Polestar Adjusts Global Strategy Amid Tariff Pressures and EV Sector Challenges

Polestar 5 Debuts Amidst Strategic Market Limitations

Swedish electric vehicle (EV) manufacturer Polestar unveiled its new Polestar 5 GT sports car with European prices starting at 119,900 euros, with the Performance model reaching 142,900 euros. This positioning targets the premium EV segment, competing directly with luxury rivals such as the Porsche Taycan and Lucid Air. However, a notable strategic decision accompanies this launch: the Polestar 5 will not initially be sold in the United States and China. This exclusion is a direct response to high U.S. tariffs—exceeding 100% on China-made cars—and broader trade friction, compelling Polestar to concentrate on the European market, which currently accounts for the majority of its sales. Following the vehicle's reveal, Polestar's stock (PSNYW) experienced a modest increase, rising 1.98% to $1.02 in after-hours trading on September 8, 2025, with an additional 1.94% gain post-market.

Financial Performance and Strategic Realignments

Polestar has contended with significant financial challenges. The company reported a widened net loss of $1.027 billion for the first nine months of 2024, exacerbated by a $739 million impairment on the Polestar 3. Revenue also saw a 21% decrease to $1.47 billion during this period, with the gross margin falling to -2.4%. To bolster its financial position, Polestar secured over $800 million in new loans in December 2024 and is finalizing an additional $400 million facility, with continued backing from parent company Geely Holding Group. The company has adjusted its projections for achieving a positive adjusted EBITDA to 2025 and positive free cash flow to 2027, a delay from earlier forecasts. Despite these difficulties, Polestar reported a 56% year-on-year revenue surge in H1 2025 to $1.4 billion and a Q1 2025 gross margin of 7%, signaling some operational improvements.

Tariffs and EV Market Dynamics Drive Automotive Strategy

Polestar's strategic pivot is indicative of wider pressures within the global automotive sector. The U.S. has imposed tariffs as high as 145% on Chinese-made goods, directly impacting Polestar's vehicles produced in China and South Korea. This environment, coupled with intensifying price wars and a general slowdown in EV demand, is forcing automakers to re-evaluate supply chains and manufacturing locations. Polestar plans to mitigate tariff risks by producing future models like the Polestar 4 in South Korea and the Polestar 7 in Europe. This localized production strategy aims to reduce dependence on Chinese manufacturing and qualify for U.S. EV tax credits. Other major automakers have also felt the sting of tariffs; Volkswagen Group reported a €1.3 billion hit to its operating profit in the first half of 2025, while Stellantis attributed a €330 million impact to tariffs during the same period.

Broader Industry Implications and Competitor Responses

The shifting landscape has prompted Chinese EV companies to significantly increase foreign investment, with outbound foreign direct investment in the EV value chain soaring to an annual average of $30.4 billion in 2022-2024, compared to $8.5 billion in 2018-2021. This reorientation reflects challenges in the domestic Chinese market, including overcapacity and severe price wars that have eroded profitability, with the median net profit margin for 33 listed Chinese automakers falling to 0.83% in 2024 from 2.7% in 2019. Companies like BYD are establishing new factories in Hungary and Turkey, and Geely is exploring opportunities in Vietnam, while others expand in Russia and Latin America. European automakers at the Munich car show, including VW and Stellantis, are also adapting. Volkswagen CEO Oliver Blume noted U.S. tariffs were costing the firm "several billion euros on our balance sheet" this year. Porsche, a VW Group brand, has recalibrated its EV strategy, moving away from an aggressive 80% EV sales target by 2030 and reintroducing internal combustion engine (ICE) models.

Expert Outlook

Analysts maintain a cautious outlook on Polestar. Garrett Nelson, senior equity analyst at CFRA Research, commented, "> We think their big problem is going to be EV demand in the absence of incentives combined with liquidity." The company's stock (PSNY) carries an "Underperform" rating, with an average target price of $1.45, reflecting ongoing skepticism regarding its financial stability and ability to navigate market headwinds. The expiration of the U.S. federal EV tax credit on September 30, 2025, is also expected to pose a significant challenge to demand in Q4 2025 and beyond for all EV manufacturers operating in the U.S. market.

Looking Ahead

The EV market is set to remain highly volatile and competitive. Polestar's ability to achieve its revised profitability targets will hinge on successful localized production strategies, effective cost management, and the ability to carve out a distinct premium niche. The broader industry will continue to grapple with geopolitical uncertainties, the ongoing impact of tariffs, and evolving consumer preferences. Key factors to watch include further policy changes regarding trade and emissions, the success of new low-cost EV models, and the financial performance of EV manufacturers in an environment where government incentives are diminishing.