These days, navigating the world of electric vehicle (EV) stocks can be mind-numbingly confusing. With every passing day, another company joins the fray with a novel concept. And let’s not even talk about valuations. Current market caps harken back to the days of the dot-com bubble.
The point is that you can’t trust the markets when they are this volatile, making EVs are an area where you should tread lightly. That brings us to Fisker (NYSE:FSR) stock, which is up over 68% year to date and is still climbing. Shares are trading at $20.68 a pop, almost double where they were before going public in a SPAC reverse merger with Spartan Energy Acquisition.
However, what many people are wondering is whether this kind of surge is sustainable. The all-electric Fisker Ocean will not be available commercially until 2022. With zero sales at the moment, Fisker stock’s valuation is stretched.
Don’t get me wrong. The auto industry greatly respects the power couple behind the company, Henrik Fisker and Dr. Geeta Gupta. The former counts BMW Z8, Aston Martin DB9, along with the world’s most-expensive motorcycle, the Lauge Jensen Viking, among his creations. And the EV industry is more about vision and market perception rather than anything else. But it would help if you looked under the hood, so to speak, before investing in Fisker stock.
Do Financials Back Up Fisker Stock’s Recent Surge
We just had elections. And regardless of who you wanted to win or lose, it was amazing to see the democratic process in action. In many ways, stocks run the same gamut that every candidate faces, perhaps in a more intense way. That’s because every piece of news can affect your returns, much like what happens in elections. The point is that stocks, especially spec plays, are highly sensitive to news. However, in the long run, what matters most is whether the company has enough financial strength to deliver on its vision.
Let’s get the positives out of the way first. FSR has $1 billion in cash and equivalents that it will use to commercialize operations. That’s a sizable chunk of change and will help immensely in rolling out the all-electric Ocean in 2022. It’s important to note that Ocean’s production is outsourced to Magna International (NYSE:MGA), a common strategy in the industry. Hyliion Holdings (NYSE:HYLN) has gone down a similar route. Its supply chain consists of several technological partnerships, commercial agreements, and third party contracts. So, this is certainly not something new. But it does weigh on margins. It also doesn’t protect intellectual property. Until the company commercializes its operations, FSR will incur about $4 million net loss per quarter.
We Don’t Know Where We Will Be in a Couple of Years
Right now, the EV market is on fire. A lot of that momentum has to do with Tesla and how it’s operating in the space. The novel coronavirus pandemic and the Biden presidency are also major reasons why EV stocks are doing so well. However, these are not long-term trends. In fact, the pandemic is likely to hurt the sector due to the destruction of disposable income and high unemployment.
Fisker intends to price the Ocean SUV at $37,499 or offer a flexible lease option starting at $379 per month. It’s a middle-of-the-way option and is an affordable electric SUV in the premium market. But 2022 is still a long way to go.
President-elect Biden wants to ensure the U.S. achieves a 100% clean energy economy and net-zero emissions no later than 2050. It’s also a priority for him to reenter the Paris Climate Accord, something that will undoubtedly act as a tailwind for the EV sector. He also has aggressive plans to revive the economy and help jobs come back. That will also be a net positive. So, I don’t think that it’s all doom and gloom. However, the EV market could be even more fragmented in a couple of years.
If you are a nimble trader, you have much to gain from following the news. Each positive or negative development can have a massive impact on share prices. If you are a day trader who is constantly plugged into the latest developments, then this stock is for you; however, if you are someone that values rock solid fundamentals, then it’s best to pass on Fisker stock for the time being.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio. Faizan does not directly own the securities mentioned above.
