Polestar Automotive Holding UK PLC — Form 20-F Summary
Filing context and reporting period. This filing is a shell company report triggered by the closing of Polestar’s business combination with Gores Guggenheim, Inc. on June 23, 2022. Polestar Automotive Holding UK PLC became the publicly traded parent, with Class A ADSs listed on Nasdaq under PSNY and Class C-1 ADSs under PSNYW. The operating financial statements primarily cover Polestar Automotive Holding Limited for the years ended December 31, 2021, 2020 and 2019, prepared under IFRS as issued by the IASB. The UK PLC itself had no operating activity before the combination.
Business context
Polestar is a Sweden-headquartered premium electric vehicle company established by Volvo Cars and Geely. Its operating model is asset-light and relies substantially on Volvo Cars and Geely for vehicle manufacturing, technology, procurement, logistics, information technology, servicing and other support. Polestar 2 is the principal volume model; Polestar 1 production ended in 2021. Vehicles were manufactured primarily in China, with planned expansion to Volvo Cars facilities in the United States and potentially Europe.
Financial performance and liquidity
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Revenue | $1,337.2 million | $610.2 million | +119% |
| Vehicle sales | $1,290.0 million | $542.8 million | +138% |
| Gross profit | $0.9 million | $56.5 million | -98% |
| Gross margin | Approximately 0.1% | Approximately 9.3% | Down materially |
| Operating loss | $994.8 million | $440.5 million | Loss increased |
| Net loss | $1,007.5 million | $484.9 million | Loss increased 108% |
| Cash used in operating activities | $312.2 million | $57.1 million | Use increased |
| Cash used in investing activities | $129.7 million | $243.7 million | Use decreased |
| Cash provided by financing activities | $909.6 million | $359.6 million | Increase |
| Cash and cash equivalents at year-end | $756.7 million | $316.4 million | Increase |
Revenue growth reflected a full year of Polestar 2 commercialization and expansion into additional markets. The sharp decline in gross profit was attributed principally to lower carbon-credit revenue, lower software and performance-kit revenue, lower related-party research and development revenue, higher customs and manufacturing costs, and foreign-exchange effects.
At December 31, 2021, liabilities to credit institutions were $642.3 million, substantially all of which was short-term. Related-party trade payables were $1.43 billion, and total contractual obligations and commitments were estimated at $1.47 billion, including $763.8 million of capital commitments. Pro forma cash and cash equivalents following the business combination were estimated at approximately $1.55 billion at December 31, 2021, but this is unaudited pro forma information rather than an actual post-closing balance.
Material changes versus prior periods
- Revenue more than doubled from 2020, while gross profit fell to near break-even because costs grew faster than revenue and non-vehicle revenue sources weakened.
- Selling, general and administrative expense increased 127% to $714.7 million as Polestar expanded marketing, personnel, professional services and global operations.
- Research and development expense increased 27% to $232.9 million, reflecting future vehicle and technology development and amortization of capitalized development costs.
- Operating cash use increased substantially because of higher inventory, warranty and employee-benefit requirements and expansion-related working capital.
- Polestar delivered approximately 28,677 vehicles in 2021. Preliminary management estimates indicated approximately 9,500 deliveries in the first quarter of 2022 and 4,100 in April 2022.
Guidance, outlook and unusual items
- Polestar reduced its estimated 2022 global deliveries to approximately 50,000 vehicles from a prior expectation of 65,000, citing COVID-19 lockdowns in China, supply-chain disruption, logistics constraints and the Russia-Ukraine conflict.
- Management expected 2022 vehicle revenue to exceed 2021 revenue, but expected lower gross profit because of supply-chain and inflationary pressures, reduced carbon-credit revenue and adverse sales-mix effects.
- Carbon-credit revenue declined from $27.1 million in 2020 to $6.3 million in 2021; management expected 2022 carbon-credit revenue to be negligible.
- Management expected operating expenditures to increase in 2022 and future years as Polestar expanded markets, retail locations, technology and digital capabilities.
- Polestar does not expect positive operating cash flow before 2024, if at all, and expects to require additional equity or debt financing.
- A Hertz partnership contemplated purchases of at least 65,000 vehicles over five years beginning in 2022. The filing describes this as an intended commitment and notes that customer orders may be cancelled.
- Snita, a Volvo Cars affiliate, and PSD Investment Limited each issued non-binding declarations of intent to consider pro rata participation in future equity or equity-linked offerings through March 31, 2024. These declarations are not guarantees of funding.
- The filing includes a going-concern explanatory paragraph. Management stated that existing resources, financing arrangements and potential shareholder support were expected to fund operations for at least the following twelve months, but additional funds may be required thereafter.
Key risks, contingencies and unusual items
- Polestar has incurred losses every year since inception; accumulated deficit was approximately $1.76 billion at December 31, 2021.
- The company depends heavily on Volvo Cars and Geely, contract manufacturing, single-source suppliers, China-based facilities and access to battery cells and semiconductors.
- COVID-19 lockdowns in China delayed component production and vehicle deliveries. Inflation and higher lithium, cobalt, nickel, labor and logistics costs may further pressure margins.
- Polestar identified material weaknesses in internal control over financial reporting, including weaknesses in the control environment, IT controls, SEC technical accounting resources, revenue recognition and recognition of intangible assets. Certain material adjustments were made before issuance of the 2021 financial statements.
- The company had five vehicle recalls as of the report date, involving seatbelts, headlamps, battery-control software and inverter-related defects.
- A Norwegian investment firm initiated preliminary class-action activities alleging misleading Polestar 2 range statements. No court claim had been filed as of the financial statement issuance date; a potential claim of approximately $2.5 million was referenced.
- The pro forma balance sheet included an estimated $1.285 billion earn-out liability associated with up to approximately 158.2 million potential earn-out shares. The liability is sensitive to assumptions including share-price volatility.
- Polestar’s dual-class structure gives Class B shares 10 votes per share. Li Shufu and affiliated entities were reported to control approximately 99.3% of voting power and approximately 94.7% of outstanding shares on the stated basis.
- Approximately 2.0 billion shares were expected to become eligible for resale after applicable 180-day lock-up periods, subject to registration and other conditions. Class C securities may also convert into up to 25 million Class A ADSs at an exercise price of $11.50 per security.
Investor verification priorities
- Verify actual post-closing cash, debt, related-party payables and the use of business-combination proceeds, rather than relying on December 31, 2021 pro forma amounts.
- Reconcile 2022 deliveries, revenue, gross margin and cash burn against the reduced 50,000-vehicle delivery estimate.
- Assess whether supply-chain disruptions, China exposure, battery availability and inflation are affecting production costs and delivery timing.
- Track remediation of the disclosed material weaknesses and any subsequent restatements or control deficiencies.
- Review the terms and maturity extensions of short-term borrowings, related-party payables, Volvo Cars support and non-binding shareholder funding intentions.
- Evaluate dilution from earn-out shares, Class C securities, equity plans, resale registrations and potential future capital raises.
- Review recall, warranty, product-liability, range-related claims and cybersecurity matters, including the Volvo Cars data breach affecting information relevant to Polestar.
- Confirm the status and enforceability of the Hertz arrangement and other customer orders, noting that orders and deposits may be cancelled.