The success of Tesla (NASDAQ:TSLA) has broken through the gate to the internal combustion engine (ICE) castle. Now there are hundreds of electric vehicle (EV) manufacturers itching to charge into the battle. Nio (NYSE:NIO) is doing great work and has a substantial profit and loss (P&L) statement, but many others are on shaky ground. Case in point the debacle behind Nikola’s (NASDAQ:NKLA) demo truck and canceled orders. And on that note, in comes Fisker (NYSE:FSR). This is its second bite at the apple, and the interest in FSR stock tells me investors are more serious about it now.
Years ago, I saw an eye-catching car while driving my son around to look at Christmas lights. I chased it down to see what it was.
It was my first time learning about the Fisker Karma.
The car was sharp looking and had sleek lines and no tailpipes. That effort failed, but back then the EV onslaught hadn’t yet begun and ICE still rained supreme. This time it could be different for Fisker because of the wave of ESG thinking and investing. By all indications, the world wants to eventually switch away from fossil fuel vehicles. This process will take decades because the yearly production ratio is still roughly 85 million ICE to 3 million EVs. But therein lies the opportunity for the whole sector.
The upside can be huge. How much of this will can Fisker take is the question we ponder today.
Maybe This Time It’s Different
Normally this is where I say, I’d like to bet on a proven winner. In this case it’s the opposite because buying FSR stock for the long term is betting on a prior loser. I don’t mean to belittle the effort but that’s what the scoreboard shows to-date.
Investors who want to believe in its successes are right to take that risk. The delivery of their line of Ocean vehicles stretches to 2022, but people are already lined up to buy it. You too can reserve yours with a few clicks of the mouse. It’s too early to know the final outcome.
Using caution is important because this is the definition of speculative. There is nothing concrete yet, so the stock price is entirely built on hope for the future.
The optimist in me wants to assume that Fisker has learned how to avoid his prior pitfalls. It may have also learned from watching what other EV makers have been doing of late. But this is a case of show me, don’t tell me you’ve done it.
I don’t usually pay attention to what analysts think, but I don’t mind doing so on new issues. Goldman Sachs is apprehensive FSR stock with a “neutral” rating and a $15 price target (P/T). On the other end of the scale Citigroup has a “buy” rating and a P/T of $26. Currently it is just above the low mark, so it’s a headline risk from here. Therefore, the onus is on Fisker management to give them something to celebrate.
FSR Stock Has a Tailwind from the EV Wave
Long term, the future of EVs has never been better. Hence, the hundreds of newcomers to the field. However just like what happened during the comeuppance of the ICE, most EV makers won’t make it. I will guesstimate that about a tenth of them will have a decent chance at rosy futures. The rest will either fail or serve niche markets.
While the final outcome is hard to pinpoint now, short term, it’s easier to comment on the potential targets. The charts have clues that tell us exactly where the important lines lie. The price action here resembles that of many other EV companies, like Hyliion (NYSE:HYLN). The investors have developed the habit of going hog wild on it one moment, then ice cold the next. FSR is now almost exactly in the middle of the range that it started last July.
The bulls and bears are at a stalemate. The showdown will end if the buyers can take out $16.50 then $17.60. This will bring about a rally towards $20 per share.
The sellers will need to break below $14.30, because it has served as support for December 10th. This level has also been pivotal since July 17th of 2020 so it will matter a lot. Losing it would cause serious technical damage.
Sometimes using options makes for an excellent way to be long a speculative stock. Instead of buying Fisker shares now and risking $15 without any room for error, I would prefer to sell puts. This only works for those who are ready, willing and able to own the shares.
For example an investor can sell the Dec $10 FSR put and collect $2 for it. If the price stays above $10 then they profited the equivalent of a 13% rally in FSR stock without owning it. Otherwise they earn $200 for every 100 shares they want to buy. Worst-case scenario is if FSR falls below $10, then their breakeven point is $8 per share. In such a predicament, those who bought the stock today would already have lost -33%. The option seller would be just starting out long.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Nicolas Chahine is the managing director of SellSpreads.com.
