More than likely, the reason you’re interested in reading about electric vehicle upstart Fisker (NYSE:FSR) is that the company specializes in gorgeous vehicles. If its debutante Fisker Ocean wasn’t a looker, there’s a good chance you’d be extremely skeptical about the automaker’s ability to distinguish itself from an increasingly crowded field. But is design enough to warrant exposure to this speculative organization?
On one hand, it is. Fisker of course is the brainchild of Henrik Fisker, A living legend in the automotive design arena, Fisker designed several iconic cars, including the BMW Z8, which was featured in the James Bond film The World Is Not Enough. One could make the argument that the Z8 was the only bright spot in the campy movie.
But Wall Street doesn’t really care so much about car enthusiasts’ passion for their four-wheel pursuits unless it can translate into profitability. Here, FSR runs into one of its steepest challenges. Unlike Tesla (NASDAQ:TSLA) and other competitors (mostly in China), Fisker is in many ways still a concept. Given some of the controversies in the EV space, investors have every right to adopt a “show me” attitude.
Even then, FSR may run into problems. As you know, the EV market has exploded with upside, as Chinese EV makers like Nio (NYSE:NIO) and Li Auto (NASDAQ:LI) have outperformed on deliveries and other financial metrics. On the surface, that would appear to justify their extreme sentiment.
Nevertheless, it’s important to realize that the Chinese EV industry is incredibly cynical. According to insiders, most Chinese EV manufacturers, perhaps up to 90% will go bankrupt in the next five years. And maybe, that pessimistic forecast could come to fruition sooner.
According to Feng An, executive director of the Innovation Center for Energy and Transportation, “Chinese don’t make the same quality of batteries like Japanese and Korean, but they are so much cheaper.” But that cheapness will likely commoditize China’s domestic EV market, opening the door to foreign brand disruption.
For prospective FSR investors, the challenge is daunting. Getting the foot into the door is already challenging. Maintaining a viable presence would be another daunting task.
Why FSR Stock Could Overcome the Odds
Still, if I put on my optimistic hat, I would counter with this argument: getting the foot into the door is the most difficult aspect of the EV arena. Like rolling a heavy object across the floor, it’s the initial push to get it moving that’s the hard part.
In this context, you might even be tempted to call Fisker a winner already. As InvestorPlace markets analyst Thomas Yeung noted, the almighty Tesla once had a worrisome competitor in Henrik Fisker’s original foray into the luxury EV and hybrid market called the Karma. However, that first company collapsed, leaving Tesla an open road in the fast lane.
However, Fisker’s design DNA never changed, even though he incurred an administrative and business setback. Now, the Ocean SUV has an opportunity to reignite the rivalry. It’s a similar framework to the cynicism in the Chinese EV market. China’s government is willing to backstop its expansive EV industry even knowing that 90% could fail. In the government’s mind, the companies might fail but the human engineering acumen will grow.
Again, it’s terribly cynical. But I must say, well played!
In that sense, you don’t want to overreact to Henrik Fisker’s first failure. That was based on a mixture of bad business decisions and unfortunate events, none of which relate to the automotive designer’s genius.
Further, Yeung makes the point that “Fisker will need to pull out all the stops in order to rise above an increasingly crowded electric SUV market.” His argument here is that good looks alone aren’t enough because other automakers are improving their exterior styling.
No doubt, that’s a very valid statement. However, I also see the saturation in the electric SUV market to be an underappreciated catalyst for FSR. For instance, take an honest look at Tesla’s product portfolio. For years, the company basically has made the same vehicle but in different shapes. And automakers are notorious for being copycats.
In this sea of sameness, consumers will be looking for something, anything different. They’re going to get it with Fisker.
Awfully Risky, Awfully Compelling
Ultimately, you want to be smart about getting involved with FSR. Frankly, the startup EV market does not deserve the benefit of the doubt. You’ve got to go over any prospective firm with a skeptical eye. And the important point here is not only bringing the Ocean to mass-scale production but also facilitating long-term viability. Those are two big question marks.
On the other hand, the doubt itself gives FSR the upside potential that’s lacking with other competitors that have already enjoyed ridiculous premiums. Moreover, the consumer demand for something distinct in a market turning sterilized and banal gives Fisker an advantage. Sure, it’s an intangible advantage but the man has become a legend precisely because of the intangibles.
On the date of publication, Josh Enomoto held a long position in FSR.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.