Polestar’s Automotive Challenges Mount Amid Tariffs and Sluggish EV Demand

Polestar Automotive Holding has just endured a sobering setback in its automotive journey, reporting a substantial $739 million hit on its flagship Polestar 3 SUV, primarily attributed to rising U.S. tariffs and waning demand for electric vehicles. This comes as a sharp reality of the mounting headwinds facing EV-centric automakers today.

Despite a surge in retail volumes, up 38% to 18,049 vehicles in Q2 and a 51% climb in first-half sales totaling over 30,000, Polestar’s financials show deepening losses. This is a significant setback for the Polestar 3, whose recoverable value has been drastically slashed to just $25 million, alongside a gloomy quarterly performance that included a net loss of $1.03 billion, more than triple the $268 million loss posted in the same period last year.

This steep decline is a stark signal of how automotive supply chains and consumer tastes are shifting under tariff pressures and broader market challenges. While Polestar had previously taken strategic steps by boosting European manufacturing, leaning into discount strategies, and scaling back expansion guidance for 2025, these measures weren’t enough to shield the company from the financial shock of escalating trade barriers and cooling EV enthusiasm.

Tariffs remain a critical pain point. Polestar’s Polestar 3 is assembled in South Carolina, yet higher import levies on components and materials, particularly those tied to China-based production, have eroded margins and forced tough recalibrations. Retail demand in the U.S. plummeted by 56%, with buyers opting for more affordable hybrids or conventional gasoline models, making Polestar’s embrace of pure-electric vehicles more vulnerable to shifting consumer preferences and cost sensitivities.

Further compounding the strain is the company’s liquidity picture, which saw its cash reserves dip slightly from $732 million to $719 million over Q2. At the same time, the firm handed over 177 vehicles to lenders as collateral, underscoring mounting liquidity pressures. Polestar did secure a $200 million equity injection from PSD Investment (controlled by Geely owner Li Shufu), offering some financial breathing space, but market concern remains pronounced.

Looking ahead, Polestar is leaning on its automotive strengths, including expanding its dealer footprint, pushing inventory and cost discipline, and diversifying production across Europe, South Korea, and the U.S., to navigate the turbulence. Yet, the underlying causes highlight broader fragilities in the EV market, especially for newer brands that are still striving for scale in a fiercely competitive and policy-sensitive global environment.

In essence, Polestar’s $739 million setback is more than just an accounting blip; it's a wake-up call to the automotive industry’s evolving landscape, where tariffs, shifts in consumer preferences, and competitive pressures can swiftly upend even the most promising EV startups. While Polestar's innovation and growth mindset remain, its path ahead will demand exceptional resilience to ride out the headwinds it now confronts.