There’s a lot happening with Fisker (NYSE:FSR). Previously known as Spartan Energy, the company closed on its acquisition of the privately held Fisker, adopting its name in the process. But, it’s another recent development that could fuel another round of investor excitement for this name, which was heading lower back in October.
I’m talking about the election. Joe Biden’s electoral victory could help sustain the “EV bubble.” I’ve been quite bearish on EV stocks so far this year. Beyond concerns about valuation, the major issue is how many of them are not exactly ready for prime time.
Fisker is prime in that category. Yes, it has a shot with its prospective Ocean SUV model. With auto-parts behemoth Magna (NYSE:MGA) as its manufacturing partner, this upstart is off to a great start.
On the other hand, the company faces a long road before it can come even close to becoming the next Tesla (NASDAQ:TSLA). With competition across the automotive sector, its work is more than cut out for it.
A few weeks back, I said buy if shares hit single-digits. They did just that, briefly, a few weeks back. Yet, that doesn’t mean I’m bearish as shares rip back into the low double-digits. Shares remain a cautious buy.
What’s Next for FSR Stock?
Does a Biden presidency mean salad days are ahead for the budding EV stocks? It remains to be seen. Sure, Biden pledged not only to invest heavily in “green” initiatives. He vowed to phase out the oil and gas industry. Yet, what a politician promises, and what a politician delivers, are rarely one and the same.
However, Biden’s pledge of $2 trillion in support for EV infrastructure isn’t the only catalyst supporting this megatrend. EVs may have made up just 3% of all vehicle sales in 2019. But, that number could rise to 14% by the end of the decade.
High competition (more below) may limit how much this tailwind benefits Fisker. But, this company may not need massive market share for its shares to move higher. As InvestorPlace Markets Analyst Thomas Yeung wrote Oct. 5, shares could eventually be worth $21 per share, even if it falls short of its ambitious annual sales goal of $13.2 billion by 2025.
There’s some merit to buying the stock at today’s price levels ($14.44 per share). But, despite much at play that could a rebound, many risks remain. This current incarnation of Fisker has much stronger prospects than its predecessors. Yet, an environment much more favorable to startup EV companies doesn’t guarantee this company a clear road to success.
Why Macro Tailwinds May Not Be Enough
As our Matt McCall wrote Nov. 3, this isn’t Fisker’s first rodeo. In other words, this is the second incarnation of an EV maker under this brand name. About a decade ago, the company’s namesake, Henrik Fisker, was trying to get the original Fisker off the ground.
Yet, even federal support from the Obama administration (in which Biden was Vice-President), wasn’t enough to outfox low demand. As a result, the original Fisker folded in 2013. While the prospects for EVs is leaps and bounds ahead of where it was back in the 2010s, competition may be the factor that stands in its way this time.
Not only are there scores of aspiring EV names like Lordstown Motors (NASDAQ:RIDE) looking to scale into multi-billion dollar enterprises. You have Tesla, with its first-mover advantage and brand cache, set to continue dominating the EV segment.
Also, you have the legacy car makers, like Ford (NYSE:F) and General Motors (NYSE:GM) who have their eyes on the future, and are investing heavily into EV versions of their cars and trucks. In the end, it could be the legacy names, along with established Tesla, that win, while EV SPAC stocks see mixed success.
With this in mind, this is far from being a slam-dunk. Even with accelerating demand for electric cars, the company could start fall fall short of expectations. What does that mean risk-wise for Fisker? The potential for shares to crater to prices far below today’s price levels.
Follow the Crowd, But Tread Carefully
Investors were already still in love with EV stocks. But now, with the prospect of a Biden presidency, we could see another round of euphoria for one of this year’s best performing sectors. What does that mean for this name going forward?
At today’s prices, there’s still potential for additional gains in Fisker. Yet, given that its pathway to profits remains far from being a slam dunk, tread carefully. Shares may be worthwhile to buy right now, but if they move closer to the $20 per share mark, it may be best to hit the brakes.
On the date of publication, Thomas Niel did not (either directly or indirectly) hold any positions in the securities mentioned in this article.
Thomas Niel, a contributor to InvestorPlace, has written single stock analysis since 2016.