage needed to avoid being overly dependent on local legislation.

Your midterm plan mentions the possibility of adding production at Volvo's factory in Ghent, Belgium. How much more can you say about that?

Let's face it, Polestar will not build its own production facility in Europe. We will always do things in conjunction with Volvo. Time will tell which location and which model we will build [Volvo also has a plant in Torslanda, Sweden]. But today even I could not name the exact location. We will see in a couple of years.

Volvo builds the Polestar 1 at a factory in Chengdu, China, and the Polestar 2 in Luqiao. Would you consider assembling the two models at the same plant to maximize efficiencies?

We do not put all our cars into one factory because with our business model we go where that architecture is already in production. Therefore, we naturally ended up with the Polestar 2 in the same factory where an electric CMA-based model, the Volvo XC40, is produced [in Luqiao]. We see this as beneficial because it does not matter that the Polestar 3 is in another factory because this is not an additional investment for us. If it goes together with Volvo's future electric flagship SUV in Charleston, that is fine. We simply follow where the car’s architecture is being produced. That is why we have a wide array of sites where our cars are contract manufactured. This allows us to go into different regions because these factories already exist. We just have to make sure that the technology we need is implemented in that factory and that it's possible to fit our car in there. That is why our efficiency and our investment story does not depend on one platform and everything being made in one factory. We use the depth in the group and match the specific car to the right technology. That way when it comes to size, when it comes to proportion and sportiness and positioning, we can very pick the right components. You know, I worked for a long time in the Volkswagen Group, where I saw how multi-brand technology sharing helped them successfully build up brands. Obviously, that has left a mark on me as well.

How much of an impact has the chip crisis had on Polestar? Has your brand been given priority in the Geely Group, which includes Volvo, Lynk & CO and Lotus?

We have some leverage because of the size of our company. Everybody understands that we are in an important growing phase and that we are very much dependent now on one product [the Polestar 2]. That means we do not have the opportunity to maneuver around between different products and plants. So, yes, we get a bit of support in that respect. Having said that, this crisis is a real threat to all car companies. We have all experienced the uncertain planning horizon that has become part our day-to-day business. We are all in this together, therefore, we have to share as much of the pain as the other brands in the group.

How long will this problem last?

Based on what we saw in the autumn and winter of 2021, we know the chip shortage will continue to be an issue in 2022. We are as prepared as we can be, and we are definitely looking forward to the day when this problem disappears.

Polestar aims to sell 65,000 cars this year, up from 29,000 in 2021. Has the chip crisis already forced you to consider adjusting your goal?

When we set the target for 2022, we did so with the chip shortage in mind. So far, we have had no reason to adjust our outlook downward, but who knows how bad things will be. We will have to wait and see how 2022 develops.

BMW recently signed a deal to secure its chip supply, would Polestar be in a position to do this or would this more likely be something done by the Geely Group as a whole?

Yes, securing a direct supply of chips is something every automaker is likely to consider, and there might be thoughts in that direction by the Geely Group. But one thing is clear, a move like this will not prevent you from having problems in 2022.

Have you been surprised by the rapid uptake of EVs in Europe?

No, I am not surprised. I actually expected that to happen a bit earlier. Now, finally, we have seen a really nice pick up in Europe. And, we are seeing sometime similar in the U.S., which is completely different from our expectation two years ago. This is really good news.

What has changed?

Customers who have had the chance to try EVs are finding out how great they are to drive. Yes, we can't ignore that there is still an issue with the charging infrastructure not being built out enough, but it has improved. In addition, we are seeing that charging is not an overwhelming issue for EV owners. Another factor driving this is the topic of climate change. This will only become a more pressing matter in the minds of consumers and politicians, who will push for there to be more opportunities for CO2-free mobility. This trend has gained a lot of momentum. We only expect it to accelerate.

Are you finding that EV brands that plan to launch in the near future have been encouraged by Polestar’s market entry? Is it providing the same kind of tailwind that Tesla provide to Polestar?

When Polestar was announced many people questioned whether the world needed another brand, especially an electric-only brand from Europe. Today, it appears to have been the right move because there are customers who appreciate there being a completely new EV brand. There are some aspects that I think are being noticed because they have been successful. One is the positive customer feedback we get from our Android-based infotainment system, with Google Maps and Google Assistant. We have also shown it’s possible to have a direct-to-consumer approach while still having a successful relationship with dealers. Dealers are finding this new business model is not something that they should fear, it is something that should create a great opportunity for the future.

With Volvo going all-electric, how will Polestar differentiate itself?

Once our next model, the Polestar 3, is on the street alongside the matching product from Volvo based on the same electric platform, it will be so obvious to everyone that the offer is very different. The aim of the Polestar range is to be sportier and to have a stronger focus on the driver. Even if it's an SUV such as the Polestar 3, it will have a sleek silhouette, meaning there will be less emphasis on cargo space and more emphasis on the propulsion. It will also have a more daring design. I have always said that a Volvo should not provoke people. It should have a very high acceptance from each and every customer profile. A Polestar will be more progressive and avant-garde, therefore, it will not be loved by everybody, but it will address its fans. So, there will be a more polarizing, more exclusive element to a Polestar. This will filter down into the materials and colors. While a Volvo will be slightly warmer and have a bit more welcoming, cocooning atmosphere there will be much more of a tech ambiance in a Polestar. There will be a very clear difference.

The auto industry landscape has changed considerably since the days when Polestar was being conceived as a business and its long-range strategy was developed. Back in those days, the U.S. market was still a bit hostile to the idea of EVs. Many established automakers were still dismissive about the prospects for EVs. China was a cornerstone market for business planning, and Europe was still an uncertainty. But so many things have changed since then. How is your strategic plan different today than it was when you and your colleagues were first creating the company?

One thing that definitely has not changed and has proved to be the right thing to do was to commit to a global strategy and launch in all three key markets from the start. We did not say, "Let us launch in China and maybe a little bit in Europe and see how things go over time." When we started the plan, the U.S. was basically nowhere when it came to EVs and suddenly it has grown to a market with wide acceptance. Since we planned on being in the U.S. from our start, we could adapt very quickly to the change, which has allowed us to rapidly ramp up from four Polestar Spaces to 25. In Europe, the first seven markets we chose have been participating very nicely in the strong EV growth there. And when we started China was not so far ahead of the other markets when it came to premium electric cars to say the race had already been decided. What this shows is you should not bet all your money on one horse. You should balance the risk. Our global strategy ensured that we would not be surprised if a market suddenly took a very big leap ahead in electrification. 

Europe is Polestar’s biggest market among the three major regions you targeted from the start. Why is that and how will it develop over the next few years?

Right now, Europe has a quite high percentage of our sales because the overall market has seen an accelerated move toward EVs, especially in the Nordic countries. In addition, you could call Europe Polestar's home market, so that is helping. If we look to 2025, I expect demand to normalize to be in line with the overall size of each market. That means China, given that it’s the world’s largest market, will grow percentage wise. Therefore, by 2025 I see sales percentages of 30 percent each for China and the U.S. and 40 percent for Europe. We are in 14 markets today. We want to be in 30 markets by the end of 2023. Each market will require investment. In the U.S. we aim to have 50 Polestar Spaces in 2023. Similar things will happen in each of our markets.

As you mentioned earlier, the U.S. has been a pleasant surprise for Polestar. Has that led to any changes to your marketing there?

Our approach has changed a lot in the U.S. The biggest sign of how much came in the autumn of 2021 when we switched our advertising to a countrywide spread. Before it was always concentrated on locations where we saw or anticipated high uptake of EVs. This shows that EVs are no long a regional or local topic in the U.S. It has a much broader reach and appeal.

Volvo wants half of all global sales to be done online by 2025. Polestar already uses online for all sales. How many of these are truly online and what percentage are done at one of your Polestar Spaces or pop-up stores?

This would imply a very strict separation between the two, but that was never our idea. What we know is the test drive is a super important element for everyone. Therefore, it's a given that you need to offer the customer the opportunity to have some contact with the product. This mostly happens at a Polestar Space. What we also have found out is that the overwhelming majority of customers have no problem doing the financing and other aspects of the deal on their mobile device. If they need additional help, they can get it via an online chat or by going to a Polestar Space. Instances in which a customer does everything at a Polestar Space, including buying or leasing the car there, are very rare. It almost never happens. During the strict lockdowns, there was even more emphasis on the digital side of this process, with cars being delivered to a person for the test drive.

Does that continue to be the case?

This eased up in the second half of 2021, but we are definitely under the threat of things getting a bit tougher again.

What advice can you give to other brands about being online only?

It’s always difficult to give advice, but two things stick out about our experience. When it comes to the digital infrastructure and the IT that is needed, we definitely learned the hard way how much you actually have to invest to make sure these systems are running smoothly, and that they are seamlessly linked with the financing partners and everything else. It can very quickly create a pain point for everybody, including the customers, if you are not ready IT-wise. The second thing is that direct consumer business means you have to deal with the issues on your own because there is no dealer taking care of this. It's definitely a big change when you, as a car company, are responsible with providing a brilliant service experience and brilliant communication capability. If you deliver on these expectations, you gain incredible trust and create strong brand ambassadors. If you do not deliver, the customers will let you know. So, you never want to take this for granted.

What percentage of Polestars are bought, leased and subscribed to?

About 80 percent of people are buying via some sort of finance product, whether that be retail finance or lease or a company car purchase. And, as important as subscription is to explore, it is totally overrated when it comes to what people are really asking for.

Will your retail model of mostly having urban showrooms be tweaked once the higher volume Polestar 3 arrives?

This is already taking place. For example, in Sweden, we started with Stockholm and Gothenburg and now are going to Malmo as well as smaller locations up in the north of the country. In the U.S. last year, we went from four to 25 Polestar Spaces. This definitely will accelerate with the increase in volume that will come with the arrival of the Polestar 3. It is happening in all the countries where we are active as we move from being in the big capitals to the next wave of locations. Looking at Europe, we have a very dense service network, which is much broader than our network of Polestar Spaces. For instance, in the UK, where we will double to four Polestar Spaces early this year, we have more than 100 service points. That means someone who lives outside of a major city is very well served when it comes to repair or maintenance of the car. That being said, there is always the question of how many cars you have on the road, which plays a role in the trust people have in the brand. I realize Polestar will need to build up a broader presence beyond the capital city to gain confidence in the brand. That is why I told our teams about a year ago that we need to be thinking about the next step and determining how we grow the brand in each country beyond having one or two Polestar Spaces in the capitals.

Are you seeing an indication that the interest in EVs is growing beyond the major cities where Polestar is active?

Yes, an example we have showing that EVs are gaining wider acceptance came this summer when we opened a pop-up charging station as a kind of promotional event. We decided to put it halfway between Stockholm and Gothenburg. The first day we opened all the test drives were taken. These were local people in the middle of nowhere who would have never gone to Stockholm and Gothenburg for a test drive, but they were happy to try an EV when we came to them. That clearly gave me an indication that there is a certain group of customers who will be open to the brand once it comes closer to them.

If convenience is crucial, Polestar has a lot of work to do to reach its 2025 goal, right?

Yes, by then we want to grow to 290,000. It's very clear a lot has to happen in the next few years to achieve such a volume. We will expand into more markets and increase the size of our lineup by adding the Polestar 3, 4 and 5. This will give us a product portfolio with two SUVs [the Polestar 3 and 4] and two fastback sedans [the Polestar 2 and 5]. We will be helped by the switch from combustion engines to electrification that was prevalent in 2021. I imagine this will keep increasing, causing a snowball effect. The more EVs that are driven around, the more people will be exposed to them and the more the infrastructure will grow. That will be a nice dynamic in this field.

Polestar recently said there will be Polestar Spaces, Polestar Destinations and pop-up stores. Does this indicate Polestar in China wants to establish direct sales outlets? If so, won’t it need to involve local dealers such as Grande China, China's largest car dealer group? How will this work?

In China, much like in Europe, it was very clear that our direct sales model would work in conjunction with dealers. Although Polestar is selling the car directly to the customer, our Polestar Space partner is involved, financially benefiting by providing customer relations, service and maintenance. This omnichannel, digital direct sales model incorporates a very nice aspect of working with dealer groups and experienced retailers.