Polestar's Q2 2025 Earnings Call Contradictions: Shifting U.S. Strategy, Production Localization, and Financial Outlook Uncertainty

The above is the analysis of the conflicting points in this earnings call

Date of Call: September 3, 2025

Financials Results

• Revenue: $1.4B in H1 2025, up 56% YOY
• Gross Margin: -49% in H1 2025 due to a $739M Polestar 3 impairment; adjusted gross margin 1.4% vs -2.6% prior year

Guidance:

• No formal financial guidance issued for 2025.
• Reiterated retail sales CAGR target of 30%–35% for 2025–2027.
• Expect continued YOY growth in H2, though comps tougher.
• Carbon credit sales derisked; on track for a “3‑digit $100M amount” in 2025.
• H2 focus: rebalance product/channel mix, further product cost reductions, leverage Polestar 4 NA launch, monetize carbon credits.
• Operating cash burn expected to improve in H2; higher investing cash outflows for Polestar 5 and Busan factory.

Business Commentary:

* Sales and Revenue Growth: - Polestar grew its retail sales by 51% in Q2, with over 30,000 cars sold, and revenue increased by 56% to $1.4 billion. - This growth was driven by strong performance in Europe and the introduction of new models like Polestar 3 and Polestar 4.

• Impact of Tariffs and Price Pressure:
• The company faced a gross margin of -49% in Q1 due to a $739 million impairment expense for Polestar 3 assets, primarily due to tariffs on parts for U.S. assembly and competitive pricing pressure.

• These external factors significantly impacted the volume and profitability of Polestar 3.

• active Selling Model and Retail Expansion:

• Polestar implemented an active selling model, resulting in a 40% increase in the number of sales points excluding China, reaching 169.

• This expansion was part of the strategy to grow its retail network and support higher-priced models like Polestar 3 and Polestar 4.

• Carbon Credit Sales and Financial Strategy:

• Polestar achieved carbon credit sales amounting to $90 million, contributing positively to profitability and revenue.

• The company raised $200 million in new equity and secured $1 billion in new term facilities to enhance its liquidity and funding position.

• Upcoming Model Launch and Market Expansion:

• The upcoming launch of Polestar 5 in September is expected to enhance the brand and compete with legacy performance brands.
• The company plans to manufacture the Polestar 7 in Slovakia, targeting the fastest-growing segment in the industry, and expand its presence globally.

Sentiment Analysis:

• Retail sales +51% and revenue +56% YOY; adjusted GM improved to 1.4% from -2.6%. However, headline GM was -49% due to a $739M impairment; Q2 adjusted GM fell to -5.7% (down 16 pts QoQ) amid pricing pressure, tariffs, and mix. Management paused financial guidance except for reiterating the 30%–35% sales CAGR, and highlighted U.S. headwinds from tariffs and tax credit changes.

Q&A:

• Question from Yan Dong (Deutsche Bank): How is demand trending into Q3, and can you bridge Q1 to Q2 adjusted gross margin?
  Response: Demand remains positive, led by Europe, with a shift to lower-priced segments; U.S. is uncertain. Q2 margin fell due to more Polestar 2 mix, higher internal sales to seed the network, pricing pressure, tariffs, and an inventory NRV adjustment, partially offset by CO2 credits and ongoing cost reductions.

• Question from Tobias Beith (Redburn): What is the potential size of reimbursements to contract manufacturing partners given lower volumes?
  Response: No quantification provided; Polestar operates under long-term partner agreements and works through changes, with impacts reflected in reported figures.

• Question from Tobias Beith (Redburn): How will Polestar build brand independence from Geely/Volvo despite product overlap?
  Response: Polestar positions as a distinct premium brand with separate showrooms, leveraging Volvo’s service network; overlap is minimal, retailer count is growing, and Polestar 5 serves as a halo to reinforce brand identity.

• Question from Andres Sheppard-Slinger (Cantor Fitzgerald): Update on liquidity, H2 cash burn outlook, and capital needs/runway?
  Response: Secured ~$2.1B of 12‑month facilities and raised $200M equity; cash was $719M at June-end. Debt is high but covenant-compliant. H1 average cash burn was ~$140M, distorted by receivables and related-party payments; operating cash burn should improve in H2, with higher investing outflows for Polestar 5 and Busan.

• Question from Andres Sheppard-Slinger (Cantor Fitzgerald): How will Polestar 5 affect ASPs and margins in H2?
  Response: Polestar 5 is a halo model with positive margins but limited volume; it may lift ASPs modestly but won’t materially change mix or margins near term.

• Question from Dan Levy (Barclays): What is U.S. exposure and strategy after EV tax credits go away?
  Response: H1 mix: 77% Europe, 8% U.S. Strategy is to balance volume and profitability, localize (Charleston plant, relocalize parts), introduce Polestar 4 in the U.S., and avoid chasing unprofitable volume; expect pricing to eventually reflect cost increases.

• Question from Dan Levy (Barclays): Path to EBITDA breakeven amid tougher pricing, tariffs, and channel mix?
  Response: Management is reassessing the plan considering external headwinds and potential synergies; will return with a validated business plan and guidance once finalized.