When Fisker (NYSE:FSR) decided to go public this summer, it went the SPAC (special purpose acquisition company) route. What is now Fisker stock came about through a merger with Spartan Energy Acquisition, which had already raised capital (roughly $550 million worth) through a 2018 initial public offering.
Investors liked the tie-up. What was then still trading under the SPAQ ticker more than doubled on the news.
After a steep pullback through late October, the stock is rallying again, with Fisker stock arond $17 as I write this.
From a distance, the rally makes some sense. Electric vehicle stocks of all kinds have been hot (though FSR has pulled back along with the group in recent sessions).
Fisker is led by Henrik Fisker, a renowned automotive designer. Its first model, the Fisker Ocean sport-utility vehicle, looks spectacular. It would seem that Fisker has a real shot at competing with Tesla (NASDAQ:TSLA) in the EV race.
But there are real concerns beneath the Fisker story. Most notably, this is Henrik Fisker’s second go-round: Fisker Automotive went bankrupt in 2013. The demise of its battery supplier was a key factor, but that aside Fisker Automotive really never got off the ground.
Now, a recent announcement raises a new set of questions. The big risk to Fisker stock is that history repeats, and there is at least one more reason to worry that might be the case.
Who Is Building the Ocean?
When Spartan Energy and Fisker announced the merger in July, Fisker planned to have Volkswagen (OTCMKTS:VWAGY) build the Ocean. And while the company did say repeatedly that an agreement hadn’t been reached, Volkswagen’s role was highlighted in the investor presentation.
Indeed, the companies wrote that Volkswagen was its “preferred partner,” as the German giant was “developing the world’s most advanced high volume electric vehicle platform.” According to the presentation, the Ocean actually was developed on that platform, known as MEB. An entire slide called out the advantages of the partnership.
But Fisker and Volkswagen have not come to an agreement. Instead, Fisker is going with Canadian auto parts manufacturer Magna International (NYSE:MGA). Magna already produces other EVs, including the Jaguar I-Pace SUV for Jaguar owner Tata Motors (NYSE:TTM).
Magna is not Volkswagen, however, which again according to Fisker itself has the “most advanced” platform. And this may not be a great deal for Fisker. As part of the agreement, Magna is receiving warrants that entitle it to own over 6% of Fisker.
That’s even before a definitive agreement has been reached. According to an updated prospectus filed this week, it hasn’t. The companies have a “collaboration agreement,” and last month announced steps in the right direction. But as the Volkswagen negotiations show, an agreement can’t be counted on until it’s definitive.
History’s Risk to Fisker Stock
It’s not clear why Fisker and Volkswagen couldn’t come to an agreement. The most likely reason is that Volkswagen simply wasn’t willing to provide terms that Fisker found acceptable. Whatever the cause, Fisker now is going with at best its second choice.
That’s an obvious problem. But the end of the deal also adds to the sense that Fisker, and Henrik Fisker, have been overly optimistic for some time.
That’s been true even with Fisker Inc., the current incarnation of Henrik Fisker’s plans. The company originally was supposed to develop the EMotion, announced back in 2017. And at the time, Fisker claimed a “breakthrough” solid-state battery would drive range of 500 miles and charging times as low as one minute.
But the Ocean is using standard lithium-ion batteries — which too were supposed to be sourced through Volkswagen. Range is expected to be 250 to 300 miles, with an 80% charge within 30 minutes.
To be fair, the changes so far don’t doom the bull case for Fisker stock. The EV market still is large, and a market capitalization of just $5 billion still leaves upside if Fisker can succeed.
That said, the changes certainly provide reason for at least caution, and perhaps outright skepticism. Auto manufacturing, even using Fisker’s planned “asset-light” model, is a brutally difficult business. Profit margins are low. Competition is going to be intense.
Put simply, there’s not a lot of room for error. From that perspective, Fisker is off to an awfully rough start.
On the date of publication, Vince Martin did not have (either directly or indirectly) any positions in the securities mentioned in this article.
