The President Joe Biden administration is supporting green energy and sustainable infrastructure, and is set to be friendly to electric vehicle manufacturers such as Fisker (NYSE:FSR). But is this enough to consider FSR stock now? Especially as Fisker went public in October 2020?
Fisker went public in October 2020 in a SPAC (special purpose acquisition company) reverse merger with Spartan Energy Acquisition getting more than $1 billion in cash to develop its all-electric vehicles in the future.
The company named Fisker Inc. has a history, though.
A Look Back at Fisker
Almost a decade ago, Fisker Automotive first existed. According to Wikipedia “Fisker Automotive was an American company known for producing the Fisker Karma, which was one of the world’s first production luxury plug-in hybrid electric vehicles. Production of the Fisker Karma was suspended in November 2012 due to bankruptcy of its battery supplier A123 Systems with about 2,450 Karmas built since 2011 and over 2,000 cars sold worldwide.”
What relates Fisker Automotive to the current Fisker Inc.? Henrik Fisker, the founder of Fisker Automotive and also the co-founder of Fisker Inc. He is the chairman and chief executive officer of FSR.
As the quote said, Fisker Automotive produced and sold Fisker Karma but soon went into financial distress. Problems such as low-quality batteries, production delays, and the bankruptcy of its main battery supplier turned the promising venture into a business failure. Fisker Automotive had a structured bankruptcy, and a Chinese company — Wanxiang Group — bought Fisker Automotive’s assets.
What remained of that company — the Fisker trademark and the Fisker logo — now have new life with Fisker Inc.
I have written before that management is among the most important factors for a successful publicly traded stock. I am not saying that Fisker Inc. may have the same destiny as its predecessor. But it is the first big red flag to me knowing a bankruptcy has happened in the past.
Notably, the Energy Department (DOE) mentioned back in 2011 it would lose $139 million on its loan to electric carmaker Fisker Automotive.
Something went wrong back then about the business prospects of the firm. Does Fisker in its reborn state now have all it takes to become a success?
Fisker: A Bold Vision and Statement, Is it Enough?
Fisker plans to produce its all-electric vehicle named the Ocean with deliveries in 2022. The company mentions that the car is zero-emission and all electric, along with using recycled materials in its fabrication. It goes further stating “Fisker’s mission is to create the world’s most emotional and sustainable vehicles, helping to build a clean future for all.” These statements are well-written and marketing-oriented but what catalyst will make the Ocean a huge success?
Fisker has come into a definitive agreement with Magna International (NYSE:MGA) a Canadian manufacturer, and designer of various equipment and parts for vehicles and light trucks worldwide, to produce the Ocean SUV. This agreement is significant because it shows the expertise of Magna in producing car parts and equipment already for many years.
And credibility is something that Fisker needs to invest in heavily now.
Fisker Business Model
The starting price of the Ocean SUV is expected to be about $37,499, which is an attractive price for electric vehicles. The driving range of this entry-level model is reported to be up to 300 miles, which is not bad at all. And it will feature the technology of course.
Fisker Intelligent Pilot will offer both driver assistance features and autonomous driving and updates over-the-air.
Why buy a car if you can just lease it? Fisker will offer a lease-like subscription plan that costs $379 per month and allows an impressive 30,000 miles per year. This lease payment is very attractive because it includes maintenance and service. It also requires an up-front payment of $2,999, a san initiation and activation fee. The company is currently accepting $250 deposits to make a reservation, which is refundable.
This lease plan idea is not bad. On the contrary, it can provide a significant cash injection to Fisker.
But what is a big concern to me is that Fisker has a very loose policy about its lease plan. It states “You are free to take the Ocean where you please and return it when you please. Zero penalties. No, that’s not a typo. Zero. Zip. Zilch.”
When you lease a car, you are not the owner of it, you just rent it. You can decide to buy it or not at the end of the lease agreement. If Fisker gets a lot of customers who test the car for some time and return it with no penalty, then there is a great deal of business and financial risk for Fisker.
It could have a large fleet of used cars that will be depreciated in its balance sheet. And that doesn’t sound great from a financial perspective to me.
FSR Stock Valuation
Is FSR stock another hot stock to buy? To me, it is not. The reason is too simple. We do not yet have a history of key financial metrics, revenue, gross margin, cash flows. I would advise investors to wait and see important data from the future earnings reports before deciding to buy the stock.
If Fisker is now a company to stay, time will only tell that. Any financial projections are too risky now.
On the date of publication, Stavros Georgiadis, CFA, did not have (either directly or indirectly) any positions in the securities mentioned in this article.
