Polestar's low-cost dealership strategy

Volvo-affiliated electrified vehicle upstart Polestar envisions small, low-cost Am- erican stores instead of multimillion-dollar Taj Mahal showrooms with expansive service centers.

It's all about profitability, the new brand's North American chief, Gregor Hembrough, told Automotive News ahead of the global unveiling of the battery-electric Polestar 2 — the brand's second nameplate — on Wednesday, Feb. 27.

A small, no-inventory, no-service- center model will give retailers a "very low entry ticket" to having a Polestar franchise, Hembrough said.

"We are not asking for retailers to build a $4 million-to-$5 million infrastructure," he said.

"We are anticipating it would be somewhere around $600,000 to $900,000 to become a Polestar brand dealer."

Polestar, headquartered in Gothenburg, Sweden, is the electrified performance brand of Volvo Cars, owned by Zhejiang Geely Holding Group Co.

The Polestar 2, billed as a Tesla Model 3 competitor, is to arrive in the U.S. in early summer 2020, Hembrough said. It will deliver 400 hp and an expected battery range of up to 300 miles. The sedan is based on Polestar's compact modular platform, which underpins the Volvo XC40 crossover.

Polestar is said to have at least a half-dozen battery-electric models planned over the next decade. According to a source familiar with the plans, in addition to Polestar 2 and Polestar 1, a $155,000 limited-run hybrid sedan expected to arrive this year, the automaker is considering an SUV, a sporty crossover and a roadster.

To sell its vehicles, Polestar is adopting an experiential retail strategy, bringing the brand to where people congregate or shop.

Polestar will operate stores ranging from 2,000 to 2,500 square feet — referred to as "spaces" — in high-traffic urban locations such as downtown districts, mixed-use developments and shopping centers.

"We want to make sure that our retail partners have high throughput," Hembrough said, referring to the selection of its store sites. "High throughput obviously means high profitability."

A lower retail investment should also help with retailer profitability.

"There isn't a lot being asked of dealers regarding corporate identity, or build-out," Hembrough said.

Polestar spaces will be run by franchised dealers, who would be selected from Volvo's retail network.

The spaces will be no-commission "guide shops" where buyers can evaluate the vehicles without pressure to buy. In fact, dealers won't even keep vehicles at their stores. Cars will be ordered online and delivered to customers.

Polestar spaces won't have finance-and-insurance departments and sprawling service centers found in traditional dealerships. Vehicle financing likely will be arranged online, while service will be performed at Volvo dealerships.

While the dealership margin on a Polestar vehicle is lower than the margin on an undiscounted Volvo, Hembrough said the initial and ongoing investment in a Polestar store is significantly lower than that of a Volvo dealership.

"The [investment] to become a Polestar dealer is extremely low," Hembrough said. "We are not asking the dealerships to make investments in fixed operations. We are not asking dealerships to carry millions of dollars of inventory."

Polestar is in discussions with eight Volvo dealers to launch the North American retail network. By the end of 2020, Polestar expects to have stores in five West Coast cities and three Canadian cities. The West Coast is a natural launch market because it has high EV adoption, attractive government incentives and robust charging infrastructure.

Hembrough declined to say when Polestar would become a nationwide brand, or elaborate on the eventual size of the Polestar dealer network. Expansion markets will be based on where there is demand and charging infrastructure, and where dealers can be profitable.

International trade concerns have added tension to more ambitious U.S. rollout plans. Polestar plans to manufacture the Polestar 2 and future vehicles in China.

Hembrough said trade tariffs are "complicating" the picture, noting that Polestar vehicles would be "a little more profitable for the U.S. marketplace and our retail partners" in the absence of tariffs.

"There's very little we can do at this point," he said.

Polestar originally had played up a vehicle subscription model to begin retailing its first battery-electric vehicle. The idea behind the service is less like leasing or car-sharing and more like Netflix, with customers choosing from an all-inclusive subscription model that combines automotive costs including insurance and maintenance into a single monthly payment. No money would be required upfront.

But Polestar is now downplaying the subscription model, clarifying that its Polestar 2 also will be offered for sale and lease.

"We were amplifying subscription as a possibility," Hembrough said. People "might have run away with the idea that was the only channel. There's still some misunderstanding in the retail network among dealers as well."

Hembrough expects Polestar 2 sales to have a 70-30 percent split between leasing/subscriptions and sales.

Subscription volume is "still to be determined and that will be based on consumer demand," he said. "There is absolutely no target for subscription as far as what we want to achieve, or what we want to steer away from."