Note: A version of this article was first published on or about March 24, 2020, on my Seeking Alpha Marketplace site.
Volvo Cars is owned mostly by Geely (OTCPK:GELYF). Polestar is an automotive brand that is owned by Volvo Cars and Geely, so for all intents and purposes, these names and companies are the same thing. For this reason, the Volvo-Geely situation is more of an “internal division” distinction than any real economic difference. The stockholder owns Geely stock, which incorporates both its stakes in Volvo Cars and Polestar.
Let’s start with the big news from Polestar
Polestar started production in the second half of 2019 of its first car, the Polestar 1. It’s a very expensive coupe that happens to be a very powerful plug-in hybrid. The price is $155,000. Deliveries were set to begin in the U.S. in the next couple of weeks, but given the current business bans in some states such as California, it’s unclear if this means these initial deliveries will have to be postponed by a few days or weeks.
Given the price – $155,000 – and that it’s a coupe, you can understand why the sales volumes have been tiny even in an economic boom filled with discretionary spending optimism. Fewer than 1,000 units would have been sold in the U.S. in a year, for example. More internationally.
For that reason, while the Polestar 1 is a beautiful flagship product, it is not as interesting from a market impact perspective. It is more of showing the way of what Polestar can build when money is not much of an object. It’s important to prove these manufacturing skills.
Polestar 2: The most direct Tesla Model 3/Y competitor yet
From a market impact perspective, the Polestar product that will matter is the Polestar 2. Unlike the Polestar 1, which is a plug-in hybrid (PHEV), the Polestar 2 is a battery-electric vehicle (BEV), which per definition lacks any internal combustion engine (ICE) component.
From a size, shape, and luggage configuration perspective, the Polestar 2 sits in between the Tesla (NASDAQ:TSLA) Model 3 and Y. It’s taller than the Model 3, and it’s got a hatchback just like the Model Y. However, it is not as tall as the Y. So, one can argue that the Polestar 2 is a likely consideration for anyone who would also buy both the Model Y and 3.
The price? While the Polestar 2 will initially sell in its highest configuration, which has all-wheel drive (AWD), the biggest battery, the most powerful motors, and all the options/upgrades, it will eventually be available in lesser configurations. This reminds us a lot of how Tesla started delivering the Model 3 in 2017 and into 2018.
The initial Polestar 2 configurations are priced at $55,000 to $63,000, before the U.S. Federal tax credit of $7,500, and any state incentives on top of that. Considering that these are all-wheel drive configurations with the biggest battery, these prices are very much competitive against Tesla Model Y and 3.
Sometime later, probably closer to 2021, configurations below $50,000, perhaps even closer to the $40,000 mark, would become available. This is the approach many automakers take, as the most eager buyers are likely the ones interested in the “fully loaded” upscale specs.
Deliveries of the Polestar 2 will begin first in Europe and China, and followed in the U.S.: Polestar Media Newsroom Basically, with production now having started, deliveries should be able to begin this summer as soon as the government shutdown/lockdowns go way, such as in California where Polestar is expected to sell the vast majority of what it makes available to the U.S. in 2020.
Until the shutdown shock, the plan had been to start deliveries of the Polestar 2 in Europe and China during Q2 and then in the U.S. in early Q3. It’s too early to say to what extent, if any, this timeline may have to be adjusted, given the recent shutdown circumstance. If the shutdowns end in the next week or two, the impact on the Polestar 2 sales and delivery plan may end up being modest.
After the Polestar 2 comes the Volvo XC40 Recharge
Under the skin, there is considerable similarity between the Polestar 2 and the Volvo XC40 Recharge. Unlike the Polestar 2, which is made in China, the Volvo XC40 will be made in Belgium as are the regular XC40 versions already on sale for approximately two years.
The Volvo XC40 Recharge is taller and more SUV-square than the Polestar 2. It is therefore an even more direct competitor to the Tesla Model Y, rather than the Model 3.
Don’t underestimate Volvo’s brand value, especially in Europe where the Volvo brand is far more popular than in the U.S. For customers who are concerned about service, reliability, and support, Volvo represents a safe choice. That may prove to be an especially important factor for a customer looking to take the leap into a totally new propulsion technology.
The known timing of the production and deliveries of the Volvo XC40 Recharge is less clear and precise than the Polestar 2. We know that the XC40 Recharge was going to enter production and see initial deliveries by the second half of 2020, but that’s not as precise as I would like.
One reason for the extra uncertainty here is that the XC40 Recharge is made in Belgium, in contrast to the Polestar 2 that’s made in China. As you know, Europe just like the U.S. is under an increasing lockdown, compared to China where things have been opening up.
Volvo was in the stages of preparing for production of the XC40 Recharge, when the shutdown situation emerged quickly. The rollout will therefore depend on what happens with any shutdowns in Belgium, as well as the intended export markets in Europe and North America.
Conclusion: Tesla’s most important competitor yet
In 2019, we witnessed how first the Jaguar I-PACE, and then much more importantly, the Audi e-tron, overtook Tesla Model X and S in sales in Europe. That was for those more expensive cars that start over $70,000.
Tesla’s position with the Model 3, and starting now also the Model Y, is better at least for the next three months. That’s Tesla’s window of opportunity, until the Polestar 2 starts to reach consumer hands, followed closer to the fourth quarter of 2020 by the Volvo XC40 Recharge.
While there are many other vehicles that will come to market in order to do battle with the Tesla Model Y specifically, by the first quarter of 2021, Polestar and Volvo will be in the market with their duo before then. That is significant.
Only Ford (NYSE:F) may have a direct competitor for the Tesla Model Y in U.S. and European dealerships as early as October 2020, with the Mustang Mach-E. However, Volvo/Polestar will have two models by approximately the same time.
In early 2021, we will see the corresponding models from Volkswagen (OTCPK:VLKAF) and Nissan (OTCPK:NSANY), that will also take on the Tesla Model Y directly. Volkswagen may also be in dealerships with their version (ID.4) as soon as October 2020 if software and shutdown issues don’t delay the production and delivery starts.
Polestar leads the way with production right now, today
Production starts have a way of facing potential delays as a result of various hardware, software, macro/trade and now government shutdown phenomena. Polestar overcame these obstacles by starting production of the Polestar 1, and now most recently in March 2020 also of the Polestar 2.
That should leave the last remaining variable to be getting the cars into customers’ hands. Usually, that is the smallest challenge. With these recent government-mandated shutdowns, that is suddenly a much bigger problem – but it is also one that could lift very soon, as within weeks or even days from now.
This puts the Polestar-Volvo-Geely brand constellation in pole position to go head-to-head with the Tesla Model Y and even the Model 3, even before Ford, Volkswagen, and Nissan.
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Disclosure: I am/we are short TSLA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: At the time of submitting this article for publication, the author was short TSLA. However, positions can change at any time. The author regularly attends press conferences, new vehicle launches and equivalent, hosted by most major automakers.