Shifting focus towards expansion, Polestar turns its attention from China to Europe

Polestar Shifts Production to Europe: A Strategic Move Amidst Tariffs and Market Challenges

Polestar, the Chinese-owned Swedish electric vehicle (EV) brand, has announced a significant shift in its production strategy, moving away from China and towards Europe. This decision comes amidst tariffs imposed by the U.S. and challenges in the Chinese market.

The 125% tariff imposed by U.S. President Donald Trump on the import of EVs made in China has led Polestar to halt exports of its Chinese-made Polestar 2 to the U.S. Consequently, the company is re-evaluating its entire production strategy to find a more favourable location.

Polestar's focus on the premium EV segment clashes with China's demand for affordable models and the Chinese market's propensity for price wars. This, combined with cash flow challenges, has led to the closure of 26 of its 36 stores in China and the abandonment of a joint venture with a Chinese marketing company.

Despite these challenges, Polestar continues to find success in Europe. Sales in Europe were up 76% this year, with around 12,000 vehicles sold in the past quarter. The popularity of the Polestar 3 and 4 models has contributed to these positive results.

Looking ahead, Polestar aims for a 30-35% compound annual retail sales growth in Europe from now to 2027, driven by its Polestar 3, 4, and 5 models. The brand is also planning to expand into Eastern European markets from 2026 as electrification gains momentum in that region.

It's important to note that Polestar does not have its own plants and manufactures its vehicles in Geely and Volvo plants around the world. However, the future production of the Polestar 7 may take place in Europe, although the exact location remains undecided.

The UK accounted for 25% of Polestar's Q1 2025 sales, making it a significant market for the brand. Despite the pivot to Europe, Polestar's CEO, Michael Lohscheller, has stated that the company is not abandoning China, but instead sees opportunities there on the longer term.

Polestar is a subsidiary of Geely, with Geely owning 24% of the shares and PSD Investment, controlled by Geely founder Li Shufu, owning another 39%. Volvo Cars, itself majority-owned by Geely, holds 18% of Polestar, with the remaining 18% publicly traded.

The shift to Europe is not without risks. The European EV market is crowded, and premium prices may limit Polestar's appeal in Eastern Europe. However, Polestar sees strong growth opportunities in Europe and is committed to its strategy.

In conclusion, Polestar's decision to move its production from China to Europe is a strategic response to tariffs and market challenges. Despite facing financial difficulties in China, the brand remains optimistic about the long-term potential of the Chinese market and is focused on finding success in Europe.

Shifting focus towards expansion, Polestar turns its attention from China to Europe