Barclays analyst Dan Levy downgraded Polestar Automotive Holding UK Limited (NASDAQ:PSNY) to Underweight from Equal Weight, lowering the price target to $3 from $5.
Levy downgraded the stock, reflecting demand challenges, dilution concerns, and tougher competition.
PSNY is primarily bearing the brunt of a deterioration of EV demand, amplified by the price discounting by Tesla, Inc. (NASDAQ:TSLA), creating a challenging environment, the analyst cautioned.
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While the price cuts have impacted the broader industry, arguably the more significant impact has been to pure-play EV companies, the analyst adds.
The impact is especially challenging for PSNY as the PS2 model, which currently accounts for all of PSNY's volume, competes directly against Tesla's Model Y and Model 3.
Lastly, PSNY also faces questions on PS3 sales in the U.S. amid increased uncertainty on the shape of EV uptake beyond the wave of early adopters that were highly supportive of the ramp of Tesla and the initial sales of EVs from other OEMs, the analyst notes.
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Moreover, because PSNY is part of the broader Geely Automobile Holdings Ltd. (OTC:GELYF) family (with 90% of equity owned by Volvo and Geely), PSNY has an added challenge in market positioning to avoid competing with Volvo AB (OTC:VLVLY).
In sum, Levy believes PSNY's decision to "take what the market gives it" in terms of demand will ultimately lead to a smaller PSNY than many had expected and what is implied by its current valuation.
The analyst notes that operating profitably at such a limited scale is almost entirely enabled by PSNY's positioning within the Geely family, which, for its purposes, may not wish to engage in the "EV price war." Accordingly, the reduced volume outlook creates a more challenging path to reaching appropriate margins, Levy flagged.
Amid an ongoing FCF burn, the analyst expects PSNY to pursue dilutive equity raises eventually.
Given a limited float, incremental equity raises could further pressure the stock, the analyst adds.
Also Read: Polestar 4 Electric SUV Coupe Deliveries Slated Before Year-End In China, Confirms CEO
Price Action: PSNY shares are trading lower by 8.6% to $2.86 on the last check Thursday.
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