Polestar (PSNY): A Strategic Buy as Tariff Optimism Meets Surging EV Sales Growth

In 2025, Polestar (PSNY) has emerged as a compelling case study in strategic resilience, navigating a volatile global landscape with a dual focus on tariff mitigation and market expansion. With retail sales surging 38% year-on-year in Q2 2025 to 18,049 units and a 51% increase in first-half deliveries to 30,319 cars [1], the company’s growth trajectory is underpinned by a calculated pivot to Europe—a region now central to its long-term profitability. This shift is not merely reactive but a proactive alignment with geopolitical tailwinds, including U.S. auto tariffs and shifting consumer dynamics in Europe, which together position Polestar as a scalable player in the premium EV segment.

Tariff Mitigation: A Strategic Pivot to Europe

The U.S. auto tariffs, which impose a 27.5% levy on imported vehicles and 25% on critical components like batteries [2], have forced Polestar to reengineer its supply chain. By relocating production of the Polestar 7 SUV to a Volvo factory in Slovakia and already manufacturing the Polestar 3 in South Carolina [3], the company is insulating itself from the most punitive aspects of these tariffs. This localized production strategy not only reduces exposure to trade barriers but also taps into Europe’s robust demand for premium EVs. Polestar’s CEO, Michael Lohscheller, has emphasized that Europe now accounts for a significant portion of its retail expansion, with the company’s 22% share of battery electric vehicle (BEV) registrations in the region—bolstered by its inclusion in the Mercedes-Volvo-Polestar manufacturer pool—highlighting its competitive positioning [4].

The EU-U.S. conditional tariff deal, which could reduce U.S. tariffs to 15% if the EU lowers its own, adds another layer of optimism. While the deal’s implementation remains uncertain, Polestar’s diversified production footprint provides flexibility to capitalize on any favorable adjustments [5]. This strategic agility is critical in an environment where geopolitical tensions and trade policies remain unpredictable.

Scalable Market Expansion: Europe as the New Growth Engine

Polestar’s expansion into France in Q2 2025—its 28th market—exemplifies its focus on Europe’s untapped potential. The move coincides with a decline in Tesla’s market influence, driven by political controversies surrounding Elon Musk’s public statements [6]. Polestar’s premium branding and ethical sourcing practices are resonating with European consumers seeking alternatives to established EV players. This is further amplified by the region’s supportive regulatory environment, including incentives for zero-emission vehicles and infrastructure investments, which align with Polestar’s sustainability ethos.

Financially, the company’s pivot is paying dividends. Q1 2025 revenue grew 84% year-on-year to $608 million, driven by higher-margin models and cost optimization [7]. A positive gross margin of 6.8% in Q1 underscores improved pricing power and operational efficiency [7], metrics that bode well for long-term profitability. With a target of 30-35% compound annual retail sales growth from 2025 to 2027 [8], Polestar is balancing aggressive expansion with fiscal discipline—a rare combination in the EV sector.

The Path Forward: Balancing Risks and Rewards

While Polestar’s strategy is robust, challenges persist. Reliance on Chinese battery supplier CATL exposes it to potential tariff hikes on components, and geopolitical tensions could disrupt supply chains. However, the company’s dual production strategy—leveraging both European and U.S. facilities—mitigates these risks. Additionally, its focus on premium models with higher margins provides a buffer against cost pressures.

For investors, the key question is whether Polestar can sustain its growth while maintaining profitability. The company’s Q2 2025 results suggest it is on track to do so, with a clear roadmap to scale production, expand its retail network, and capitalize on Europe’s EV boom. As U.S. tariffs continue to reshape the industry, Polestar’s ability to adapt and innovate positions it as a strategic buy for those seeking exposure to the next phase of the EV revolution.

Source:
[1] Polestar retail sales volumes totalled 18049 cars in Q2, a growth of 38% year-on-year [https://investors.polestar.com/news-releases/news-release-details/polestar-retail-sales-volumes-totalled-18049-cars-q2-growth-38]
[2] Tariffs jeopardize import-reliant Polestar's U.S. expansion [https://www.autonews.com/car-concepts/future-product/an-polestar-future-product-0810/]
[3] Polestar ramps up European focus after strong Q2 sales [https://www.cbtnews.com/polestar-ramps-up-european-focus-after-strong-q2-sales-surge/]
[4] European Market Monitor: Cars and Vans (July 2025) [https://theicct.org/publication/european-market-monitor-cars-and-vans-july-2025/]
[5] Tariff Turmoil and Strategic Resilience: The Evolving Outlook for European Automakers [https://www.ainvest.com/news/tariff-turmoil-strategic-resilience-evolving-outlook-european-automakers-2508/]
[6] Polestar Restarts Its European Sales Expansion [https://www.wardsauto.com/automakers/polestar-restarts-iits-european-sales-expansion]
[7] Polestar reports Q1 2025 revenue growth of 84% and significant gross margin improvement to positive [https://investors.polestar.com/news-releases/news-release-details/polestar-reports-q1-2025-revenue-growth-84-and-significant-gross]
[8] Polestar provides updates on financial guidance for 2025 [https://investors.polestar.com/news-releases/news-release-details/polestar-provides-updates-financial-guidance-2025-and-2024-20-f]