Polestar's SPAC deal fuels quick expansion

Polestar is the latest buzzy electric vehicle startup to accelerate its sprint to market through a merger with a blank-check firm, referred to as a SPAC.

The Volvo affiliate last week announced a reverse merger with special purpose acquisition company Gores Guggenheim, which will take Polestar public at a valuation of $20 billion.

The new financial posture should help Polestar, which launched in late 2017, with its aggressive growth plans. It looks to grab a 2.3 percent share of the global premium market by 2025. The automaker has two models on the market but plans to launch three more by the end of 2024.

It also expects to more than double the global markets in which it operates, going from 14 to 30 in about two years.

"Our business plan has been set around a growth plan that needs a certain funding," Polestar CEO Thomas Ingenlath told Automotive News last week.

A large part of that funding will come from the roughly $1 billion Polestar will raise from the SPAC.

Without that capital, "we would have to find it somewhere else, or we would have to scale down and change our plan," Ingenlath said.

Polestar has been able to grow quickly because it is backed by China's Zhejiang Geely Holding, which owns several auto brands including Volvo Cars.

Rather than have to build pricey manufacturing plants, Polestar relies on Geely's network of factories in China, Europe and the U.S. In fact, Polestar said it will not need to add a car plant to meet its 2025 volume target of 290,000 vehicles.

Ingenlath said this strategic advantage helped quickly bring to market the Polestar 2, the company's first mass-produced EV.

"We could launch the car into an existing industrial setup," the CEO said. "Processes were established. A team was available that had already brought several cars into production."

Having access to the Geely network also gives Polestar's new SPAC investors confidence the company can launch the next three cars in that "very fast cadence," Ingenlath said.

Polestar's $20 billion valuation includes debt, though the company didn't specify an amount.

Polestar is following the lead of Lucid Motors of Newark, Calif., which parlayed its own SPAC deal into a market capitalization that stood at about $40 billion last week, even before the first deliveries of its six-figure electric sedan.

But some SPAC-backed EV makers, such as Nikola and Lordstown Motors, turned out to have overestimated their product capabilities, or misrepresented customer orders. That has some questioning whether these "back-door IPOs" are capitalizing companies that might otherwise not stand up to the financial scrutiny involved in a slower-moving traditional initial public offering.

Ingenlath acknowledged the skepticism surrounding the sky-high valuations of EV startups going public via SPACs.

"At the time we were evaluating that option, SPACs were already hyped a lot," Ingenlath said.

Polestar considered alternative funding solutions. "A [series] B round would have been one option, going directly for an IPO would have been an option," Ingenlath said. "But this track, out of all the options that we looked at, seemed to be the appropriate and right one."

The CEO described the SPAC model as an "efficient way" to raise money, compared with the lengthy roadshows that IPO candidates typically go on to pitch Wall Street.

"Our company doesn't have to take care of the listing act itself," Ingenlath said. "This comes naturally through the merger."

Gores Guggenheim's track record with SPAC deals reassured Polestar and its owners about going down that path.

The firm, led by Chairman Alec Gores and CEO Mark Stone, has completed 13 SPACs and raised $5.7 billion.

Gores Guggenheim brought "experience and professionalism," Ingenlath said.

Polestar began working on the SPAC deal at the start of the year.

"It's a monthslong process of getting to know each other, doing the pitch, having a really thorough due diligence process from both sides," Ingenlath said.

Once the merger closes in the first half of 2022, the new public company will be named Polestar Automotive Holding UK Limited and it will be listed on Nasdaq under the ticker symbol PSNY.