Why Polestar is not 'running after Tesla'

Polestar has seen only losses since its Nasdaq listing last year. The company's net loss for the second quarter was $304.1 million, but it still expects to finish the year with a gross margin of 4 percent. CEO Thomas Ingenlath is keeping his eyes fixed on the company's 2025 goals, which are a 9 percent profit margin and global sales of 290,000. He outlined how Polestar will get there in an interview with Automotive News Europe Managing Editor Douglas A. Bolduc.

Polestar's stated global sales goals ahead of its stock listing last year were 65,000 cars in 2022 and 124,000 this year. The 2022 target was missed and the revised 2023 goal is 60,000 to 70,000. Will the arrival of the Polestar 3 and Polestar 4 in 2024 get you back on track and help you reach your 2025 sales goal of 290,000?

The rollout of our model range will take place in the cadence we promised because the production starts for the Polestar 3, 4 and 5 don't impact one another. What I mean is that because of our asset-light business model they can come in relatively short succession because we are not trying to do them all in one plant or all on one architecture. We have confirmed that the Polestar 3 and Polestar 4 will enter the market in 2024. By 2025 we should have a portfolio that includes those two models plus the Polestar 5, as well as the Polestar 2. Therefore, we still aim to achieve what we stated in the original business plan.

What is more important, reaching those sales volume targets or achieving your EBIT margin goal of 9 percent?

The latter is much more important for us. While the market is very different now than it was a few years ago, what remains constant is the profitability and margins we want this company to achieve. We have very clearly stated we will not get into a price war to achieve volume targets because we want to maintain our premium position. We are definitely not running after Tesla, which wants to have X factories and volumes in the millions. We want the Polestar 3, 4 and 5 to firmly secure our place in the premium luxury segment rather than producing smaller, cheaper cars.

Prior to the Nasdaq listing, Polestar said its aim was to reach breakeven by this year. The current outlook is to have a gross margin of 4 percent. Does that mean breakeven won't be possible this year?
There's no doubt that the Polestar 3 being that much later than we would have liked -- we hoped it would have already been relevant in 2023 -- is something that is missing at the moment. That issue will be solved in 2024. That being said, what is most important is what we will achieve once the Polestar 3, 4, and 5 are in the market.

How do you want Polestar to be perceived once you get to that point?
This portfolio [of the Polestar 2, 3, 4 and 5] should enable us to have a sustainable business in terms of earning the money that we need to finance our future and reward the people who have invested in the company.

Are the software issues that have delayed the Polestar 3 being solved to your satisfaction?

I drove the car this summer and I was happy with the progress and how the car is maturing. So, yes, it's getting there.

The Polestar 4 is poised to be available for the full year in China. What about Europe?

It will come on the market in Europe in the summer of 2024, so its first full year of sales here will be 2025.

Is it difficult to keep the company's long-term view when you are expected to deliver each quarter?

Quarterly reporting focuses on what you have achieved in a certain period of time. That is important, but what I concentrate on is how do we achieve the highest level of profitability possible on from our car lines. That is key for our business.
 

How is Polestar responding to the price war?

We want to sell value. If you reduce your prices you devalue the car. Look at what we did with the updated Polestar 2. We made it better and a bit more expensive. We could have done the exact the opposite, taking value out by giving it a cheaper battery, a cheaper electric drivetrain and use cheaper materials and kept the same price. Or we could have followed Tesla and only offer one screen and save big bucks because that monitor in front of the driver is expensive. But we didn't.

What message do you hope this sends to your customers?

Our love of design and technology and the passion we have for the product is something that customers cherish. They notice if somebody is building cars just to earn money. There are always cheaper alternatives, whether it's bicycles, phones or cars, but there are others who value brands that are passionate about pushing the boundaries and doing whatever it takes to make the product great.

There are ways besides big discounts to help close a deal with a customer who would like to leverage the heightened competition in the EV market. Is Polestar using such tactics?

We don't live in another world. We know that sometimes you have to help the customer here. We have to have a professional marketing and sales team that knows how to package the deal to make sure it works for the customer. What is also critical is understanding the vast differences in the markets. In Norway there are almost no company cars, while in the U.K. if you are not successful there you have had it. You have to have the right financing offers and work with the right partners to have any success with your company car programs [in the second quarter 70 percent of Polestar's sales came from company cars or fleets].

You spent many years working at Volkswagen Group where there was no pressure from the financial markets on the individual brands to be independently self-sufficient because they were all part of a large family. Geely wants each brand to stand on its own. What are the advantages and disadvantage of that and how long will you need financial help from your two biggest shareholders, Volvo and Geely boss Eric Li's private investment company, to cover your costs?

It's indeed an incredible difference in terms of atmosphere and mindset for the whole company -- including the CEO -- to be part of a listed company. In some ways it is great because everyone in the company understands we have to do to build a business that is self-sufficient and at some point creates value for its investors. We are still in the investment phase. Once the Polestar 2, 3, 4 and 5 are on the market it should be possible to make the money we need to finance our future and reward our shareholders. We received money from our main shareholders to help cover costs in 2023. How 2024 will be handled is something we have to discuss with them to determine what is the best solution. That being said, one of the reasons we listed the company was so that different owners could come in, making the company that much more colorful and independent. Of course, that is our ambition, but our small free float [currently 11.6 percent] is a hindrance to that happening. So, we definitely have to work on increasing the free float.

Is something being planned to showcase what Polestar has to offer new and existing investors?

We plan to hold an event, a Polestar Day if you will, to provide information about 2024. We will talk about our portfolio, provide information about the innovations we will have in the products, the partners that we were working with for those innovations, where we are with our business plan and how we focus on the things that matter to us. I'm looking forward to talking about where we are now and how we are preparing ourselves for the next two years.

Will you be able to continue avoiding U.S. tariffs or will the volume of Polestar 2s and 4s coming from China go out of balance with the number of U.S.-made Polestar 3s going to China?

The amount of cars that we export and import has to be in balance, and in the long term the Polestar 3 cannot be the only car that puts volume into that equation. We will have to bring another car or product or production into the equation to balance this. These things take time in the car industry, so we are working on that. Hopefully at the [Polestar Day] event we will be able to talk about how that puzzle comes together.