Why Polestar Automotive Stock Crashed 20% After Its Reverse Stock Split This Week

Polestar executed a reverse stock split to regain Nasdaq compliance after shares fell 19% this week and are roughly 96% below their all-time highs; the company’s market cap is now barely above the $890m it raised in a SPAC. While revenue rose 48% year-over-year to $2.1bn last quarter, Polestar reports negative gross margins, burned about $1.6bn in free cash flow over the past 12 months and carries heavy debt, leaving no clear path to profitability. Against a crowded, cooling EV market, the firm’s cash‑burn and troubled balance sheet make the stock a high-risk hold that the article says investors should avoid given the likelihood of further downside.

Analysis

Polestar executed a reverse stock split to regain Nasdaq compliance after shares fell 19% this week and are now roughly 96% below their all‑time highs; the company's market capitalization is only marginally above the approximately $890 million it raised via its SPAC. That technical fix follows a broader market judgment: heavy negative sentiment and a sharply contracting share price drove the reverse split rather than improving underlying business metrics.

Operationally the company reported 48% year‑over‑year revenue growth to $2.1 billion last quarter, but that top‑line expansion coexists with negative gross margins, roughly $1.6 billion of free cash flow burned over the past 12 months, and a balance sheet described as "loaded with debt." Those facts indicate no clear path to profitability and a high probability of future capital raises or dilution absent rapid margin and cash‑flow improvement.

The combination of persistent cash burn, heavy leverage and a crowded, cooling EV market elevates financing and delisting risk; the reverse split is cosmetic and does not mitigate funding needs. Given these constraints, downside risk appears material until the company demonstrates sustained positive gross margins, improving free cash flow, or credible deleveraging, making the name a high‑risk holding for most portfolios.

Key Decisions for Investors

• Avoid initiating new long positions in PSNY until the company reports sustained positive gross margins and a clear free‑cash‑flow turnaround
• Existing holders should consider reducing exposure, implement tight stop‑losses or purchase downside protection given material cash‑burn and leverage risks
• Monitor upcoming quarterly reports for gross margin trends, free cash flow, cash runway and any announced capital raises or debt maturities as trigger points for reassessing the thesis
• Sophisticated investors may consider limited, size‑controlled short exposure or put strategies to express the downside view, but only with strict risk management due to potential volatility