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Should Tesla Be Concerned About Polestar?

Shares of premium electric vehicle (EV) maker Polestar Automotive Holding (NASDAQ: PSNY) debuted on the Nasdaq on Friday via a merger with a special purpose acquisition company (SPAC). The Sweden-based company was formerly the performance-car unit of Sweden's Volvo Cars. Volvo, which retained a large stake in Polestar, is owned by China's Geely Automobile Holdings (OTC: GELYF).

Polestar is in mass production with the Polestar 2, its first all-electric car with a starting price of nearly $50,000 in the United States before the $7,500 maximum federal tax credit for eligible EVs is applied. This vehicle gets up to 270 miles per charge.

The Polestar 2 is the company's second model, following the Polestar 1, an ultra pricy plug-in hybrid limited production vehicle that's no longer available. Polestar 3, an all-electric sports utility vehicle (SUV), is slated to launch this year.

This article explores several of Polestar's potential competitive advantages over other EV makers, including Tesla (NASDAQ: TSLA). (It follows an article on Polestar's production growth plans and financial targets.) Polestar and Tesla are "currently the only EV pure plays with mass production and global reach," according to Polestar. Moreover, Polestar is targeting the premium EV market, which puts it in direct competition with Tesla.

Polestar 3 SUV. Image source: Polestar.

Polestar's competitive advantages

One of Polestar's top competitive advantages is its asset-light business model. The company uses the existing production infrastructure and supply chains of Volvo Cars and Geely. It also works closely with these two well-established automakers on a research and development basis.

Polestar's asset-light business model sets it apart from traditional automakers that have entered the EV space, such as Ford Motor Company and General Motors, as well as from pure-play EV makers, including Tesla. These companies must use significant capital to build and operate factories to produce their vehicles. All other things being equal, Polestar's asset-light business model should give it an advantage with respect to generating cash flows.

Secondly, Polestar should benefit from Volvo's reputation for making cars that garner top safety ratings and, at least more recently, sport an appealing clean-line design aesthetic. Indeed, these were two major reasons why I bought a Volvo S-40, a sporty smaller sedan that Volvo no longer produces.

Polestar's vehicles have won prestigious honors and accolades for their design, along with their performance. This isn't surprising given that CEO Thomas Ingenlath was the former head of design at Volvo and held design management roles at Volkswagen.

Safety seems poised to be an even bigger consideration for many auto buyers and lessees as fully self-driving autos come closer to becoming legal in their home country. Consumers will need to put enormous faith in the quality of their vehicle's autonomous driving system.

On that note, Polestar has partnerships with Luminar, Nvidia, Alphabet subsidiary Waymo, and Volvo-owned subsidiary Zenseact for deploying autonomous driving technology, according to a filing with the Securities and Exchange Commission (SEC).

In the U.S., Polestar has another noteworthy advantage over Tesla and GM: Its vehicles are eligible for the $7,500 federal tax credit, whereas eligibility has expired for Tesla and GM EVs. (This tax credit is phased out quickly after an automaker sells its 200,000th eligible vehicle.)

Polestar stock is worth watching

Polestar stands out in the increasingly crowded EV space because it's an EV pure play, already in mass production, and has an asset-light business model. Furthermore, its vehicles should benefit from Volvo's deep commitment to safety.

So, to answer the headline question, yes, Tesla should be concerned about Polestar, in my view.

"Polestar stock looks to be worth watching," as I concluded in my first article on the company. "As with all newly public companies, most investors should wait to see how it performs in at least its first few quarters as a publicly traded entity to make an investing decision."

Stay tuned -- I'll soon be comparing the Polestar 2 with Tesla's Model 3 with respect to price, range per charge, charging infrastructure, and other factors.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Beth McKenna has positions in Nvidia. The Motley Fool has positions in and recommends Alphabet (A shares), Alphabet (C shares), Nvidia, Tesla, and Volkswagen AG. The Motley Fool has a disclosure policy.


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