Where Will Polestar Automotive Stock Be In 1 Year?

Polestar Automotive (NASDAQ: PSNY) has disappointed a lot of investors since its debut in June 2022. The electric vehicle (EV) maker went public by merging with a special purpose acquisition company (SPAC), and it started trading at $12.98 a share.

At the time, investors were impressed by its three core strengths: It was backed by Geely's (OTC: GELYY) Volvo, it was already manufacturing thousands of vehicles every year, and it had a clear roadmap for the future. Unfortunately, its growth slowed down, it delayed its new vehicle launches, and it had to revise its statements to deal with some significant accounting errors. It even abruptly replaced its CEO and CFO last September.

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All those problems caused Polestar's stock price to plunge to about $1. But with an enterprise value of $5 billion, it trades at less than 1 times its 2025 sales. Will it soar higher over the next 12 months, or will it drop even further below $1?

What happened to Polestar over the past few years?

Polestar sells three high-end EVs. It launched the compact Polestar 2 in 2020, and it rolled out the Polestar 3 mid-size SUV and Polestar 4 compact coupe SUV in 2024. Its deliveries soared 80% in 2022 but only rose 6% in 2023. Its total revenue declined 3% in 2023 as the ongoing EV price war reduced its pricing power.

That abrupt slowdown was caused by its supply chain constraints, tougher macro and competitive headwinds in the EV market, and software problems that postponed the launch of the Polestar 3 from 2023 to 2024. It also delayed the filing of its annual report for 2023 to correct some accounting errors. That revision resulted in the restatement of its financials for 2021 and 2022.

Polestar then hired Michael Lohscheller -- who previously led two other controversial EV makers, Nikola and VinFast Auto -- as its new CEO last October. That divisive appointment didn't drive away the bears.

Polestar also previously manufactured most of its vehicles in China, which exposed it to high tariffs on Chinese EVs in the U.S. and Europe. To avoid those tariffs, it started to assemble the U.S. version of the Polestar 3 at Volvo's plant in South Carolina. It also plans to manufacture more of its upcoming vehicles in Europe and South Korea. However, that tariff-dodging strategy could squeeze its margins with higher labor costs.

What will happen to Polestar over the next year?

Polestar plans to launch its next vehicle, the Polestar 5 grand tourer, in the second half of 2025. For the full year, it plans to enter France and nearly triple its annual deliveries to 155,000 vehicles. Based on those bold claims -- which we should certainly take with a grain of salt -- analysts expect its revenue to jump 166% to $5.3 billion.

Polestar also expects its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) -- which has been negative since its public debut -- to turn positive in 2025 as it scales up its business and streamlines its spending.

Polestar won't run out of cash anytime soon. It ended the third quarter with $501 million in cash and equivalents, and it secured another $800 million in bank facilities last December. But it's still shouldering about $4.4 billion in debt, and it could dilute its investors with secondary offerings to generate fresh cash. On the bright side, it expects its free cash flow (excluding its investments) to turn positive in 2027.

If Polestar hits its production targets this year, it plans to keep expanding by entering six new markets and rolling out its Polestar 7 SUV in 2026. If that happens, analysts expect its revenue to rise 46% to $7.7 billion next year. If it gets revalued at just 5 times its 2026 sales, its enterprise value could soar about 670% to $38.5 billion by the end of 2025. For reference, Tesla stock trades at 9 times next year's sales.

But is it the right time to buy Polestar's stock?

Polestar isn't down for the count yet, but I wouldn't turn bullish until it proves it can scale up its business and hit its lofty near-term targets. Its stock looks cheap, but its history of overpromising and underdelivering prevents me from buying it right now.

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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.