Barely a month into life as a public company and its second act as an electric vehicle (EV) manufacturer, Fisker (NYSE:FSR) is undoubtedly interesting, but FSR stock could avail itself to be one of the signs of the EV market inching toward bubble territory.
The newest iteration of Fisker – the company was an early EV player before collapsing in 2013 – was born out of a merger with a special purpose acquisition company (SPAC) known as Spartan Energy. That transaction raised $1 billion for the company, but Fisker sports a market capitalization of $5 billion and FSR stock more than doubled from its pre-merger lows.
That’s a lot of activity for an equity attached to a company that, unlike beloved rivals Nio (NYSE:NIO) and Tesla (NASDAQ:TSLA), isn’t currently producing any vehicles. The proceeds from the aforementioned blank-check deal will allow the company to soon, reportedly, commence production of the Fisker Ocean SUV with an eye toward delivering that vehicle in late 2022.
In the bubblicious EV market, Fisker’s current state of affair puts somewhere in between Tesla and Nio, which are making AND selling EVs, and Nikola Corp. (NASDAQ:NKLA) and Workhorse Group (NASDAQ:WKHS), which are highly dependent on other companies or the government to drive their fortunes.
FSR Stock Requires Measured Expectations
Fisker sports several superficial traits that can lure investors, including its status as one of the newer offerings in a disruptive industry and its sub-$18 share price, making it look cheap relative to Nio and Tesla. Plus, Fisker appeals to investors’ fear of missing out (FOMO).
FOMO is a real emotion, one investors should keep in check, but Fisker appeals to that phenomenon at a time when Nio and Tesla are up an average of 837% year-to-date. Investors fearing they missed out on those moves may embrace Fisker in hopes of catching the next big thing.
Hoping that Fisker returns will ever be on par with those of the rivals mentioned here is asking a lot, but some on Wall Street are optimistic. Citi analyst Itay Michaeli recently initiated coverage of the stock with a $26 12-month price target, implying upside of 50%. Those aren’t Tesla-esque returns, but if that forecast proves accurate, Fisker shareholders aren’t going to complain.
While there’s ample competition – it feels as though the EV universe expands by the day – Fisker targeting SUVs at digestible price points could prove to be a shrewd move. Moreover, the manufacturer’s preference for a subscription/leasing model over the traditional sales model that’s long dominated the auto industry could steady its revenue stream when revenue starts rolling, that is.
“We see significant upside potential in the company’s future entry into EMaaS/flex-leases—a similar model as the subscription model we’ve long written about, and one that could substantially expand the [total addressable market] from today’s largely 1x transactional business to lifetime vehicle revenue,” said Citi’s Michaeli.
Fisker Fate Still Up in the Air
Regardless of industry, pre-revenue companies are risky bets for investors to lay and that’s where Fisker stands today. A company that loses money, but has sales is one thing. Those traits apply to plenty of growth stocks that have delivered for investors.
No sales, well, that’s a different ballgame. Investors are essentially buying hope when embracing pre-revenue firms.
However, Fisker can mitigate some (not all) of that risk. The company has a partner – Magna International – meaning its manufacturing process is asset light, something Wall Street. Additionally, its flexible financing terms, which are unencumbered by traditional loan or lease lengths, could appeal to buyers that want to try an EV without a three- or four-year commitment.
Bottom line: Fisker has some levers to pull to appeal to both customers and investors, but the latter will do well to not envision another version of Tesla coming to life in Fisker form.
On the date of publication, Todd Shriber did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Todd Shriber has been an InvestorPlace contributor since 2014.