It’s been a turbulent year for most companies for reasons known to us all. However, for legendary Danish car designer Henrik Fisker, it’s been quite the opposite. His company, Fisker Automotive (NYSE:FSR), merged with blank-check company Spartan Energy Acquisition, netting Fisker more than $1 billion in cash. His latest incarnation is promising to be his best so far, with an asset-light model focusing on connectivity and flexibility. Consequently, Fisker stock is up about 60% since completing its merger on Oct. 30.
Fisker’s flagship offering is an affordable, yet premium SUV called the Ocean, made from sustainable materials. Ocean, though, won’t be available until 2022.
But Fisker recently attained critical engineering and purchasing milestones and reached a partnership deal with auto-parts maker Magna International (NYSE:MGA). Moreover, top investment bank Citi (NYSE:C) on Nov. 25 started its coverage of Fisker stock with a “buy” rating. However, concerns regarding its relatively pricey leases and the long wait until the Ocean is released limit the attractiveness of the shares.
Breaking Down Fisker’s Lease Program
The automotive industry is evolving rapidly, in-line with the changing tastes of younger Americans. The buying versus leasing debate has been ongoing for the longest time among consumers, but it seems young people prefer leasing. The car-leasing industry is expected to recover relatively rapidly from the Covid 19-led slowdown and grow at an average rate of 15% from 2021 to 2023.
Sensing the opportunity, Fisker is offering flexible lease programs starting at $379 per month. It requires a down payment of $2,999 and covers the SUV’s repair and maintenance costs.
To be frank, the $379 figure is a bit disappointing. A wide range of vehicles, including electric SUVs, are available for less. Moreover, the upfront charge of many automakers is also lower, making the Ocean much less appealing. Buying the car outright would probably cost around $30,000 after applying the $7,500 federal tax credit. That price also isn’t enticing.
Of course, there are pros and cons to leasing itself. For most millennials, leasing means more flexibility, lower depreciation, and having the ability to enjoy a wide variety of cars. On the flip side, leasing contracts can be long and may include hefty up-front fees and financial penalties.
Therefore, it seems clear that Fisker is relying heavily on its design and technological offerings to make its SUV more appealing than competing vehicles. Whether customers will want to pay more for the Ocean’s distinctive features remains to be seen.
But cost remains a significant barrier for Fisker’s sales efforts. Therefore, I expect revisions to its lease program and the price of the Ocean in the future.
Fisker recently talked about using insurance to lower the cost of repairing its vehicles. However, a more interesting initiative is the company’s plan to “repurpose” returned vehicles for new customers. Repurposing old vehicles could play a massive role in Fisker’s path to profitability.
Another direction that Fisker could take is the hugely popular subscription model. Subscription models have worked wonders for Netflix (NASDAQ:NFLX) and other streaming platforms, and that model could be replicated in the automotive sector.
Fisker could offer a subscription service with a fee that would cover all aspects of car ownership. So the program would include all maintenance, repair, and leasing expenses. Additionally, customers could also cancel the service whenever they want.
The Bottom Line on Fisker Stock
There’s a lot to like about Fisker. Its asset-light model, which focuses on design and technology, sets it apart from other EV makers.
Its flagship Ocean SUV won’t be released until 2022, which should enable the automaker to meet its production targets.
Naturally, though, it will be extremely tough for Fisker to ensure that investors continue to be upbeat about the Ocean. Moreover, its lease program looks unappealing at this point, further clouding the outlook of FSR stock.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.