Polestar, the Swedish designer of electric sports vehicles, has avoided imminent bankruptcy after a dozen lenders threw it a lifeline that plugs most of its “big black hole” in financing.
A consortium of European and Asian banks led by France’s BNP Paribas and Standard Chartered have banded together to provide a $950 million loan after Chinese carmaker Geely pledged to continue supporting its cash-burning subsidiary.
Polestar CEO Thomas Ingenlath expressed relief that the sword of Damocles hanging over his head was gone and that shareholders now had confidence that the company could begin to deliver on the main phase of its turnaround plan. growth in the future.
“The most important thing has always been […] the question mark behind our financing,” Ingenlath said on an investor call Thursday, acknowledging that it was an overhead weight on the stock price. “That big question mark is gone.”
Probably due to not knowing what it could or should reveal to the market, the Nasdaq-listed company was forced to postpone Thursday’s scheduled release of its fourth-quarter results to an unspecified later date.
Had the loan not come through at the last moment, it is conceivable that Polestar would have had no choice but to question its ability to continue operating.
Volvo causes panic after releasing Polestar
In November, the company said it faces a cash flow gap of about $1.3 billion until 2025, when the company should be able to fully finance its needs internally. Already in the second half of this year, a clear improvement in volumes and margins is expected thanks to the launch of two new high-margin crossover models, the Polestar 3 and 4, which will join the existing sedan.
Last week, however, fears began to materialize when Volvo Cars announced it would no longer support its former performance line, spun off as a standalone brand and floated in 2022 via a SPAC during the peak of investor interest for electric vehicle companies.
According to Ingenlath, Volvo’s stake is expected to eventually shrink to just 18 percent, from 48 percent previously. On Friday, Polestar was worth less than $3 billion after having a market capitalization of more than $20 billion when it first listed, as investors questioned whether it could survive the shakeup underway in the electric vehicle sector.
Fortunately, Chinese automotive holding company Geely, the majority owner of Polestar both directly and indirectly through its control of Volvo, has come to the rescue by promising this Wednesday to continue pouring money into the latter should the need arise.
“As a strategic partner and direct shareholder of Polestar, Geely will continue to provide full operational and financial support to the iconic performance car brand in the future,” Geely Holding Group CEO Daniel Li said in a statement. “We will retain our shares in Polestar and intend to participate in future financial activities when required.”
Polestar is still considering issuing new shares
That will prove crucial as Polestar’s new finance chief, Per Ansgar, made clear on Thursday that he would prefer to tap its shareholders for new, loss-absorbing shares as soon as possible.
After all, the company is still about $350 million short. While much of that amount could still be recouped by saving money that would otherwise be spent, the CFO said the balance sheet is too burdened with liabilities and needs proper restructuring.
“[When] we see the opportunity, we will seize it and try to do some capital raising here,” Ansgar told investors on the call.
Shareholders, at least, seem relieved that the worst is now behind us. The stock jumped 15% to $2.10 following similar double-digit gains yesterday after closing last week at $1.30 a share.